For some people, their debt just keeps multiplying and there is little realistic chance of getting out from under it other than through bankruptcy. Many people hate this idea. Some people look down on it. People need to realize, however, sometimes bankruptcy is the responsible thing to do for oneself, one’s family, and one’s future creditors.

Don’t Keep Digging

If you are digging yourself into a whole it’s time to stop digging. It’s time to climb out. Throw down the shovel. Bankruptcy may be your rope. You have to do the climbing, the reestablishing of your credit, but you can’t keep digging.

Bankruptcy of course has some negative consequences. You will have to begin reestablishing your credit by establishing new lines of credit and paying off these debts timely. Your credit report will show that you filed for bankruptcy for several years.

On the other hand, you will get a fresh start. You will have most, if not all, of your debt extinguished through bankruptcy. You will probably get to keep most of your current assets as well. There are assets that are exempt from bankruptcy liquidation and assets that are nonexempt. Many people filing for bankruptcy, however, have no nonexempt assets.

The Bankruptcy Process

The bankruptcy process is a court process unlike other court processes. A bankruptcy trustee is the person who takes and liquidates a person’s nonexempt assets in a chapter 7 bankruptcy. Creditors may also become involved in arguing over which property is exempt and which is nonexempt.

The court official with decision-making power over federal bankruptcy cases is the United States bankruptcy judge, a judicial officer of the United States district court. The bankruptcy judge may decide any matter connected with a bankruptcy case, such as eligibility to file or whether a debtor should receive a discharge of debts.

Much of the bankruptcy process is administrative, however, and is conducted away from the courthouse. In cases under chapters 7, 12, or 13, and sometimes in chapter 11 cases, this administrative process is carried out by a trustee who is appointed to oversee the case.

A debtor’s involvement with the bankruptcy judge is usually very limited. A typical chapter 7 debtor will not appear in court and will not see the bankruptcy judge unless an objection is raised in the case. A chapter 13 debtor may only have to appear before the bankruptcy judge at a plan confirmation hearing.

Usually, the only formal proceeding at which a debtor must appear is the meeting of creditors, which is usually held at the offices of the U.S. trustee. This meeting is informally called a “341 meeting” because section 341 of the Bankruptcy Code requires that the debtor attend this meeting so that creditors can question the debtor about debts and property.

Get a Fresh Start

A fundamental goal of the federal bankruptcy laws enacted by Congress is 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:

“[I]t 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 pre-existing debt.”