It was a pleasure to have my good friend, Attorney Sharanya Guruajan, of SGLaw, on Everyday Law to talk about bankruptcy practice. Attorney Gururajan and I met shortly after I began my own practice in 2009, but Attorney Guruajan had gained her expertise in bankruptcy law after graduating the University of Illinois Law School in 2005.
The 2005 Revision to the Bankruptcy Code
That year – 2005 – was a very busy year for bankruptcy practitioners, because just at that time, the Congress had revised the Bankruptcy Code in order to make it less lenient to debtors. The last revision of the Bankruptcy Code had loosened the reins, but now Congress believed that they needed to be tightened, because debtors were getting out of their obligations, perhaps, too easily.
That “tightening” created a crush of business, because people in financial distress wanted to get their bankruptcy petition filed before the new, more stringent rules went into effect. Moreover, in addition to the change in the rules, the Great Recession was just beginning, ensuring that all bankruptcy attorneys were busier than ever.
The Softer Side of Bankruptcy Work
Attorney Gururajan stated that bankruptcy work requires more than just legal skills, and financial skills; it requires people skills too.
“When I first started my practice, I had grown men walking into the conference room, looking at me, and hanging their head in shame,” Attorney Guruajan recalled. “Because they thought that they had let everyone down. So early on I realized this was not just a legal job. It had to do with feelings and emotions too.”
Because of the stress and embarrassment of people facing serious financial difficulties, Attorney Guruajan employs psychology as well as her legal expertise in comforting her clients, and ultimately addressing their legal and financial situation.
Chapter 7 “Liquidation” v. Chapter 13 “Repayment” Bankruptcies
There are two main types of bankruptcies that affect consumers: Chapter 7 and Chapter 13. Chapter 7 is known as a “liquidation plan”, while Chapter 13 is a “repayment plan.”
In a Chapter 7 bankruptcy, the debts are discharged, after any assets of the debtor are sold and creditors are paid. The tricky part of a Chapter 7 bankruptcy is qualifying in the first place, because the “means-test” restricts this kind of process to only those truly in need – with no way out.
In contrast, if a debtor is a wage earner, has an income (and does not qualify for the “means-test”), that debtor will usually seek Chapter 13 bankruptcy and pay back creditors, over time, on a repayment plan.
Who Are the “Players” in a Typical Bankruptcy?
There are many individuals involved in a bankruptcy filing including the debtor, creditors, trustee, judge and U.S. Trustee.
The debtor starts the bankruptcy by filing a petition. The petition triggers the “automatic stay,” which stops all collection proceedings against the debtor (to the debtor’s great relief!). No creditor after that can collect against the debtor. Even trying to will risk sanctions by the Bankruptcy Court.
The trustee oversees the management of the “bankruptcy estate” created by the filing of the bankruptcy petition. The trustee protects the creditors.
The bankruptcy judge presides over the bankruptcy; while the U.S. Trustee makes the determination that a debtor who has filed for bankruptcy passes the “means-test”, that qualifies the debtor to proceed with the bankruptcy.
How Will Bankruptcy Affect Me?
Many people worry about the effect a bankruptcy will have on their credit rating. Attorney Gururajan points out that if you have not been making payments on your mortgage or credit cards, then your credit rating has already been affected. If you are struggling with debt, then you may benefit from consulting with a bankruptcy attorney in order to learn if filing a bankruptcy petition is an option for you. A bankruptcy attorney can assess the type of debt an individual has and recommend the best course to help you regain your financial footing.