Bankruptcy is a word that often evokes a lot of emotion from people. Fear, anger, loathing and a wide range of feelings are often associated with just the mention of bankruptcy. The truth is that bankruptcy is not something to be feared, looked-down-upon nor reviled. Common misperceptions lead people to reach for those fears, and in this article I hope to dispel a couple of these.
“Bankruptcy is for Losers, Second-Class Citizens, Flakes, etc ¦ (insert your own derogative here).” The truth is that bankruptcy is a legitimate means of resolving debts which have grown beyond an individual (or company’s) ability to repay, or to provide legal relief to persons who have experienced unexpected changes in circumstances. In merry old England, a person who was unable to pay his or her debts was relegated to Debtors’ Prison. Henry the VIII in 1542 passed what are considered to be the first bankruptcy laws, though they were enacted with the sole objective of lessening the overcrowding in Debtors’ Prisons. It wasn’t until 1570 that Queen Elizabeth I passed the first bankruptcy laws aimed at more compassionate treatment of debtors. In the U.S., the first bankruptcy laws were passed in 1800; however, the watershed legislation which established our bankruptcy system came in 1841. The new bankruptcy system was based in part upon the concept that as a civilized society, we must treat debtors in a way that promotes our society and that restores them as contributing members of our economy. Thus was born the “Fresh Start” concept so ubiquitous with our insolvency laws today.
“I will lose everything.” The truth is that bankruptcy is a give and take. In a Chapter 7, you submit your assets to the court in return for a discharge of your debts. Though you submit your assets, the bankruptcy court only has power to liquidate your non-exempt assets. California and Federal law provide for protection, or exemption of certain property from liquidation. As a general rule, a debtor will not be left a pauper; rather, the ordinary kinds of assets an average person owns can be exempted. Further, certain retirement funds can be protected irrespective of value. Finally, the single-most important asset for most people is their home, and to the degree that they do not have excess equity in their home it can be exempted.
Without the benefit of a skilled, knowledgeable and experienced counselor, bankruptcy can be an intimidating prospect. Our mission is to treat you with the respect and courtesy to which any client seeking help with a legal matter is entitled.
David L. Gibbs is an attorney with The Gibbs Law firm, APC. The firm’s practice focuses on issues related to Bankruptcy, Business Law and Manufactured Housing; including community subdivision, pre-purchase diligence and analysis as well as advising community owners on operational, financial and enforcement issues. The firm also represents manufactured home dealers in a wide range of issues. David L. Gibbs is admitted to the Federal Courts for the Central and Southern District of California, and also holds a California real estate broker’s license. The firm continues to offer a wide range of real estate and business related services as it has done for 34 years from its offices in San Clemente. Mr. Gibbs can be reached at (949) 492-3350.