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Thanksgiving for the Rule of Law

This Thanksgiving, even in the midst of scary personal financial pressures, there is much to be thankful for.

Everybody can make their own individual inventory of people and situations to be appreciative of Here is a short list of what to be thankful for in the world of bankruptcy:

1. The Rule of Law:

We’re thankful that we live in a country that, for all of its continuous challenges, is a civil society. Without getting into the politics of it all, we can generally rely on our local, state, and national governments to fulfill their basic functions. We don’t live in anarchy. People, from the lowest to the highest, generally try to operate their daily lives following the rules that we have all agreed to live by, our laws.

There are serious challenges to all our institutions—from the U. S. Congress to the U. S. Postal Service. But most of us can generally go about our daily lives without being concerned about being physically harmed by either the police or by other people. Our U. S. Constitution continues, after 226 years, to protect our basic rights. And that includes a system of federal bankruptcy law.

2. The Weak Standing up to the Strong:

We’re thankful that within the laws in general, and in bankruptcy law in particular, the rule of law means that people who are weaker have at least a certain amount of strength and protection.

In the case of bankruptcy, the strength is found in a set of powers with which debtors can push back and get relief from creditors and their debts. For example, the “automatic stay” goes into effect instantaneously when you file any kind of bankruptcy case stopping virtually all collection efforts of creditors. The “discharge” legally writes off most debts forever. These powers undo rights that creditors would normally to enforce contracts and collect debts. Bankruptcy gives you laws that defeat laws that usually help creditors.

That’s pretty extraordinary.

3. Compassion Built into the Law:

We’re thankful that a trait that isn’t often found in the law—compassion—is incorporated into the bankruptcy law.

The evolution of bankruptcy, over the centuries of English and American law, has been towards compassion for the “honest but unfortunate debtor.” An institution that was originally designed as a way for creditors to collect debts has evolved into one mostly used to give relief to debtors.

“Property exemptions” enable debtors in most cases to keep what they have and need. “Reaffirmation” and “redemption” gives options for keeping collateral when doing so is in the debtor’s best interest. The ability of creditors to challenge the “discharge” of debts is usually limited to those situations where there is a good reason that the debt should not be discharged.  

4. No Corruption:

We’re thankful that beyond paying the relatively reasonable filing fees, nobody needs to bribe a court clerk or a judge to get something done. The system is honest and overall fair.

5. Balancing between Debtors and Creditors:

We’re thankful that the bankruptcy laws make a reasonable attempt at balancing the rights and interests of debtors and creditors.

And the system as administered and enforced—all the way from the local bankruptcy court clerk to the U. S. Supreme Court—is done with an earnest attempt to be fair, sensible, and balanced.

6. You Have Choices:

We’re thankful that the result of all of the above is that most people in financial distress have legal options that will bring relief.

Under Chapter 7 “straight bankruptcy” you can usually get immediate relief from creditor pressures. You have the option of surrendering collateral like a vehicle or home and owing nothing, or keeping the collateral and paying for it, sometimes not the full amount. You usually protect everything else you own through “exemptions.” And then almost always after only 3 or 4 months all or most of your debts are permanently discharged.

Under Chapter 13 “adjustment of debts” beyond the immediate relief from creditor collection efforts, this protection lasts the whole 3-to-5-year period that you are in a payment plan. That plan is put together by you and your attorney following a set of rules; creditors have only a limited say about the terms of that plan. The Chapter 13 plan gives you the opportunity to  pay important debts that you either can’t discharge in a Chapter 7 case—such as child support—or which you don’t want to discharge—such as a vehicle loan or home mortgage. You may also qualify for various significant benefits—such as stripping a second mortgage off your home, or doing a “cramdown” of your vehicle loan or other collateralized debt.

In both of these options you generally finish with the elimination of or a huge reduction in debt and a fresh financial start.

We hope the prospect of that helps you have a good Thanksgiving this year, and perhaps a better one next year.


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