Insolvency occurs when a person’s financial condition comes to a point where a person’s liabilities outweigh that person’s assets.  It is most commonly understood as the inability to pay all of the accumulated debt obligations facing that person as those debt payment obligations come due.  At that point in a personal financial dilemma a person owing debts, the debtor, must decide whether it is wise or prudent to struggle through hard personal economic times; or elect to resolve those financial issues head-on, and weather debt like a storm by debt negotiations (something we also handle).  But, as attorneys we know that debt can have its toll or price on a person’s mental health as well as physical and family strain.  Debt as it mounts up creates all kinds of stresses where it affects family life as well as physical health and mental health.  We have all seen the cute TV commercial of the man tossing and turning in bed; but, it’s no joke when a debtor has sleepless nights mentally struggling with bills and endless phone calls from creditors’ demanding of a cure or payment of the contracted debt.

The U.S. Bankruptcy law was created to provide a level playing field so a debtor, who wishes to exercise his and/or her qualified and mandated RIGHT, may request to have the court remove the debt responsibility – known as a discharge of the debt.  What does this mean?  A discharge of debt is whereby a debtor is qualified and files a petition to have the U.S. Courts “get rid of” their debt(s), and if approved by the court, the debt can never be collected by the creditor(s) owed those debt(s).  This act is bankruptcy and by law, and if granted the debtor no longer owes the debt to any of the discharged creditors.  Under the U.S. Bankruptcy plan the law has two defined purposes:


1- To give the Debtor a fresh new start with no debt obligation.

2- To give Creditors an equal chance in the collection or tax credit of their claims.


TO GIVE THE DEBTOR A FRESH NEW START. If an honest debtor is hopelessly insolvent, he or she might give up and be tempted to cease trying even to earn a living – not a healthy choice or good for our Nation.  Bankruptcy might be the right choice for you to avoid such disaster.  Our Nation’s Founding Fathers were very much aware of what that would mean to a nation founded for its greatness.  Without having U.S. Bankruptcy laws secured as a legal right to all citizens, we could have at many times of national economic stress been a hopeless nation.  Before the Founding Fathers created well-rooted laws on bankruptcy, European law (such as old English law (common law), under the Crown) put people in prisons for non-payment of debt.  Creditors simply filed a summons against a debtor and the debtor was carted away for jail, sometimes no trial was required (still happens today in some countries).  Not so in this Great Country!  Thus, the Founding Fathers created the more civilized right of U.S. Bankruptcy to cure financial distress by individuals.  Imagine if people stopped working, stopped providing for their families – that itself would then create a nation of hopeless peoples. The Founding Fathers went so far as to say: “NATIONAL HOPE is a great stimulant to enterprise and honest endeavor.  If hope vanishes, effort may diminish or even vanish.”  By permitting an insolvent debtor to give up his or her assets (other than exempted assets) and thereby get forgiveness of his or her debts, he or she can then at least start fresh and anew with the hope of better financial FREEDOM.  The court prescribes an equitable settlement under the circumstances; and when these conditions are fully met, the Debtor may resume full control of his and/or her life again.  We have seen some people come to us with their fears and worries shown on their faces, and after discharge of debt the happiness actually is noticeable again.  Family life resumes and is back to normalcy again and a new strength is established.  This is exactly what the Founding Fathers envisioned, and it noticeably works under our laws.


TO GIVE CREDITORS AN EQUAL CHANCE IN THE COLLECTION OF THE DEBT OR TAX CREDIT ON THEIR CLAIMS. If a debtor is discharged bankrupt it is unfair to permit some unsecured creditors to get paid in full while others receive nothing at all.  By appointing a Trustee to take over the bankrupt’s assets and to pay each creditor in proportion to his claim, a more equitable settlement is achieved under our laws.  Not only is this arrangement more equitable, but it is also less wasteful and less expensive than for each creditor in separate law suits.  Under the newly revised U.S. Bankruptcy Laws since 2005, under some of the various forms of Bankruptcy, the creditor themselves find relief away from an unpaid debt in the form of tax credits which many times are more healthy for a business than the expenses of litigating (suing) to attempt to collect the debt.  Example:  If a creditor has to sue a debtor for say a credit card debt of $2,000 it can cost the business about $2,500 to sue in courts; a) their cost to file a court complaint, b) hire a local attorney to present the case to the court, and c) the growing costs of the attorney to collect a debt.  On the other hand the tax credit to a creditor is worth far more than hiring third party attorneys and courts’ time to collect a debt.  In this fashion the U.S. Bankruptcy laws are not harmful to the debtor and not harmful to the creditor. Thus, the level playing field is established for the good.

WHO MAY FILE FOR FEDERAL PROTECTION UNDER BANKRUPTCY. Today, any person may become a qualified party to file for bankruptcy protection; however, since all laws have restrictions the rules of the court require all petitioners be pre-qualified.  Since 2005, all applicants/petitioners (personal petitioners) must first successfully complete a pre and post filing credit education course (can be taken online or in local group seminars), and once certified and after review of a listing of creditors a debtor could possibly have all of or some, or most, of all debt discharged by the Federal Bankruptcy Court.  In today’s rules, many honest debtors never go before a judge and do not have courtroom hearings and the debts are simply discharged after qualifying under the rules since 2005 (such as the Means Test).  A one-time meeting between the debtor and trustee is held informally to verify the bankruptcy petition.  Subject to the meeting’s outcome after a period of about no more than 6-weeks, the debtor is discharged under all normal circumstances of all properly submitted scheduled debts.

Easy pro se (filing on your own) filing rules have simplified and made the Federal court more publicly accessible.  But like all things legal it is ALWAYS strongly suggested that debtors get legal advice of counsel before taking on the course of action for bankruptcy.  We provide a free consultation and we can assist you and/or your family towards development of a sound plan for the filing and discharge of all unsecured debts, and within weeks relief away from debt is then in plain sight.

Bankruptcy is the last resort and other options do exist.  As in all things financial and legal, KATZ & ASSOCIATES LAW FIRM will advise, counsel and act on your behalf to suggest alternatives or direct actions to attempt to resolve your own personal credit and debt matters. One of the greatest pleasures we take in our practice of law at our firm is helping folks try and achieve financial relief – and it is wonderful when we succeed.  Call or email for a no cost confidential consultation and get a secure appointment to discuss your own personal financial situation.  Remember, BANRUPTCY IS YOUR LEGAL RIGHTcreated by our own great Nation’s Founding Fathers to have peace, quiet, and tranquility in our homes.  During this very Holiday Season and end of the year, maybe a new start is something necessary and needed for you and your family.  It has been a very tough past few years of a terribly dramatic downturn in our National and personal economies of scale and we of course have perpetual hope of seeing a better time ahead.



Katz & Associates, PLLC


There are six types of bankruptcy under the Bankruptcy Code, located at Title 11 of the United States Code ; and we specifically handle Chapter 7 which is best described as basic liquidation for individuals and businesses; also known as straight bankruptcy; it is the simplest and quickest form of bankruptcy available; and Katz & Associates also handles Chapter 13 which is described as rehabilitation with a payment plan for individuals with a regular source of income; enables individuals with regular income to develop a plan to repay all or part of their debts; also known as Wage Earner Bankruptcy

In Chapter 7, a debtor surrenders his or her non-exempt property to a bankruptcy trustee who then liquidates the property and distributes the proceeds to the debtor’s unsecured creditors. In exchange, the debtor is entitled to a discharge of some debt; however, the debtor will not be granted a discharge if he or she is guilty of certain types of inappropriate behavior (e.g. concealing records relating to financial condition) and certain debts (e.g. spousal and child support, student loans, some taxes) will not be discharged even though the debtor is generally discharged from his or her debt. Many individuals in financial distress own only exempt property (e.g. clothes, household goods, an older car) and will not have to surrender any property to the trustee. The amount of property that a debtor may exempt varies from state to state. Chapter 7 relief is available only once in any eight year period. Generally, the rights of secured creditors to their collateral continues even though their debt is discharged. For example, absent some arrangement by a debtor to surrender a car or “reaffirm” a debt, the creditor with a security interest in the debtor’s car may repossess the car even if the debt to the creditor is discharged.

The 2005 amendments to the Bankruptcy Code introduced the “means test” for eligibility for chapter 7. An individual who fails the means test will have his or her chapter 7 case dismissed or may have to convert his or her case to a case under chapter 13.Generally, a trustee will sell most of the debtor’s assets to pay off creditors. However, certain assets of the debtor are protected to some extent. For example, Social Security payments, unemployment compensation, and limited values of your equity in a home, car, or truck, household goods and appliances, trade tools, and books are protected. However, these exemptions vary from state to state. Therefore, it is advisable to consult an experienced bankruptcy attorney.  In Chapter 13, the debtor retains ownership and possession of all of his or her assets, but must devote some portion of his or her future income to repaying creditors, generally over a period of three to five years. The amount of payment and the period of the repayment plan depend upon a variety of factors, including the value of the debtor’s property and the amount of a debtor’s income and expenses. Secured creditors may be entitled to greater payment than unsecured creditors.