Bankruptcy's Checkered Past and Bright Future!
The earliest bankruptcy laws first came into being in the early 1800's, when the economy was in grave shape. However, these laws were repealed in 1803. Modern bankruptcy laws were enacted in 1898, when the number of companies going broke was rising rapidly. The Bankruptcy Act gave companies that were in danger of folding a way to pay back their creditors without losing everything, thus preventing them from having to close their doors.
From World War II up until the 1970's, the bankruptcy laws were relatively unused and most people were completely unaware of them. Few businesses failed during this period and there was not much publicity about them. During the 1970's only two major companies filed for bankruptcy.
In 1978 the Bankruptcy Reform Act was passed. When it became law on October 1, 1979, it completely revamped the practices regarding bankruptcy. Chapter 11 was created, allowing businesses to reorganize and keep their workers employed and their doors open after the bankruptcy proceedings. During the 1980's changes were made to many of the bankruptcy chapters and acts. These changes mostly covered tax related issues and protection for companies who might lose everything through bankruptcy, if they could pay back some of their debts, given enough time.
During the 1980's and early in the 1990's the new laws made filing bankruptcy so easy, a record number of bankruptcies of all different types by businesses and individuals were filed. The courts were overwhelmed and changes had to be made in the manner in which the filings were handled, making the whole process much smoother and allowing even more people to file bankruptcy.
Now, there are pre-arranged and pre-packaged bankruptcies and forms that are easy for the lay person to fill out, leaving the courts to handle the actual bankruptcy proceedings. This makes everything run much more smoothly.
Now that we understand some of the history of bankruptcy, let's look at what you need to understand about what bankruptcy can't do. Property, especially real estate, will be the first thing to go when you file bankruptcy, depending on the type of bankruptcy you file, particularly Chapter 7 bankruptcy. If you can't make your mortgage payments, even if you file for bankruptcy, the bank is still going to take it back and sell it to get their money back as loan for income tax.
The same goes for cars, engagement rings, jewelry of any value, furniture, art, or anything that you have used as collateral for any loans. In other words, everything of value that you own will be taken and sold to pay your debts. The only thing bankruptcy does is prevent the creditors from coming after you for more money after they have received their share of the proceeds.
Bankruptcy also does not free you from child support or alimony obligations. You will still have to pay student loans and any taxes you owe. However, depending on your circumstances and, if you have previously been making an effort to make these payments, the court may decide how much you have to repay. You are also still responsible for fines, criminal penalties, traffic ticket bills, debt for personal injury due to drunk driving and any debts you did not list when filing for bankruptcy.
If you are just starting out, setting goals early can go a long way to preventing bankruptcy in the future. By setting goals you stay out of debt and reduce the risk of bankruptcy and/or rebuild your credit after you have already filed bankruptcy. And, wouldn't you rather prevent than to rebuild?
Start setting goals as soon as you start making your own financial decisions. Soon after you graduate high school and get your first job, start a savings account and commit a specific amount out of every pay check. Decide that you will not touch this money except in an emergency and never stop adding to it. Choose a reasonable goal for the end of each year and try to exceed it. Promise yourself you will set aside a certain percentage of money you receive from other sources, gifts, tax refunds, monetary prizes, etc. Doing this on a regular basis will go a long way to preventing bankruptcy in the future. Remember that old saying, "An ounce of prevention is worth a pound of cure". It is especially true about bankruptcy.
It is a good idea to have some kind of credit history. Otherwise, you will never be able to qualify for a home. Mortgage lenders want to see a strong history of bills paid on time. Apply for a major credit card and pay it off each month. This is a good place to start and, if you don't overdo it, will go a long way to establishing a good credit history. If you should find yourself having difficulty making the payments each month, think about how you can cut back in other areas until you get your balance down to a manageable level. You can also establish credit with department store credit cards or gas credit cards, but be careful. The more credit cards you use each month, the easier it will be to get over-extended.
If you have already filed for bankruptcy and are trying to pick up the pieces of your life, start setting goals for your future. A bankruptcy stays on your credit record for 10 years. If there were any debts that were not taken care of in the bankruptcy, make every effort to pay them. Getting new credit will not be easy, but, if you can show you are making regular payments to your existing debts, it will start to show on your record. Start saving whatever you can each month. Regular deposits into a savings account look good on your credit record too.
If you find yourself in a situation when you think you will have to file for bankruptcy, make sure it is your last resort. When you file, be completely honest. Don't leave out debts you may owe to a friend or relatives business, you have to list them. Don't try to hide assets by putting them into a friend or relatives name so you don't have to declare them. You also have to declare money you don't have yet, but you will be receiving, such as a tax refund or an inheritance. If you neglect to mention any of these things in your filing, chances are good that you will be found out. Even if it is an honest mistake, too many of them will cry fraud and you will be punished. Bankruptcy's purpose is to make sure all of your lenders get an equal share of your assets. If it is found that you are deliberately misrepresenting any facet of your bankruptcy, your case will be dismissed and you could even pay huge fines or end up in jail. Just as "honesty is the best policy" in life, it is particularly important when filing for bankruptcy.
Bankruptcy law has been around for almost 200 years. It has proved beneficial to many businesses, individuals and families, but it is not to be abused or entered into lightly. It is there to help people who have dug themselves into a deep hole and need help getting out. Let's help them do it by only filing for bankruptcy when we're in the same hole.
Florence Lilly is the author of a variety of articles on different subjects. She offers common sense advise and does not claim to be an expert or authority on any of these subjects. She also owns a website where you can find more articles and products relevant to her writings. She also offers Internet Business products that can help you grow your own business as well as access to an array of health products and software you can really use. To take advantage of these special offers, go to http://www.lillybizweb.com/Ebooks.html