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David C. Hoskins, Attorney at Law


A series of articles about the basics of bankruptcy. What is bankruptcy? How does bankruptcy work? What is the bankruptcy process. Etc.

What is Bankruptcy?

Posted by DaveHoskins on May 1, 2014

Banff_Trip_07_045.pngWhat is bankruptcy? Bankruptcy is an opportunity for the honest but unfortunate debtor to get a fresh start. As a society, we have decided to give help to people who are down on their luck.  We allow them to get a court order relieving them from debt collection, eliminating their debt, and allowing them to start over without the burden of creditors harassing, garnishing, and threatening to sell their homes or repossess their cars.

Prior to the first bankruptcy laws in this country, people who could not pay their debts could be arrested, jailed, pilloried, and subjected to loss of all property, or just about anything creditors could think of to recover money or just to punish the debtor. In those times, creditors raced to get to the debtor and his assets; the first one to capture the debtor and his assets was the first to recover what little the debtor had left. And, from colony to colony, state to state, the bankruptcy laws were different. A debtor could seek advantage by escaping across a border to a more forgiving state, perhaps where arrest and imprisonment were prohibited. A creditor could also seek advantage by kidnapping the debtor in one state and taking him into a neighboring state, where laws were more favorable to the creditor, perhaps where a debtor could be imprisoned indefinitely. What chaos!

The U.S. Constitution, when adopted as law in 1789, included the following: "Article 1. Legislative Department . . . § 8. Powers of Congress . . . To establish . . . uniform Laws on the subject of bankruptcies throughout the United States . . ." No longer could each state establish its own bankruptcy laws. The idea was to centralize bankruptcy laws and eliminate the patchwork of bankruptcy laws that existed prior to that time. (For more history of bankruptcy laws, see The History of the Bankruptcy Laws in the United States, by Charles Jordan Tabb, 3 Am. Bankr. Inst. L. Rev. 5 1995.

In the last 30 years, the opportunity for filing bankruptcy has become more available. The option of filing for bankruptcy has become more acceptable in society. But it's the same bargain: A debtor's life is opened to inspection and, if the creditors' rights are satisfied, a fresh start will be granted.

Next: What does bankruptcy do? What's the bankruptcy process? How often may you file bankruptcy?



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The statements of law made here are general statements of law, effective at the time published and subject to change from time to time. These statements are not intended, nor may they be construed, to be applicable to any particular set of factual circumstances nor to any particular person. I recommend that all readers seek the assistance and advice of an experienced bankruptcy lawyer for guidance in their particular circumstances.

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