What is Bankruptcy? The word bankrupt originated from the latin words banca rupta which translates to “broken bench” based on the old practice of money lenders breaking the table they used when they were no longer in business as a symbolic gesture.
The concept of bankruptcy can trace itself back to the Bible as well, Deuteronomy 15:1-2 discusses debt forgiveness periods, asserting, “At the end of every seven years you must cancel debts. This is how it is to be done: Every creditor shall cancel the loan he has made to his fellow Israelite. He shall not require payment from his fellow Israelite or brother, because the Lord’s time for canceling debts has been proclaimed.”
Various cultures throughout human history have approached debts with differing perspectives. In ancient Greece, the notion of debt forgiveness was unknown. If a man owed a debt that he was unable to pay, his entire family ¬including any servants he may own¬ became debt slaves. Fortunately, here in the United States we don’t have the formality of debt slaves or debtor’s prison and individuals and businesses can seek assistance with their debts through the laws afforded to them by the U.S. Bankruptcy Code.
Bankruptcy is a process wherein a consumer or business can eliminate or restructure some or all of their debts under the protection of the Federal Bankruptcy Court. There are four main types of bankruptcy, Chapter 7, Chapter 11, Chapter 12 and Chapter 13. They are called Chapters based on their part in the Federal Bankruptcy Code (link). An overwhelming majority of individual bankruptcies fall into the Chapter 7 or Chapter 13 bankruptcy. Essentially it can be broken down into either liquidation and discharge of debt (Chapter 7) or a Reorganization of debt based on ability to pay (Chapter 13).
Term “debtor” is used to refer to the client filing bankruptcy or someone owing money. The term “creditor” is used to refer to anyone that a debtor may owe money to. There are different types of creditors. There are secured creditors, those who have a security interest in some property of the debtor, such as a mortgage or a vehicle (car loans and mortgage loans) and there are unsecured creditors, entities that are owed money but do not have any collateral, such as most credit card debts or medical debts.
The term “exempt” property or “exemptions” is used to refer to certain property the debtor is allowed to keep in a bankruptcy filing free from interference from creditors (unless there is a specific secured interest in the property) and property that remains the debtor’s after the bankruptcy.
Is Bankruptcy right for you? Maybe, call Royer Law to determine how bankruptcy may be able to help you.