To many, bankruptcy is like a cuss word- only to be uttered by the unscrupulous and irresponsible.  Our society attempts to surreptitiously teach us that bankruptcy is the last option of a desperate, helpless person.  In reality, this is not the case. In fact, all we really need to do is look at the term bankruptcy itself, as applied in a legal setting: bankruptcy protection.  That’s right- bankruptcy is meant to protect a person from financial collapse.  Let’s face it- sometimes, even the best made plans can fail, and even the most financially responsible people can suffer from bad luck…or worse.  Whatever the cause, most people and businesses seek bankruptcy protection when it has already become their only option.  However, a better way to approach this might be to educate ourselves on the matter, so that at the very least we have an understanding of a major contributing factor to the financial chaos that is brewing throughout the country.   In simple terms, a bankruptcy is a way to begin anew financially.  This can be accomplished by discharging or restructuring debt with the legal blessing of the federal government.  A person or business must present a case before a bankruptcy court that substantiates severe financial distress.  This can be as the result of a divorce, a failed business, exorbitant medical expenses, or many other financial stressors.  Some of the earliest proceedings and requirements in a bankruptcy case are for the debtor to attend credit counseling and bankruptcy education.  However, to expect a person or business to be fully versed in the many complexities and inconsistent regulations that permeate bankruptcy rules is not realistic.  In fact, under no circumstances should a person attempt to litigate their own bankruptcy.  Filing for bankruptcy protection is a serious undertaking with potentially disastrous results if not done correctly.  For this reason, seeking the advice of a highly qualified bankruptcy attorney is absolutely imperative.     In general, there are two types of bankruptcy for individuals: Chapter 7, and Chapter 13.  Broadly speaking, a Chapter 7 bankruptcy seeks to liquidate non-exempt assets, if any, (usually you are allowed to keep your home) to repay creditors a token amount.  The remaining debts are discharged and released forever through the bankruptcy.   Some debts, such as student loans or child support, can never be included in a bankruptcy, and with good reason.  Alternatively, a Chapter 13 bankruptcy is for people who have a steady income and want to pay their debts, but simply cannot pay them all.  Through the Chapter 13 proceedings, an individual can be allowed to restructure their debts to make it easier for them to pay.  This often involves creditors accepting terms that are favorable for the debtor, such as low or no interest, reduction of amounts owed, and special payment amounts.        According to AACER, a bankruptcy information management company, there were 37,868 bankruptcies filed in the State of New York in 2007.  73% of these were Chapter 7.  However, bankruptcy is a peculiar phenomenon.  Some communities, like Long Island, actually saw a decline in bankruptcies during 2007, while foreclosures there increased greatly.  This is a testament to the fact that bankruptcy is a tool that is originated under and applied for specific unique individual circumstances; it cannot easily be trended or predicted.  People from all walks of life have gone bankrupt: celebrities, politicians, the extremely poor, the extremely wealthy, accountants, grandmothers, teachers- it can happen to anyone.  Education is essential to not only understand bankruptcy, but to prevent it overall.       In summary, bankruptcy needs to be viewed in a different light.  Within a capitalist economy, a bankruptcy should be considered healthy when compared to what the alternative would normally be: to drown in debt.  When people are overburdened with debt, they are forced to stop spending-choking the economy rather than fueling it.  Furthermore, financial obligations become alarmingly delinquent, driving down the value of common stock of financial institutions, and giving rise to predatory lending habits.  What makes more sense for a person in this situation: to let them destroy themselves, or to wipe the slate clean and allow them a chance to become contributing members of society again?  Given these choices, bankruptcy can often make the best of a bad financial situation.  

This entry was posted on Wednesday, October 29th, 2008 at 7:19 am and is filed under Long Island Bankruptcy. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.