Finance bankruptcy concepts and impact

¶ … gathered an understanding of some aspects of finance and am writing this paper on the topic of finance and bankruptcy. I have worked in the field of retail and enjoyed the training for assistant manager that was received. I also have taken several finance classes in college as well as an advanced finance class at the high school level, which helped prepare me for this learning experience regarding the topic of bankruptcy. I am young enough to understand and participate in today's economic climate while being old enough to understand the ebbs and tides that are a historical fact of the economy. I have a desire to learn as many possible aspects and facts as possible about the topic of bankruptcy so that the I will be better equipped for the more advanced university level finance courses that may be required before graduation.

I will draw on several factors that I am already prepared to undertake. I will use books and articles to discover many facts about bankruptcy that I do not know. It will allow me to apply the knowledge already gained about finance to the topic of bankruptcy. I am prepared through the use of several previous classes to understand and learn new concepts that include the laws of bankruptcy, the reasons for it and the alternatives to it. I am a student who has already demonstrated ability to self-teach and self-learn through other classes. I am qualified to write this paper because of past life experience, the eagerness to learn, the ability to research and the desire to experience the topic as thoroughly as possible.

This paper is going to fully explore the topic of finance when it comes to bankruptcy. The paper will discover through research the laws that govern bankruptcy, the reasons that it is used, and the alternatives to its use. The paper will explore not only the facts and figures regarding bankruptcy and its history, but also the feelings the educational journey promoted in me. I will discover and discuss through the process of learning how the topic was different than the evaluator thought it was going to be. The pre-conceived notions will be handled as well as the newfound facts regarding bankruptcy. I am going to take the reader on the act of learning as I begin an immersion process that will lead to knowledge.

WHY DO PEOPLE FILE?

When I first decided to approach the topic of bankruptcy I did so because of the Enron downfall. I realized that the people being publicized had dealt with millions of dollars. I began to wonder what happens to those who are simply individuals and having a hard time surviving. Could they file bankruptcy and walk away? I knew there was such a thing as a personal bankruptcy but because the media always covers the huge corporate bankruptcies and those rules are different. My decision to study personal bankruptcy was also colored by the growing personal knowledge that the economy in this nation has been stagnate for several years and the experts are not predicting any change in the immediate future. This brought me to the conclusion that there may be more people declaring personal bankruptcy than in recent years. In addition as the large companies continue to tumble there is bound to be a trickle down effect that will cause personal bankruptcies to increase. I modeled this learning experience from the perspective of the personal bankruptcy participants and what it means for them though I will also explore what this means to the nation as a unit.

PRE-CONCIEVED NOTIONS

Before I started this learning experience I wanted to note any preconceived notions that I had before studying the topic. We are all programmed to draw conclusions about topics based on the information that we have gathered through our life experiences. I found that I was no different. I knew very little about personal bankruptcy and had some preconceived notions that panned out to be untrue. One of the most important preconceived notions that I held when it came to personal bankruptcy was that only people who were less than reliable filed. I didn't think it was something that "normal" or "responsible" people did. I had this visual in my mind about the "type" of person that filed personal bankruptcy that was not very flattering. As I began my studies and learning experience I realized that my preconceived notions had been wrong.

WHAT IS BANKRUPTCY

Before I could begin to evaluate and analyze how a bankruptcy affects the individual as well as the nation I needed to learn about what a bankruptcy on the personal level is and how it works. I turned to several publications as well as a few online sources and discovered that bankruptcy is not only an American issue. There are bankruptcies being filed worldwide and each nation has its own laws, by-laws and rules for the way it has to be handled and the way it has to be completed. I was able to narrow my focus on the United States bankruptcy rules and laws and through my search discovered many interesting facts. The bankruptcy law of the United States allows and provides for the a plan to be developed that will allow a debtor who is unable to pay his creditors, to resolve his debts. This done through a complicated yet simple process called bankruptcy. The plan causes a division of assets among the creditors (bankruptcy: an overview (http://www.law.cornell.edu/topics/bankruptcy.html).

A learned something even this early in the process. For many years when I thought about personal bankruptcy I thought all of the protection was afforded to the consumer who was filing the action (bankruptcy: an overview (http://www.law.cornell.edu/topics/bankruptcy.html).I believed that it provided them with a way to walk away form their debts and start over regardless of what it may do to those that they owe. As I began my voyage into the learning process regarding bankruptcy I realized that the laws not only provide and protect the consumer with avenues of relief, but they also provide the debtors with a way to be treated equally. It takes the ability away from the consumer to pick and choose who will be paid and who will not and it places it with the courts who treats all of the creditors equally from an unbiased and fair standpoint. It gave me the understanding that the bankruptcy laws are designed to help and protect both sides of the issue. There are several different measures that are allowed in bankruptcy that will afford the debtor the ability to at least partially pay what he or she owes. From the standpoint of the creditors it provides them some ability to recoup from those they believe really can afford to repay them and are filing because of other debts that may be impossible (bankruptcy: an overview (http://www.law.cornell.edu/topics/bankruptcy.html).

The bankruptcy laws are currently designed to provide relief in carrying degrees. There are several chapters that can be declared but for the purposes of this paper there are two. Chapter seven allows the debtor, the person who owes the money to walk away without repaying any of the debt that he or she owes. This is called a full discharge and it prevents the creditor from trying to collect in any way at all. When chapter seven is filed the creditor is not allowed to contact the debtor in anyway. Not by mail, not by phone, not by email and not in person. It provides a complete and total block of contact from the creditor to the debtor in the effort to protect the debtor from harassment. While this sounds harsh there are measures and rules in place to protect the creditor from having bankruptcies filed that should not have been and those will be discussed later in the paper.

A chapter 13 allows the debtor to pay off a percentage of their debts while discharging the balance. The payment is based on a percentage of the debtor's income and has to be paid out equally to all creditors regardless of any interest or percentage rates that may have applied to the original debt.

My reaction to this learning was one of surprise and one of approval. I had thought in the past that a personal bankruptcy absolved the debtor of any responsibility for the debts that he or she owed. I didn't and still don't if the person truly needs this type of relief but it was a pleasant thing to discover that there is an alternative allowing some repayment to occur. I learned that there are degrees of bankruptcy that can be dependant on the assets and abilities of the individual doing the filing. I observed through the reading of the laws that the bankruptcy court is set up to supervise the division and distribution of the assets belonging to the debtor. It is a process by which rules are adhered to and the same rules apply uniformly across the board. This observation also strengthened my growing comfortableness with the process of bankruptcy on a personal level for those who find themselves in the position of needing relief from overwhelming debts. The legal place for the bankruptcy laws is contained in Title 11 of the United States Code. Congress passed this code under its constitutional right to establish and it allowed the laws to be added after the constitution was written and ratified. The United States government is in charge of the laws of bankruptcy and the states are not allowed to change those laws. Individual states are allowed to provide other laws regarding the debtor and the creditor but when it comes to a bankruptcy filing the federal statutes and laws take precedence over any state decisions.

Bankruptcy proceedings are supervised by and litigated in the United States Bankruptcy Courts. These courts are a part of the District Courts of The United States. The United States Trustees were established by Congress to handle many of the supervisory and administrative duties of bankruptcy proceedings. Proceedings in bankruptcy courts are governed by the Bankruptcy Rules, which were promulgated by the Supreme Court under the authority of Congress (bankruptcy: an overview (http://www.law.cornell.edu/topics/bankruptcy.html)."

TYPES OF BANKRUPTCY PROCEEDINGS

There are two basic ways that a person can file bankruptcy. It is all handled in a similar fashion but there are two different proceedings that are allowed. When one files under chapter seven it is called a liquidation. This type of bankruptcy is the most common type according to nation reports. I was not surprised to learn this and will be more detailed as to why when we are further into the study. The chapter seven calls for a trustee to be appointed and that trustee is charged with collecting the non-exempt property of the debtor. Exempt property and assets are those, which cannot be seized or negatively affected by the filing of the bankruptcy. There are very strict regulations about what does and does not fall under the exemption statutes of the bankruptcy. People are allowed to keep one vehicle for example for the purpose of being able to get back and forth to work. However, if they own several cars the bulk of them will be seized to offset the debts through a liquidation process.

Bankruptcy proceedings under Chapters 11, 12, and 13 involves the rehabilitation of the debtor to allow him or her to use future earnings to pay off creditors. Under Chapter 7, 12, 13, and some 11 proceedings, a trustee is appointed to supervise the assets of the debtor. A bankruptcy proceeding can either be entered into voluntarily by a debtor or initiated by creditors. After a bankruptcy proceeding is filed, creditors, for the most part, may not seek to collect their debts outside of the proceeding. The debtor is not allowed to transfer property that has been declared part of the estate subject to proceedings. Furthermore, certain pre-proceeding transfers of property, secured interests, and liens may be delayed or invalidated. Various provisions of the Bankruptcy Code also establish the priority of creditors' interests (bankruptcy: an overview (http://www.law.cornell.edu/topics/bankruptcy.html)." noticed during the learning process of this paper that there did not seem to be any set rules for what type of bankruptcy a person could file if they owned no real assets (Dugas, 1999). If the persons doing the filing did not own property they could choose to file a 13 or a seven. However, a person who has assets can be effectively blocked because the assets are worth to much for that person to be allowed to file a chapter seven proceedings. (Wilbert, 2002) The sour economy has caused a rise in the number of bankruptcy filings according to recent reports (bankruptcy: an overview (http://www.law.cornell.edu/topics/bankruptcy.html)." More than 4,000 individuals and businesses filed for bankruptcy in North Georgia last month - the largest amount ever. Nationally, in the second quarter, there were 400,700 filings, the biggest quarter in history. In the 12-month period ending in June, more than 1.5 million bankruptcies were filed, the most ever in a year's time (France, 2000). Though bankruptcies have been increasing for more than a decade, the economic downturn has exacerbated the problem during the past two years. Consumers are filing the majority of bankruptcies. "People are so stretched out, any kind of buffeting from any place is going to cause that economic house of cards to fall," said Milton Jones, a bankruptcy attorney who has seen the increases firsthand at his College Park office (bankruptcy: an overview (http://www.law.cornell.edu/topics/bankruptcy.html)." learned something that in retrospect I probably should have already known but did not. The consumer increase in bankruptcy filings is directly related to the consumer debts. Consumer debts have increased steadily for the last decade and this has a direct impact on the bankruptcy court flow according to bankruptcy and economic experts. This showed me the trend is that the bankruptcy filings are directly related to how the economy is doing. I realized how this works when I thought about credit. When the was doing fine the consumer was spending everything he or she had. They went out and got credit cared and ran them up to their limits. Why not they reasoned? They both had jobs, the kids were doing well and they had been promised raises and promotions I the future. When the economy began to take a down turn the jobs went stagnate and any were laid off. That promotion that was being counted on was not coming through yet the credit card were racking up interest. The people who had lived so well suddenly found themselves in financial straights with no way out. The economy continued its chokehold on the residents and the credit problems grew. The whole thing snowballed and people who used to work five days were cut back to four or three. People who used to have two family incomes were now a one family income due to a layoff. I discovered that many of my preconceived notions about what type of person files bankruptcy were wrong. People who had spent their lives paying their bills on time and being responsible were nothing more than victims of an economy they did not know was coming. They woke up one day and discovered that all of their hanging on abilities were exhausted and they were still hopelessly behind. They had used their savings, their kids college funds and borrowed from family and still the debts kept climbing. These people were often left no choice but to file bankruptcy and to try and start over. I had to let goof my earlier belief that these people were the dregs of society and accept the fact that bad things really do happen to good people and this may be one strong example. Another notion that I had before the study began was that the laws were designed to protect the consumer from having to do the right things. The reality is that the laws are designed to assist the consumer in starting over but not at the expense of the creditor if there are other options.

In the study of bankruptcy I discovered some surprising facts that I would not have guessed but now make perfect sense to me. One such fact is that women are the fastest growing group of bankruptcy filers in the nation. This makes sense from a purely logistical standpoint once I stopped and thought about it (Thompson, 1999). I realized that divorce statistics say women are often plunged into poverty when they get a divorce while the man's income usually improves. This statistic can easily cross over into the bankruptcy arena and explain why there are so many women filing compared to their male counterparts. "Women accounted for 39% of bankruptcy filings in the 12 months ending March 31, says bankruptcy expert and Harvard law professor Elizabeth Warren. Warren blames divorce for the trend. "If a woman is divorced, she is 300% more likely to file for bankruptcy," she says. Other experts cite the low incomes of many elderly women and their susceptibility to financial fraud. Warren released the data as Congress is considering a bill that would make it harder to file for Chapter 7 bankruptcy, which wipes out most debt including credit card debt. That would hit women doubly hard, consumer advocates say (Thompson, 1999).

Many women with a legitimate need for bankruptcy relief would have a harder time getting into the system and getting a fresh start," says Ellen Nissenbaum of the nonprofit Center on Budget and Policy Priorities (Thompson, 1999). "And many women would have a harder time collecting support payments" from husbands who can't get bankruptcy relief, she says. About 14% of bankruptcies list child support and alimony among their debts, Warren says (Thompson, 1999). "