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What is Bankruptcy?

 

Bankruptcy has been around for thousands of years. The concept is discussed in the Old Testament, sometimes referred to as "The Lord's Release" or "The Seven Year Release" (see Deuteronomy 15, and Leviticus 25), and has existed in one form or another throughout most of recorded history. The basic idea goes like this: When honest people get into financial trouble, and if there is no real chance that they can pay off their debts, it is better for society as a whole to eliminate those debts than it is to let creditors take away all of their belonging and hound them forever. The U.S. Supreme Court has reaffirmed that notion by saying that the "honest but unfortunate debtor" should be allowed "breathing room" and "a fresh start."

Our present Bankruptcy system is based on a set of federal laws, which deal with almost any debt situation that you can imagine. 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, most creditors 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 can start looking forward, rather than back over your shoulder. That’s the "fresh start."