Our Bankruptcy Attorney Blog

The United States Bankruptcy Code (U.S.C. Title 11) is broken down into a series of distinct chapters, many of which cover different types of bankruptcy allowed in the United States. Specifically there are six different types of bankruptcy allowed, but that covered under Chapter 7 – and thus, Chapter 7 bankruptcy – is by far the most common and the one that most people think of when they think of bankruptcy in general. Chapter 7 is also the simplest form of bankruptcy, though it can still be quite complicated for people with assets and other property which may or may not be exempt under Chapter 7.

The core purpose of bankruptcy in general – including Chapter 7 bankruptcy – was to provide debtors with a degree of protection for a while in order to help them avoid utter destitution. However, since bankruptcy has a strongly negative social connotation in the United States, many people fail to file for Chapter 7 bankruptcy until it is already too late. This, needless to say, more or less defeats the purpose.

The basic idea is that all of the debtor’s property – except the various types of property that are specifically exempted, usually property needed to maintain life and employment – is liquidated and the funds are used to pay creditors. Then, the remaining debt is discharged, or essentially erased by the court. Plainly it is all considerably more complex than this, but this is the general idea behind a Chapter 7 bankruptcy. The nuances, however, can be extremely complicated and though a person can file for Chapter 7 bankruptcy by themselves, it is generally advisable to have a bankruptcy attorney if the debtor has any property to lose.

All bankruptcy in the United States is essentially a bureaucratic affair that involves making a number of separate filings with the court in the proper sequence and including the appropriate information. Although this may sound simple, in reality it can be very complicated and the penalty for accidently omitting something, filling out the form incorrectly, or failing to provide everything in the proper sequence can be financially disastrous.  Bankruptcy law represents a specialized niche within the legal profession and even other attorneys may not have the appropriate experience to file a bankruptcy case. Of course, if the debtor has absolutely nothing to lose – as is frequently the case – filing “pro se” may be a viable option.

In 2005 the government passed the Bankruptcy Abuse Prevention and Consumer Protection Act (or BAPCPA), which was written by the institutional lending industry and was specifically designed to make bankruptcy more complicated, more expensive, more time consuming and to reduce the potential benefits of filing for Chapter 7 bankruptcy. However, after the collapse of the real estate market and the subsequent credit crunch and recession, the number of bankruptcies skyrocketed despite the BAPCPA. The BAPCPA has radically altered what is required for Chapter 7 bankruptcy and what the courts are allowed to do and this is another reason why it may be very helpful to have a qualified attorney available. All said, this law has made bankruptcy much more difficult and significantly undermined its utility.

Tags: banktruptcy

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