I recently met with a potential client who was struggling with meeting their financial obligations, and after analyzing their financial situation and needs, I recommended that they should file bankruptcy. After all the analysis we discussed, the person I was speaking with said, “I know what you are recommending, but I don’t feel like I really understand what bankruptcy is.” This particular individual had the courage to ask the question that many probably have but feel to sheepish to ask. And I think it is a good question. We have all heard of bankruptcy, but what is it, really? To that end, I am going to attempt to explain bankruptcy in its most basic form in a way that is clear and spoken in plain English. Most bankruptcy filings are voluntary, and for that reason I am not attempting to explain an involuntary bankruptcy.Bankruptcy is a legal proceeding that, upon filing, invokes certain legal protections from creditors for personal debts (i.e. credit cards, mortgages, personal loans, judgments, landlords, car loans, etc.). The protections that are afforded to a debtor (the person filing bankruptcy) are spelled out in the bankruptcy code. And, while there are many benefits to filing bankruptcy which can be fully explained by a bankruptcy lawyer, the most notable benefits are the automatic stay, which stops nearly any kind of debt collection in its tracks, and discharge, which is what makes most types of debts go away after you file bankruptcy. The very existence of the Bankruptcy Code is authorized by the United States Constitution and is a creation of federal law. As such, every bankruptcy case is filed in federal court. Specifically, bankruptcy cases are filed in the federal bankruptcy court, which is a specialized court, with judges, clerks, and court officers who are specifically trained and experienced in handling bankruptcy matters. To boil down bankruptcy into a simple (and admittedly overly simplistic) explanation, in most instances, bankruptcy is like a legal reset button. If you need to hit the reset button in your own life, contact our office today for a free, no obligation, and totally confidential consultation. by Adam Mack, JD
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