A Bankruptcy Attorney's Perspective

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One of the most rewarding things about being a bankruptcy attorney is the ability to help people. I am really not interested in how people got into debt. That fact really doesn't matter to me. Whether it was from an illness, injury, job loss, divorce, overspending, or simply bad financial decisions, the situation remains the same. It may become important going forward in the future to that person. He may not want to travel down the same road that brought him into bankruptcy. For example, someone who did not have medical insurance and has a chronic illness may continue to incur medical bills that are uncovered in the future. For that person, he needs to make a change in his life, so that he doesn't become a victim to debt in the future.

I am much more interested in how I can help this person get out of debt. The overwhelming majority of people qualify under Chapter 7 of the U.S. bankruptcy code. Chapter 7 is known as a fresh start or liquidation bankruptcy, however, not much ever gets liquidated. Most of the people filing for Chapter 7 bankruptcy have very little in the way of assets, very little in the way of income, in terms of being able to repay their debt and in fact, do receive a fresh start. In recent times, since the law change in October 2005, it has become more difficult for anyone to file a Chapter 7 fresh start bankruptcy case. That being said, the overwhelming majority of people approximately 85%, in fact, still qualify and receive a Chapter 7 bankruptcy discharge. The other 15% of potential applicants, are either not eligible for Chapter 7 or their Chapter 7 gets dismissed upon motion of the United States trustee. What happens in those cases is the person either switches to a Chapter 13 and does some form of reorganization under the Bankruptcy code or simply allows the Chapter 7 case to dismiss. That debtor is then eligible to possible file a bankruptcy at a later time in his life. The U.S. trustee's office at the national and local level does keep statistics on how many chapter seven bankruptcy cases are dismissed and how much total that is determined to be non-dischargeable. What is still unknown is what percentage of that debt becomes collected in the future by the creditors.

What I think is happening is simply Chapter 7 debtors who are turned down are finding alternative ways to deal with the creditors and continue to live their lives. There is a percentage, of course, that will file a Chapter 13 bankruptcy and reorganize and pay the creditors something back (somewhere between 10% and 100%).

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David M. Siegel is the author of Chapter 7 Success: The Complete Guide to Surviving Personal Bankruptcy. He is a member of the American Bankruptcy Institute and currently practices bankruptcy law in Chicago and its surrounding suburbs. Additional information is available at http://www.chapter7succes