What is Bankruptcy?

Bankruptcy has been around for thousands of years. It is discussed in the Old Testament, (see Deuteronomy 15, and Leviticus 25), and has existed in one form or another throughout all of recorded history. The basic idea goes like this: When honest people get into trouble, and if there is no real chance that they can pay off their debts on time, it is better to let them wipe out those debts (or to give them a realistic chance of paying them) than it is to let creditors take away all of their belonging and hound them forever. It is not only better for the debtors; it is also better for the creditors.

Our present Bankruptcy system is based on a set of federal laws, which deal with any debt situation that you can imagine. The Bankruptcy laws actually contain the words "breathing room" and "fresh start," as ways of describing what the laws are supposed to do for you. The minute a bankruptcy case is filed, a court order is automatically issued which stops all of your creditors from bothering you. That’s the "breathing room." From that point on, they have to go through Bankruptcy Court to do anything at all. They can not do anything that might even look like they are trying to take money or property away from you. For a list of examples, see the FAQ on What kinds of collection actions does bankruptcy stop?

After the bankruptcy case completes successfully, most or all of your debts have been dealt with. From that point on, you only need to look forward. That’s the "fresh start."