Fresh Start From Bankruptcy

 

Bankruptcy laws exist to give debtors a financial “fresh start” from burdensome debts. The Supreme Court made this point about the purpose of the bankruptcy law in a 1934 decision:

It gives to the honest but unfortunate debtor a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt.
Local Loan Co. v. Hunt, 292 U.S. 234, 244 (1934)

This “fresh start” is accomplished through the bankruptcy discharge, which releases debtors from personal liability for specific debts and prohibits creditors from ever taking any action against the debtor to collect those debts.

Immediate Debt Relief

An additional reason for filing bankruptcy is to obtain the “automatic stay” imposed on all creditors’ debt collection activities. The “automatic stay” provides the debtor with immediate relief by stopping foreclosures, repossessions, harassing telephone calls, and lawsuits during the pendancy of the bankruptcy proceeding.

Depending on which type of bankruptcy filing a debtor chooses to pursue, the debtor can pay back all or a portion of his or her debts, or eliminate the debts altogether. Chapter 7 and Chapter 13 are the most frequent bankruptcy proceedings for the average consumer seeking debt relief.

 Posted by at 11:32 pm

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