The purpose of the release is to “relieve honest debtors from their financial burdens and to facilitate an unencumbered debtor’s ‘new start'”. In Pelkowski, 990 F.2d 737, 744 (3d Cir.1993) (citing Kokoszka v. Belford, 417 US 642, 645-46, 94 S.Ct. 2431, 2433-34, 41 L.Ed.2d 374 ( 1974)). The general purpose of a bankruptcy case is to fully disclose all that you own or have an interest in and deliver assets to the trustee in excess of the amount that can be protected under exception laws. Otherwise, if you don’t want to give up assets, you can also create a payment plan under Chapter 13 of the bankruptcy code.
Bankruptcy may not be an option when you have lost assets and you don’t want to give up those assets. You see, a Chapter 7 bankruptcy case is considered a liquidation bankruptcy where you are unable to pay your debts. If you have no assets, then you have nothing to lose and everything to gain from filing for bankruptcy. But when you have too much equity in your home that you don’t want to leave, you may need an alternative to bankruptcy.
The key to success is consulting at least two or three bankruptcy attorneys because I hear from clients that we are not all the same. People would think that way, but that’s not true. Not all bankruptcy attorneys are experienced and you could lose assets if your attorney is not experienced in exception laws and how to protect your assets or warn you if you are at risk of losing assets. If you are in a Chapter 7 case and are at risk of losing assets, you have the right to change your case to Chapter 13 and create a payment plan, if your budget allows. Unfortunately, once you attend a Section 341(a) hearing called the “Creditors’ Meeting”, most trustees will not allow dismissal, which makes it difficult to escape a trustee’s takeover.
Another reason bankruptcy may not be right for you is when you make too much money and you will pay 100% of your debt. That’s when bankruptcy is optional and you should weigh the pros and cons of all your options before choosing a payment plan under Chapter 13 of the Bankruptcy Code or a debt settlement plan. In Chapter 13, your debt is paid off without any interest, which makes it more affordable than traditional payment plans with most unsecured credit card debt. Another benefit of the Chapter 13 case is that not all creditors claim to be paid. This means that the amount you owe today, may go down after filing for bankruptcy. A third benefit of Chapter 13 bankruptcy is that there are no tax consequences for the debt that is waived in Chapter 13. None of these benefits are available outside of bankruptcy.
Finally, a fresh start in bankruptcy is for “Honest, but unlucky Debtors”. This means you cannot hide or give away all of your belongings and expect results in bankruptcy. If you face a fraud lawsuit, or there is a judgment against you for fraud, you may not qualify for bankruptcy. The only way to find out is to have a free consultation with an experienced bankruptcy attorney in your local court. The longer they are in practice, the more knowledgeable they will be and the better your assets will be protected as you work to eliminate debt from your budget. Remember, there is nothing wrong with filing for bankruptcy protection in the midst of a pandemic.