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June 16, 2009

Bankruptcy is a Fresh Start

By: Kevin J. Carlin, Esq.

Consumers are drowning in a sea of debt. This year General Motors and many other companies, both large and small, sheltered themselves with the protections of the federal bankruptcy laws to preserve their assets and to allow them a chance to move forward. The news flash is this: those protections are not just for corporations in this country. The consumer is also protected in a declaration of bankruptcy. You can enjoy the same shelter that G.M. does by the filing of a petition, and by compliance with the laws and procedures that govern the Bankruptcy Court. Since a large and happy middle class is one of the keys to democracy, it is undeniable that bankruptcy proceedings are critical to the preservation of our country and its democratic ideals.

Bankruptcy for the consumer has dual purposes. Courts state that bankruptcy is intended to “relieve the honest debtor from the weight of oppressive indebtedness and to permit him to start afresh.” In re Renshaw, 222 F.3d 82 (2d Cir. 2000) (quoting the United States Supreme Court). But the Bankruptcy statutes balance an individual’s need for a new start with fairness in the payment of creditors—without a preference for the payment of one over the other.

In 2005, the Congress passed a law commonly known as the Bankruptcy Abuse Prevention and Consumer Protection Act (“BAPCPA”). The law was requested and directed by the Banking Lobby seeking to prevent consumers from abusively filing bankruptcy, easily avoiding their debts. But the Consumer Lobby also fought to protect those of us who owe indebtedness, and need to discharge our good faith debts, ensuring that critical rights to a fresh start were protected for the people—particularly those who are not engaged in any abuse of the bankruptcy process.

Bankruptcy is a necessity in the economic infrastructure of this country. It is sometimes needed to preserve our assets, save our corporate employees and to protect our suffering families. In view of the present economic stressors in the United States, characterized by declining property values, tight credit, the mortgage crisis and job loss, every American is affected in a direct or indirect way by the present state of the economy. The Consumer Lobby’s success in lobbying for consumer protection forms part of the glue that keeps this country together, guaranteeing the survival of a large and happy middle class.

What can a bankruptcy do for you? Every person’s consideration of bankruptcy is fact sensitive and specific to your circumstances. All legal issues should be reviewed by you with your bankruptcy counsel as they can be complex and subject to legal analysis. However, the incomplete list below can be used as a guide:

• Halt a Sheriff’s Sale

• Stop foreclosure or eviction

• Eliminate a 2nd and 3rd mortgage

• Save your auto or stop repossession

• Strip away or reduce credit card debt

• Avoid wage garnishment

• Eliminate Motor Vehicle Commission surcharges

• Stop seizure of your bank accounts

• Cease creditor harassment and stop utility shutoffs

• Erase and/or settle your personal debt

• Modify personal loans

• Debt consolidation

Bankruptcy is indisputably bad for your credit rating, but if your rating is already low, declaring bankruptcy helps you to rebuild your credit quickly—and the road to rebuilding starts immediately. Rebuilding credit depends on how aggressively you try to get back on track, but you can probably figure less than 1-3 years after bankruptcy for a loan with terms close to those available to someone who never filed bankruptcy. After the complete and absolute discharge of your debts, the lesser amount of outstanding credit along with a newfound ability to meet payments, makes you an attractive candidate for a loan. A lawyer’s best advice is to do all that you can to prove your new creditworthiness after bankruptcy by making timely payments in the proper amounts.

The bankruptcy laws and relevant cases disclose a common theme and objective underlying the reorganization provisions: avoidance of the consequences of economic dismemberment and liquidation, and the preservation of an economic life in a way that is fair to the rights and interests of all affected. The bankruptcy law sets a fine line between fulfillment and perversion of these objectives. The fine line is patrolled by the Bankruptcy Courts, our courts of equity, armed with the doctrine of ‘good faith’. A good faith standard applies to the declaration of bankruptcy. Good faith furthers the balancing process between the interests of debtors and creditors and prevents abuse of the bankruptcy process by debtors whose motive is to delay creditors without benefitting them in any way. The finality of the process allows a reasonably indebted life to continue in these difficult economic times.

Kevin Carlin was admitted to the New Jersey bar in 1985 and practices law in Hamilton, New Jersey.