Honestly, most people don’t know what a bankruptcy really is. What does it actually mean to “file bankruptcy?” Does the government or some other organization pay my bills for me when I file bankruptcy in Omaha or anywhere else?
These are really good questions. When I graduated from Creighton Law School located in Omaha, Nebraska in 1989, I had a general idea of what it meant to file bankruptcy, but the concept was still a bit fuzzy. In fact, although there are a few bankruptcy elective courses that law students can take, nobody comes out of law school as a “bankruptcy attorney.” Learning what and how a bankruptcy works is something that you learn after law school.
Most of us probably remember playing the game “Monopoly” during childhood. I know that I do. I used to play that game with my sibling for hours at a time. Of course, everyone remembers what it meant to go BANKRUPT; you basically lost all of your money and property if you couldn’t pay another player or the bank a debt that what was owed. In the real world, bankruptcy works a little differently, but the idea is the same. Fortunately, the law provides for some safeguards to protect you to an extent (these laws are referred to as exemptions or bankruptcy exemptions) if you need to file bankruptcy, which is a topic for another day.
To explain what a bankruptcy is and how it works, it is easier to imagine that you are the creditor…..the person or company that is owed money by you. Let’s say that you are a fictional local Omaha creditor by the name of Omaha Medical Center, Inc. and your hospital provided Mr. Bill Jones with medical services from a recent bicycle accident, including extensive surgery to reconstruct his right leg. Bill is a single person and lives in an apartment in Omaha and works as a truck driver for a local distribution company. Bill earns, on average, about $25,000 per year but has a lot of debts including a $400 per month car payment, monthly rent at $700 and medical bills totaling $27,000, mainly from the bicycle accident. Bill was medically uninsured when he had the accident and has no savings. About 4 months after the accident, he starting getting collection calls about his medical bills and has been threatened to either pay his bill or face a lawsuit and garnishment at his place of employment. Last month, Bill was actually sued by an Omaha based collection agency and a judgment was obtained against him and a garnishment was sent to his employer.
Bill then decides to look into his options and finds out that he qualifies to file for bankruptcy in Nebraska. For the sake of this article, let’s now fast forward about 4 months and assume that Bill went through the process of filing a Chapter 7 bankruptcy and his case was officially approved by the Bankruptcy Court here in Omaha, Nebraska. In fact, Bill just receives a final letter from his bankruptcy lawyer telling him that everything went very well and that he know longer needs to worry about his bills.
So, what does Bill’s bankruptcy mean to Omaha Medical Center, Inc.? It means this:
1. Omaha Medical Center received a document in the mail that orders it never to contact Bill again regarding this debt. This document is commonly referred to as a Discharge Order and is issued by a federal bankruptcy court. Even organizations such as the Internal Revenue Service and the Department of Education must obey such an order.
2. Omaha Medical Center will not be paid by the government nor be paid by any other entity. The bottom line is that Omaha Medical Center simply cannot do anything to collect the debt.
3. Omaha Medical Center may not send this uncollected debt to a collection agency nor may it even send a “nice” letter to Bill asking him to voluntarily pay it.
This is powerful medicine! From this simple example, you can see that a Bankruptcy is ultimately just a court order that commands the creditor to STOP all collection efforts forever! If the creditor foolishly decides to disobey this order, then they can and will be held in contempt of court resulting in punishment of some sort, including payment of a fine or, in extreme cases, imprisonment of the responsible party.
Now that we know what the end result or objective of a bankruptcy is (a court order to the creditors to stop collecting forever), the next thing to discuss is how does a person qualify for bankruptcy? Are there different types of bankruptcies, what are the qualifications, what are the consequences of bankruptcy and is it a good idea?
These answers vary on a lot of factors that only a qualified and experienced bankruptcy attorney can provide.