Last week, I wrote about some of the reasons a bankruptcy debtor can be denied a general discharge, or can lose a discharge after the court has entered it. The loss of a debtor’s discharge is a serious matter, and it usually can only happen when there has been active misconduct of a criminal, or at the very least quasi-criminal nature by the debtor relating to the bankruptcy proceedings, or the debtor’s assets. Since the reason people file bankruptcy cases is to receive a discharge of their debt, debtors need to know what kind of behavior leads to revocation of discharge so debtors do not put their discharge at risk.

There is a moment in many client conferences I have where the prospective client asks the question: “what if this bankruptcy doesn’t go through?" What if we can’t get this relief that we need financially?” It’s a common anxiety and I try to be reassuring to clients. If we (and by we I mean both our clients and our office) do our jobs properly, they don’t have to worry about “losing” a bankruptcy case. The case is filed properly, the client participates in the process appropriately and at the end of the process, whether in a chapter 7 or chapter 13 bankruptcy case, the client receives the benefit of a bankruptcy discharge.

One of the concerns we address with almost every client is the fear of losing assets in bankruptcy. The belief that you will lose your property when you file bankruptcy is a myth perpetuated by creditors and others to instill fear so you will not consider bankruptcy as a solution to your debt. However, here is the truth: your assets can be protected during personal bankruptcy.

In fact, filing a bankruptcy case can even SAVE your assets from being seized and sold by creditors. Individuals who may potentially face foreclosure or repossession can file bankruptcy to keep their house, vehicles and personal property. When you file a bankruptcy case, the automatic stay prevents creditors from continuing or starting actions to foreclose or repossess your property.

Bankruptcy and divorce are two concepts that most people never entertain as they are beginning their adult life. As we step out into the adult world to begin building our life, we never dream that one day we may be facing overwhelming debts that we cannot pay and a failing marriage. Bankruptcy and divorce can crush your dreams, your spirit and life as you know it.

In my last two blogs, I looked at debts that aren’t discharged in a bankruptcy case. Two weeks ago I looked at debts that are never discharged - student loans, most income tax debt, obligations to pay child support or spousal maintenance, to name a few. These debts are presumed to be non-dischargeable in a bankruptcy case. That means that the creditor does not have to bring an action in bankruptcy court to determine that these kinds of debts are not subject to a bankruptcy debtor’s general discharge; if there is going to be a judicial determination of dischargeability, the bankruptcy debtor has to bring the action to determine whether the debt can be discharged in the bankruptcy case, and the presumption is that the debt is not subject to discharge.

Last week, I wrote about 8 debts that a bankruptcy debtor may have that are not discharged, even if the bankruptcy client receives a “general” discharge. The kind of debts I wrote about - child support, most taxes, student loans, to name a few - are debts that are never discharged in a bankruptcy case.

People who file a bankruptcy with the types of debts that are never discharged must bring a lawsuit against the creditor in bankruptcy court if they feel, for some reason, that the debt in question should be discharged, despite its characterization. It’s up to the debtor to do this; if the debtor does nothing to contest the non-dischargeability of the debt, the bankruptcy debtor remains liable for the debt after discharge.

It’s not a bad idea to take a look at some people you know - people who are successful by almost any definition who have been through the Bankruptcy Process. These people had something unexpected happen to them financially that led them to file a bankruptcy case. When you know the financial stories of these actors, musicians, sports figures and politicians, it sheds light on why we have a bankruptcy law. It reinforces the idea that “regular” people facing financial difficulty should consider protecting their paychecks, their assets, and their family’s financial security through using the bankruptcy law.

The purpose of filing a Chapter 7 or Chapter 13 bankruptcy case is, plain and simple, to discharge debt - to make debt that has overwhelmed a debtor and his family “go away.” In order to receive a discharge, the bankruptcy debtor must comply with the provisions of the bankruptcy code. So legally proper papers must be filed with the bankruptcy court, all assets and liabilities identified and relevant financial transactions disclosed. The bankruptcy debtor has to attend a meeting with the case trustee, and must cooperate with the trustee and follow court orders to receive a general discharge.  

One of the worst things about having money problems is the feeling people with these problems have that they are alone and isolated - that no one else has these problems. It is easy, if you are in a situation where debt problems have overwhelmed you, to feel as though you are the only person facing these problems. Nothing could be further from the truth. The truth is that many famous people have filed for bankruptcy protection. Some well-known people filed bankruptcy before they became well-known; some filed at the height of their fame. It’s good to know that even people who seem to have everything have money problems. And it’s very good to know why a well-known person filed bankruptcy case - that can help explain the circumstances in which bankruptcy can help individuals with financial problems. Let’s take a look at some familiar names who have filed a bankruptcy case, and why.