Take a look at bankruptcy attorney advertising and you will find the phrase “fresh start” used ad nauseam. What exactly does it mean to have a “fresh start” through bankruptcy?
What Fresh Start Means
Bankruptcy is a federal legal process for helping people who can no longer pay their creditors get a “fresh start” – by liquidating assets to pay their debts or by creating a repayment plan. Essentially, bankruptcy reorganizes your finances. You pay your creditors what you can afford, either by using your income or non-exempt assets, and what you cannot afford is discharged. A debt discharged through bankruptcy is no longer legally enforceable against you. For most, the bankruptcy discharge is the essence of the “fresh start.” As the US Supreme Court said:
[Bankruptcy] gives to the honest but unfortunate debtor…a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt.
After the bankruptcy case, you will have a reasonable amount of property to start over and few debts, if any. The bankruptcy discharge protects you from any personal collection effort. Any attempt to collect or coerce payment from you can be penalized by contempt of the bankruptcy court. This included a bill through the mail, a telephone call, or a lawsuit.
What Fresh Start Does Not Mean
While the vast majority of debts are discharged in bankruptcy, some debts have been excluded from the bankruptcy discharge for public policy reasons. Bankruptcy does not discharge certain debts (like child support); some debts are discharged only in certain situations (like taxes); and a select few debts are rarely discharged (like student loans for undue hardship). A debt may be excluded from the bankruptcy discharge by law, by a specific order of the bankruptcy court, or by agreement between the debtor and creditor.
A fresh start does not “erase” a debt. The discharge is technically an injunction that makes a debt uncollectible. The debt still remains and may show up on a credit report, but all activity on the debt must stop from the day you file bankruptcy. The creditor may also attempt to collect from a source other than the debtor, like from liened property or from a co-debtor who has not filed bankruptcy.
If you are struggling with debt and need a “fresh start,” consult with an experienced bankruptcy attorney. The bankruptcy law is powerful protection and can discharge debts permanently. A bankruptcy fresh start may be just the thing you need for a new financial beginning.