Today, we are going tell you everything you need to know about bankruptcy law, and some things you don’t. This will be quick so hold on to your hat.
The idea of bankruptcy has been around since the days of the Old Testament and the tradition of “the Jubilee” in which slaves were freed and debts forgiven every 7 years. This is an ancient counter-part to the modern tradition of The Purge – in which all crimes are legal for 12 hours. Oh…that’s just a movie. Darn it, I was making plans …
Anyways, going back to the founding of our Country, the United States Constitution says that Congress has power to pass laws regarding bankruptcy but the truth is that Congress didn’t really get around to it until 1898 when modern bankruptcy laws were passed – it only took them 120-some years … not bad.
In fact, up until the Civil War, not only did we not have modern bankruptcy laws but we still had debtor prisons where you were jailed if you went behind on a loan. If that sounds like a crazy idea, remember we still jail people for monetary obligations like court costs and non-payment of child support. So don’t judge our ancestors too harshly.
There are essentially 2 types of bankruptcies for both individuals and companies – liquidations and re-organizations. The liquidations are both under Chapter 7 of the Bankruptcy Code. So, the Jubilee was every 7 years, God rested on the 7th day, Chapter “7”of the Bankruptcy Code, hmmm … .”
Anyways, in a Chapter 7 Bankruptcy, the debtor discharges all debts except for child support payments and taxes. Remember, you never escape the tax man.
The bankruptcy court appoints a trustee to take a look at your assets and to take them to pay back your creditors. The Chapter 7 debtor is only allowed to keep a certain amount of stuff, called exempt property, and the rest is sold to pay back creditors. No, you cannot keep your Mercedes and boat unless you have a VERY creative lawyer.
If you find yourself thinking about a Chapter 7 bankruptcy you are not alone. Many business people are risk takers and famous and rich business people have found themselves utilizing the bankruptcy laws.
The one and only Walt Disney filed back in 1921, giving himself breathing room to create Mickey Mouse in 1928 and to make Snow White and the Seven Dwarfs in 1937. Hmm … “7” dwarfs – seven AGAIN.
Gold medalist and heavy weight champion George Foreman made millions boxing yet still found himself in bankruptcy in 1983, yet was able to fight his way out of it which gave him space to become the oldest heavyweight champion ever and, much more importantly, create the George Foreman Grill. He sold 100 million of those things and that is some heavyweight marketing genius right there.
The other type of bankruptcy is a reorganization of debt which is under Chapter 13 for an individual and chapter 11 for a business. For individuals, a Chapter 13 entails making monthly payments for 3 for 5 years based upon how much money you make and what your expenses are. One of the cool things about a Chapter 13 Bankruptcy is that you possibly can “strip” 2nd and even 3rd mortgages from your home. I call this legal process of stripping the lien the “Magic Mike” maneuver. Can I say that? I mean, it was only rated R.
You may have heard that President Trump is very proud of his bankruptcies and it’s true that President Trump’s companies have been to bankruptcy Court at least 4 times. In a Chapter 11 bankruptcy, the Judge will look at the numbers and reduce the business’ amount of debt to a figure which will allow the business to continue operating while paying back a certain amount of its debt. I think we’ll be seeing a lot more chapter elevens in the next year or two unfortunately.
And there you have it – Jubilee, Debtor Prisons, Chapter 7, no Mercedes, the George Foreman Grill, Chapter 13, Magic Mike, Chapter 11 and President Trump. And now you know.