Small Business Law

There are many legal pitfalls throughout the life cycle of a small business. You need sound legal advice during these periods. As your attorney, I focus on your needs while keeping your goals and expectations in mind.

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Personal Bankruptcy

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Bankruptcy Attorney

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Removing the Stigma of Bankruptcy

This week, instead of discussing a legal issue surrounding bankruptcy and foreclosure law, I’d like to focus on something more emotional, something that often affects an individual’s decision to file more than any legal rationale. I’d like to discuss the so-called “stigma” of bankruptcy. Most people have a strong moral compass (at least, I’d like to think so). And that compass often tells people that it is “wrong” to file for bankruptcy because it is unacceptable not to repay debts. People might also believe that their financial mistakes burden the rest of society with higher costs, taxes or fees. Or they fear that their friends might find out and never look at them the same way again. Consequently, filing for bankruptcy, they feel, is something to be ashamed of and should be avoided at all costs.

Well, let me tell you something. The Founding Fathers didn’t take this view. That’s why they felt bankruptcy protection was important enough to include in the Constitution. The United States Constitution provides that Congress shall have the power to establish laws concerning bankruptcy throughout the United States. Accordingly, bankruptcy law is governed by federal, not state, law, with a few exceptions. The Founding Fathers understood the importance of giving people a fresh start rather than saddling them with debt for generations, as had been common in much of Europe. Going back even farther in time, the Bible doesn’t take the view that debt relief is shameful, either. The book of Deuteronomy, Chapter 15, verses 1-2, instructs the ancient Israelites to do the following: “[a]t the end of every seven years thou shalt make a release. And this is the manner of the release: Every creditor that lendeth ought unto his neighbor shall release it; he shall not exact it of his neighbor, or of his brother; because it is called the LORD’s release.”

Undoubtedly, bankruptcy is not something credit card companies, mortgage lenders and other creditors favor. But you can take solace in the thought that what’s bad for the credit card companies is generally good for you. On a more serious level, our Founding Fathers and government through the last 200 plus years have understood the importance that bankruptcy plays in allowing people to right their financial ships, which is why bankruptcy law has, for the most part, become more accommodating towards individuals in financial distress. Legislators realize that, often, the situation is beyond the control of individuals and that the cost to society of people’s inability to dispose of their debt is much greater than perpetual indebtedness.

Of course, there is a cost to filing for bankruptcy. Borrowing money might be more difficult or might cost more (higher interest) in the near future. But most people who file for bankruptcy already have credit problems to begin with. As a result, filing for bankruptcy will have little effect. You might even be surprised how quickly offers for credit cards begin coming in after a bankruptcy filing. And even if your credit does suffer temporarily, this is a small price to pay for the relief, both financial and emotional, that bankruptcy brings. When even the Bible talks about debt forgiveness as a noble requirement, one wonders why credit card companies and subprime mortgage lenders don’t see it that way.

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