bankruptcy during litigation
It’s a fairly common idea that people deserve a second chance. The consumer bankruptcy system provides such a second chance to individuals who, for any number of reasons, have become overwhelmed by the burden of debt. In fact, the specific purpose of bankruptcy is to provide people with a fresh financial start by eliminating the legal obligation to repay past debts by allowing them to pay what they can afford while generally permitting them to keep most, if not all of their personal property.
The bankruptcy discharge removes the legal obligation to repay pre-bankruptcy debts. Bankruptcy exemptions allow people to keep most of their property by outlining specific property that is protected by law from the claims of creditors.
The idea of allowing for a second chance, financially speaking, under federal law is nearly as old as the nation itself. The Bankruptcy Act of 1800 provided debtors with discharge of their debts with exemptions for certain property. In 1934, the United States Supreme Court stated that the Bankruptcy Act existed to “relieve the honest debtor from the weight of oppressive indebtedness and permit him to start afresh…” with “a new opportunity in life and a clear field for future effort.”
This opportunity to “start afresh” has remained a consistent theme throughout the history of consumer bankruptcy in the United States. Despite this long history, many people believe that the availability of bankruptcy relief is severely limited today under “the new bankruptcy law.”. This misconception is most likely related to the passage of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.
This act, hardly new anymore, is largely the result of a massive effort on the part of banking industry lobbyists and light on “Consumer Protection.” Under the contention that American consumers were “gaming” their creditors and abusing bankruptcy relief to avoid debts that they could afford to pay, BAPCPA added certain abuse prevention provisions to the Bankruptcy Code. These provisions include means-testing, supposedly intended to ensure that the availability of bankruptcy relief was need-based.
Although consumer bankruptcy became more complex and more costly to consumers, the long-intended relief is still available. In fact, although bankruptcy filings declined immediately after the passage of BAPCPA, the number of bankruptcy today filings compare to pre-BAPCPA numbers. In this author’s opinion, this is demonstrative that abuse of consumer bankruptcy protection was never as widespread as the banking industry would have us believe.
Debt relief under the consumer bankruptcy system remains available and continues to provide the relief that has been intended since the beginning of the 19th century.
John Kunes is a Chicago bankruptcy attorney. He strives to be the bankruptcy lawyer Chicago can turn to for help with debt relief.
