From the earliest of times, lawmakers understood that sometimes bad things happen to good people and those people might need relief from their creditors.
In the Old Testament book of Deuteronomy, Moses wrote “At the end of every seventh year you must cancel the debts of everyone who owes you money” (see Deuteronomy 15:1). Eventually, the idea of allowing people to walk away from some or all of the debts they owe became known as “bankruptcy”. Here in America, the Founding Fathers also recognized this need and wrote at the very beginning of the U.S. Constitution that Congress shall have the power to establish “uniform laws on the subject of Bankruptcy throughout the United States”. Article I, Section 8.
Today, we have several types of bankruptcy in America, all named after different chapters of the Bankruptcy Code. Many people locally are familiar with Chapter 9 bankruptcy (reorganization of debts for cities and municipalities), as well as Chapter 11 bankruptcy like we have seen for K-Mart, Delta Airlines, General Motors and Chrysler (reorganization of debts for companies). There is also Chapter 12 bankruptcy (reorganization for family farmers). Still, the most common forms of bankruptcy in America are those available for the average person — Chapter 7 and Chapter 13. In 2013, there were over 1,000,000 Chapter 7 and Chapter 13 bankruptcy cases filed in the United States… but what is the difference between the two?
Most bankruptcy cases are Chapter 7s, also known as a “Liquidating Bankruptcy” or a true “Fresh Start”. Don’t be alarmed by the word “liquidating”, since almost everyone who files a Chapter 7 case keeps all of their belongings, jewelry, furnishings, vehicles, homes and retirement savings. In a Chapter 7 case, the client essentially says “I want to start over”. The cases average only 3 or 4 months in length, from start to finish, and there is usually just one short court hearing. Chapter 7 cases are common because they are quick and straightforward.
Chapter 13 cases, on the other hand, are known as “repayment” or “partial repayment” plans. These are bankruptcy reorganizations…think mini-versions of the large Chapter 11 cases filed by famous companies. Clients make payments for a period of 3 to 5 years, and sometimes pay creditors as little as a few pennies on every dollar owed. Chapter 13s are very helpful in a variety of situations: it solves problems for people who have fallen behind on their house or vehicle payments but still want to keep those items, and is especially helpful for people facing income tax or property tax debts, large monthly student loan payments, large monthly vehicle payments, co-signer problems, rental properties, and/or second mortgages they want to get off of their home.
But WHY bankruptcy? What does it DO?
The filing of any bankruptcy case is an extremely powerful tool for any person. As soon as your case is filed, your creditors must STOP all collection activities against you, and allow the bankruptcy process to play out. If you are being garnished…bankruptcy stops it immediately. If you are facing a foreclosure on your home or a vehicle repo… bankruptcy stops it. If creditors are calling or writing you all the time… bankruptcy stops it. If you are being sued by someone, even bill collectors… bankruptcy stops it. Many times, creditors and bill collectors will tell people “Oh, you don’t want to file a bankruptcy case”, and they will try to scare people. In reality, it is the creditors and the bill collectors who are afraid of bankruptcy because they are going to get very little of their money and because they must stop chasing, garnishing and harassing their unfortunate victims. Often, the CREDITORS are PREDATORS. But from the time any bankruptcy case is filed, all creditors must deal directly with your bankruptcy attorney. This protection gives immediate peace of mind to the client, and creates very real “breathing room” so you can get yourself back together. Incredibly, many people actually find their credit score is HIGHER a year after bankruptcy than it was before the case was filed.
In the months to follow, we will go more into detail on topics like What is a Chapter 7 case?; What is a Chapter 13 case?; Who files for bankruptcy protection? (there are some very famous names and companies); What are some myths about bankruptcy?; What should you watch out for when considering bankruptcy?; and What are some horror stories about over-aggressive bill collectors?
If you or someone you know is suffering under financial strain, it is a good idea to consult a professional. Most attorneys should give a free initial consultation, and only charge you after you definitely decided to hire them. Also, a select few attorney offices (like ours) allow their clients to pay MOST of the attorney fees during and after the bankruptcy case. This is one main reason why Frego & Associates became the largest bankruptcy firm in Michigan. Federal bankruptcy protection should be available to EVERYONE… not just rich people who can afford to pay all of their attorney fees up front!!
James Frego is the owner and managing member of Frego & Associates—The Bankruptcy Law Office, which is Michigan’s largest consumer bankruptcy law firm. It has offices in Warren, Dearborn Heights, Flint and Ann Arbor, with its practice focused primarily on helping people get the protection they need from creditors, especially through the filing of bankruptcy. To schedule a no-obligation visit with an attorney at any of our offices, please call (800) 978-4788 or visit FregoLaw.com for more information. The law is there to help you… and so are we!
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