Bankruptcy Can Relieve An Individual Of All Debt Except Taxes
In ancient times in Rome, it was dangerous to find yourself indebted to someone. You could be sold into slavery to cover your debt. In the worst-case scenario, you could be chopped into pieces to make an example for others who might be on the verge of going into debt. Bankruptcy was not an option, in fact, the concept didn’t exist.
Times have certainly evolved since then. Now it is used as a solution for those who are deeply in debt. In cases of an individual being incapable of covering his or her debts, an attorney can file a bankruptcy petition with the courts. Assets are liquidated, with the exception of one home and one car, to pay off as much of the debt as possible. This is a technicality in a Chapter 7 case, as usually all debt is forgiven, with the exception of taxes.
The United States has the most progressive system in the world as far as allowing a bankruptcy to clear all debt and helping the debtor to start with a clean slate. Another country that is progressive is United Kingdom. It has a system that allows relief of debt in this way.
In fact, it originated in England in 1542 as well as it can be documented. It was originally intended to help creditors. When King Henry VIII was on the throne, law gave a creditor the right to take the assets of a trader when unable to cover his debts. The family of that debtor was forced to pay. If they did not or could not, the debtor went to prison. Then the family had to come up with money to pay off the debts to have him released.
By the eighteenth century, it was common practice for debtors to be released and moved to the United States, which were then the colonies under English rule. In 1789, when the United States Constitution was adopted, it included giving congress the power to establish laws relating to how bankruptcies were dealt with in the United States. This is Federal law, handled in Federal courts.
In most countries bankruptcy fraud is a punishable crime. In the United States it’s a Federal crime. Multiple filings are not considered criminal, although they are discouraged. An individual filing multiple times could be investigated for possible fraudulent behavior. The debtor is required to declare all assets. Even a completed case can be investigated if assets were hidden. It would be a judge deciding whether or not to prosecute for fraud in such a case. The serious charge of perjury would be considered.
United States law lists six types. Chapter 7 is basic liquidation. This is the simplest form of bankruptcy in addition to being the quickest. Chapter 9 is municipal bankruptcy, used to resolve municipal debts. Chapter 11 is used by businesses to reorganize and continue to do business as they repay the debts. Chapter 12 provides rehabilitation for fishermen and family farmers.
Chapter 13 is rehabilitative, allowing individuals to use their regular source of income to slowly repay all their debts. This is known as wage earner type. Chapter 15 applies to International cases, providing a way for foreign debtors to clear their debts.
Bankruptcy is a way for financially troubled debtors to be free of the debts or to pay them off in the case of a Chapter 13, and start a new financial future. It is hoped they have learned how to manage their money and avoid acquiring new debt. It is further hoped they will not become dependent on bankruptcy as a repeat option.