Who Files Bankruptcy – The Answer Will Surprise You
By Steven A Leahy
With the Trump Bankruptcies in the news lately, you may be wondering “Who Files Bankruptcy?” The answer may surprise you. Bankruptcy is a Federal Law and is administered by the Federal Court System under the rules of the U.S. Bankruptcy Code. “The primary purposes of the federal bankruptcy laws are to give an honest debtor, either a person or a business, a ‘fresh start’ in life by relieving the debtor of most debts, and to repay creditors in an orderly manner to the extent that the debtor has property available for payment.”
In the first three months of 2016, 201.906 bankruptcy cases were filed nationwide – a vast majority (195,679) were consumer cases. There are 90 Bankruptcy Courts – each a unit of a U.S. District Court. The Northern District of Illinois is comprised of the Eastern and Western Divisions, and has 10 bankruptcy judges. 11, if you count the retired Judge that handles a limited case load. The Northern District of Illinois encompasses 18 counties – with court locations in Chicago, Joliet, Rockford, Lake County and Geneva.
The Northern District of Illinois leads the nation in bankruptcy filings with 47,535 case filings over the 12 month period ending March 2016. That is actually a decrease of 6.6% compared to the previous 12 month period. A recent study revealed the top reason people file for protection under the bankruptcy code is – Medical Bills! The second reason is – Job loss! Both of these reasons may have nothing to do with the person filing bankruptcy.
I help people resolve their IRS problems. As I have mentioned many times – there are only 6 things you can do if you owe the IRS money. One of those six things is bankruptcy. Many of my clients are reluctant to even consider bankruptcy as a remedy. They believe it isn’t morally available to them. They have always paid their debts, and filing bankruptcy would go against that value.
First, often a tax debt includes an unreasonable amount of penalties and interest. A debt that may not hold the same moral obligation as the underlying debt. Second, as I explain to my clients, bankruptcy does not protect you from your moral obligations. Bankruptcy only protects you from some legal obligations. My favorite example is Abraham Lincoln. That’s right Honest Abe sought protection under the bankruptcy laws. You see, he had creditors taking legal action against him after a failed partnership in a General Store.
The Bankruptcy Code protects a person from their creditors. Most creditors are prohibited from collecting on the debt. It does not, however, prevent that person from repaying their creditors if they elect to do so. Honest Abe is a good example of this concept. Once granted legal protection from his creditors, Abraham Lincoln felt he still had moral obligations to repay his creditors. He paid every creditor back. It took some time to accomplish this – but in the end, his creditors were paid.
If you were to seek legal protection from your creditors, like the IRS, you could still repay the debt, at your convenience, should you feel a moral obligation to do so. Maybe you feel a moral obligation to pay the underlying debt, but not the unreasonable penalties and interest. You could do that. The IRS would accept the money!
If you have IRS problems and need the help of a professional to resolve it – I encourage you to call my office. Opem Tax Resolutions and the Law Office of Steven A. Leahy, PC helps taxpayers resolve their IRS problems