Working With a Bankruptcy Attorney

The word bankruptcy derives from the composite Latin words bancus and ruptus, specifically meaning a broken (ruptus) bench (bancus). In ancient Roman times, bankers put up benches in the market place from whence they would distribute loans and effectuate financial transactions. If a banker became insolvent, his bench was shattered as a sign that he was no longer able to secure debts.

There were many different ancient approaches to bankruptcy. Both Ancient Israel and Greece had codes insolvency and debt forgiveness, forgiveness following 5 years in Greece and 7 years in Israel. During that time, creditors might have to sell themselves as slaves to pay the debt. In actuality there were exceptions to the rule in both countries, and being a debt slave was not so easy, even if he was more than just an ordinary slaves.

In other countries, the treatment of debtors was even worse. In the rule book of Gengus Khan, a man who fell into debt three times was sentenced to death. From Russia come rumors of Cossaks who would beat up and on occasion beat to death peasants who couldn't pay their debts.

Today, modern civilization offers an alternative to historical bankruptcy. People who become insolvent have the opportunity to pursue debt restructuring, bankruptcy education to help debtors rearrange their debts and continue their financial life. In the United States, the power to carry out laws of bankruptcy is found in Article 1, Section 8, Clause 4, and the Bankruptcy Code, is located at Title 11 of the United States Code.

Much of the focus of American debt law is 1) to enable debtors to recover as much as possible and 2) to reeducate the debtor so that he won't go into debt again after he comes out of bankruptcy. The education process in bankruptcy is at least three fold.

The first part of the education comes from the debtors interaction with the bankruptcy lawyer. A bankrupcty attorney spends his whole legal life in the court systems and appears before Judges who interpret and in many cases create current thought about bankruptcy. During initial meetings with the client, the bankruptcy lawyer will help the client to describe the financial mess he has entered into, in an orderly fashion. His morass of debts will be reworded into a detailed description of assets,debts, including liens on property and back taxes, current monthly income, and expenses. The client will be asked to summarize how he came to be in debt.

If the debtor decides to pursue the process further, he must take a bankruptcy counseling course given by licensed professionals. During this course he will be taught techniques of debt management, and he will decide if he can get himself out of debt with the help of these options, and thus avoid bankruptcy, or if he feels the need to continue with bankruptcy .

If he decides to proceed with bankruptcy, he will have to take a course on bankrupcty management. This course will provide him the information he needs to proceed with the bankruptcy and to stay out of debt once he returns from bankruptcy.

Over the months of his bankruptcy, the bankruptcy lawyer, the courts, the debtor, and the creditor will keep in touch in and out of court, and in keeping with the bankruptcy laws, the debts will be reorganized and settled to the greatest extent possible, and a certain percentage will be forgiven. When the debtor comes out of bankruptcy, he will be allowed to continue his business, with whatever credit constraints the court concludes are appropriate

Chapter 7 and Chapter 13 Bankruptcy

The two most common forms of bankruptcy are Chapter 7 and Chapter 13. Chapter 7, known as "straight bankruptcy," arranges for complete liquidation of debt. In return the creditor has to surrender all his non-exempt assets via liquidation and ensuing distribution to the creditors. Chapter 13 bankruptcy also known as "reorganization," allows the debtor to reorganize his debt structure over 3-5 years. To be eligible for Chapter 13, the creditor must prove to the court that he has sufficient income to repay his debts. If approved he must submit a detailed payment plan.

Chapter 7 bankruptcy is most often appropriate for debtors who have little property, other than their household furniture and house necessities, and who have little money left over at the end of the month, or perhaps have trouble meeting basic expenses.

The advantages of Chapter 7 bankruptcy are that it provides for total discharge of debts and the process moves rapidly. Once the debtor has filed bankruptcy, his creditors cannot collect the debt from him directly.
To qualify to file Chapter 7, a debtor must pass the means test, which determines is his total income is below a certain specified amount

Chapter 13 bankruptcy is appropriate for clients who will work out a 3-5 year repayment plan  (longer in the future) and will cooperate with a credit counselor to pay their debts.  Monthly payments are made through the "debt trustee," who apportions the money to creditors according to a pre-arranged dispersal plan. Payments in this form of bankruptcy are made from disposable income that is left over after basic expenses are met, food clothing, shelter, etc. To be eligible for Chapter 13 bankruptcy, a debtor must have unsecured debts below $360,475 and secured debts are less than $1,081,400.

In both Chapter 7 and Chapter 13, the debtor must obtain mandatory credit counseling within 180 prior to filing bankruptcy with the courts. The counseling is designed to give debtors a chance to solve their financial problems themselves and with the help of the course counselors, without the need to go to court. In addition, this course, as well as additional courses that people in bankruptcy must take, aim to teach people in debt how to manage their finances so they won't go into debt again after they come out of bankruptcy.