If you do an internet search with the question “What is the purpose of bankruptcy?” your computer screen with come up with something that most likely says “The main purpose of bankruptcy is to give a debtor a sort of fresh start by relieving him of most of his debts or to pay back his creditors what he can . . . “

True, but in my experience as a bankruptcy attorney, I see two purposes of bankruptcy:

The purpose of bankruptcy is:

#1:  To get people stuck in debt – unstuck from debt;

#2:  Because it’s good for society, economy, you – for its members to be productive again.

So the full answer to “What’s the main reason that bankruptcy laws exist?” is

To get a person out from under a mountain of debt so that he can become productive again.  Productivity is going to mean different things to different people, but it always has to do with more freedom in the ways you spend your time and money.

Given there’s a before and after bankruptcy to consider, here’s a few points about getting out of debt, becoming and staying productive, after completing a Chapter 7 or Chapter 13 bankruptcy

1. To get out of debt:  file a Chapter 13 bankruptcy. Okay, you’ve tried every route and creditors are not willing to negotiate for the better terms you need in order to continue making monthly payments on your debt-as-it-exists now. Since your creditors are unable or unwilling to work with you privately, then with the help of a bankruptcy attorney you come up with a repayment plan that a judge will accept, and now your creditors will have to accept this practical Chapter 13 repayment schedule.  If you have regular income, and can work up a plan that pays all creditors a fair portion of what you owe them within 3 to 5 years, then the plan will likely be accepted in your bankruptcy case.  When you pay your trustee each month, the money will be paid to your creditors.  And you are getting out of debt.
2. To get out of debt:  file a Chapter 7 bankruptcy. A Chapter 7 filing will discharge most of your unsecured debt.  It varies by state, but in most cases you can keep certain assets, even your house, up to a certain value amount.  You need professional advice to find out what assets you can keep and what will be turned into cash to pay your creditors.  If all your assets are exempt from sale, and all your debt is dischargeable, then your total debt is zero – you are totally out of debt.
3. To become productive: After bankruptcy – evaluate your assets and expenses. What is luxury costing you?  Hopefully, it’s not peace of mind.  Your home may be your castle and your car your trusty steed, but could smaller payments and lower interest be a more productive use of money rather than moat repair costs and lots of expensive oats?
4. To become productive:  After bankruptcy – look for ways to be creative about how you make income.  Did you know that lowering stress levels makes you more creative?  Did you know that many inventions and services came into existence during past economic downturns?  Could you discover ways to turn the money you spend (for instance, on a hobby) into another way to make money?  Start thinking ROI, Return on Investment.  You might be surprised the practical and bright ideas that come to mind when you’re not completely stressed out about money.
5. To stay productive: After bankruptcy – stay out of debt, stop borrowing money. Does this seem like a DUH! to you too?  Isn’t it in the category of “when trying to lose weight, limit donuts to two boxes a day,” or “if you want to avoid headaches, stop hitting your head against the wall”?  Pay credit card charges once at month or stop using your credit cards completely; debit cards work fine now for almost anything.  Take common sense steps to economize; pay cash for necessities, stop thinking about money, and start enjoying real life.

Financial Freedom Law focuses on Chapter 7 and Chapter 13 debt relief and invites anyone who is spending too much time dealing with creditors, and not enough time dealing with the next steps to financial recovery, to call or email to discuss your individual circumstances.  Please contact our Sacramento office at 916-313-9069 or via email at info@california-bankruptcyattorney.com