Explaining Bankruptcy to Your Loved Ones

Bankruptcy puts your family in a better financial position

It is a common thing for family members to help out other family members with their finances or with larger ticket items, such as a house, a car, large appliances, et cetera. So, it is also natural for some of them to inquire as to why you and/or your spouse are in the process of filing for bankruptcy. Sometimes this may seem intrusive or overly protective but most of the time it is simply your loved one showing interest and concern. In fact, family members are usually all too happy to help pay for the cost of filing for bankruptcy. Explaining bankruptcy to them may help to ease some of the more awkward or uncomfortable conversations that you may have to deal with. It is also important to keep in mind for your own peace of mind that filing for bankruptcy is the proper thing to do and will allow you to help protect your family moving forward. Take the following example:

Say you own a small business that relies on you and your intellectual capital and personality alone to generate income. It is no doubt mentally and emotionally challenging to manage just the administrative side of your firm, let alone the necessity to invest your skill and training into the non-administrative side of your firm. After hacking away at it for five years you decide it is best to move on and you get a job elsewhere. You have to unwind your business but find out in the process that you signed a contract for health insurance that lowered your premiums significantly. It is only two years into a five-year contract. Should you keep paying on the contract?

Should you be saddled with paying those bills, for employees who no longer even work for you and who will not benefit from the insurance policy? Not many people would argue that bankruptcy is inappropriate to discharge all of the personal guarantees that you signed during your stewardship of your small business. Perhaps you earn your income solely as a result of commissions, such as a car salesperson or real estate agent and you had to take medical leave and were unable to collect disability. During that time your mortgage and car payment went into default status but now you are back at work and earning good money and want to get current. Bankruptcy can help in all of these situations and more. No doubt, bankruptcy does much good for literally millions of law abiding, financially responsible individuals.

Bankruptcy Basics

It may also help to explain to your loved ones the basics of bankruptcy. In every bankruptcy case there are at least four different players.     

1. You – the debtor and your attorney. Your role is to be honest and forthcoming in your bankruptcy petition. Your attorney is there to marshal these facts in a specified manner to  enable you to receive a discharge under the bankruptcy code.
2. The Trustee – the Trustee administers the bankruptcy case to make sure it complies with the Bankruptcy Code and determines possible assets of the estate.   Certainly, creditors can enter an appearance and make sure that their specific voice is heard. The trustee looks at the best interests of the creditors in general and seeks to increase any potential recovery of money to distribute to creditors.
3. The United States Trustee – The UST is distinct from the trustee. The United States Trustee is a branch of the Department of Justice that acts as a passive prosecutor. They receive a copy of all documents filed in your case and may receive recordings of your 341(a) creditor’s hearing. They review each case to help make sure that the bankruptcy laws are complied with and there is no evidence of fraud. If there is any evidence of fraud, the trustee or the Trustee’s Office will investigate and prosecute as appropriate.
4. The Court – the Court reviews everything and resolves any disputes between the parties that they cannot resolve themselves by way of consent. For example, you default on your car loan and they accelerate the payments on it and file a proof of claim claiming they are owed the full amount due and owing on the promissory note, plus attorney’s fees and other incidental costs. You argue that the amount due and owing is not the full accelerated amount and the attorney’s fees are unreasonable and burdensome. Both sides file motions and briefs and both make valid legal arguments based on the law. It is up to the Court to determine which side will prevail and on which issue.         

The law firm of Long & Long, P.C. has decades of combined experience in bankruptcy, ensuring that clients rights, property and money are protected from creditors and others. Long & Long, P.C. can be reached at (303) 832-2655.