What You Need to Know About Filing for Bankruptcy

Have you ever thought about the possibility of filing for bankruptcy? You know it happens all the time. Today, many people find themselves drowning in debt and unable to keep up with their obligations. They find themselves in a desperate situation and bankruptcy offers a pathway back to stability. While it’s better to take responsibility and pay down your debts, there are times when this simply isn’t an option and bankruptcy is the only way.

If you haven’t done it yourself, I am betting you probably know of someone or some business that has declared bankruptcy. In fact, it’s become so common that even a presidential candidate can have had multiple business bankruptcies and still garner respect and admiration as a responsible and savvy money manager (as incredible as that might seem). Today it’s become the way to “liquidate debt” or “reorganize debt” in order to manage financial problems. It even may turn a very negative situation into a positive one.

History of Bankruptcy

In order to understand bankruptcy today, we need to look at a bit of history. I know I always say it.. we examine the past to learn about the present and future, but damn it’s the truth!

Bankruptcy and its misfortunes have been around for centuries. In fact, “debtors prisons” were known throughout Europe as late as the early 20th century. It was the place where indigent people were sent when they just weren’t able to pay their bills. Historically, this was due to some sort of disastrous act such as wars, disease and just plain bad luck. Sometimes it was the death of the breadwinner which many times was simply caused by argument or some kind of prejudice. No matter the reason, the result was to send some people off to a “workhouse” or “poorhouse” so they could literally work off their debt and the cost of their incarceration.

When the Revolutionary War ended in 1789 and our federal government was created, we modeled our debtors laws on Great Britain’s. That lead to many honorable men serving some time in debtors prison due to debt accumulated and ignored from the war itself. But after the War of 1812, things were getting so out of hand that a feeling of sympathy and understanding developed about forgiving debts. In 1833, after many years of debating, the First Federal Bankruptcy Law was passed in the United States. However, it wasn’t until the 1970’s that there were major changes in these laws and a Supreme Court ruling in 1970 and another in 1983 gave us the type of bankruptcy laws that we use for the most part today (Williams v. Illinois 1970 and Bearden v. Georgia 1983). In 2005, a new law established a means test for Chapter 7 bankruptcy so that high income filers would be required to pay back some of their debts under Chapter 13, but more about that to come.

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Author: Gary Weiner