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Introduction to BankruptcyAmerica's bankruptcy laws gain their roots from the days of old in England. The bankrupt, stripped of their cloths by creditors, were cast into the streets for public display and humiliation.For this reason, modern bankruptcy law allows people to keep certain personal items such as clothes, jewelry, etc. In extreme cases, those who could not pay their debts were treated as criminals and were thrown into Debtor's Prison. The United States Bankruptcy Protection Laws are a fundamental part of our society and are mentioned in the Constitution of the United States. Article one, section eight states, "The Congress shall have the Power To establish . . . uniform Laws on the subject of Bankruptcies throughout the United States ..." Until recently, bankruptcy had a "social stigma" and conjured up negative implications. In the early 1990's, bankruptcy has become as stylish as BMW and Gucci bags were in the 1980's. In fact, in 1991 almost one million American individuals and companies filed for protection under the United States bankruptcy laws. Still, most people do not truly understand the principle of bankruptcy. SHOULD I DECLARE BANKRUPTCY?Generally, bankruptcy should be considered when you have reached the point of insolvency. There are two types of insolvency -- Balance Sheet and Equity. A person is insolvent in the balance sheet sense when their debts exceed their assets, they owe more than they own. A person is insolvent in the equity sense when they simply cannot pay debts as they become due, the total of their bills due exceed their available income and cash. A debtor may be insolvent in either the balance sheet or equity sense, or both. When a person files a bankruptcy petition, the law presumes that the debtor has been insolvent during the 90-day period before the filing. So, they will scrutinize activities such as liberal use of credit cards or selling and transferring assets during this 90-day period. In the past, a debtor was required to prove balance sheet insolvency to the court. Now, the bankruptcy court typically considers a pattern of non-payment of debts as a debtor's proof of insolvency. The decision to file bankruptcy is not as clear cut as answering the question, "Am I insolvent"? The answer to whether to file bankruptcy lies in a careful analysis of your personal and financial situation, which is best handled by a qualified bankruptcy attorney. |
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