- Personal Finance
Bankruptcy: A Quick Introduction to Debt Relief
From Riches to Rags
As her name implies, Patricia Kluge was once married to John Kluge, billionaire pioneer of television broadcasting. She is a socialite with entries such as "Trump, The Donald" in her little black book.
Ms. Kluge is accustomed to a living space that includes a four-poster bed from England's Hedingham Castle, a Chinese Qing dynasty clock, a George III crystal chandelier, Faberge silver, a world-class art collection of paintings and Roman statues and, of course, a Chippendale commode - to name just a few appointments.
She never gave a thought to her personal accoutrement, which was always to-kill-for. Platinum and 64 carat diamond ear clips and a sapphire-and-diamond Cartier watch are the sort of accessories that tended to adorn her person.
For a hobby, Ms. Kluge built up a 776-acre vineyard in Virginia that produced wine worthy of a place at the White House table. It's been estimated that she invested over $44 million in the business.
Right about now, you may be wondering, "So, what's all this have to do with us 'little people'?"
Quite a lot.
While Ms. Kluge has lived her life with access to resources that most of us can't even imagine, she still lives within the same financial system that us "little people" must also deal with - a system that is fueled by credit.
Much, if not most, of Ms. Kluge's lifestyle was sustained by credit. At a certain point, there came a reckoning.
In her desperation to pacify the wolves, Ms. Kluge has auctioned-off most of her holdings, including all of the above-mentioned treasures. But the wolves will not be sated.
Luckily for Ms. Kluge, there are laws in place that that can ease her hardship. She has filed for Chapter 7 bankruptcy, setting limits on her creditors.
Luckily for us "little people", these laws apply to us, as well.
An All-Too-Common Problem
Now to my point.
The reason I outlined Ms. Kluge's tale is to try to ease the guilt and consternation regular folks are likely to experience when facing bankruptcy, since, as we have seen, anyone can find themselves in financial straits.
Which leads to my real point.
The reason that any one of us can find ourselves in financial straits is that the goal of financial institutions is to get every single one of us into financial straits. What do you suppose all that fine print is about? We all need to understand that these institutions are bound to achieve their goal, since, as we have been informed (by the authority of our own government, no less), they are too big to fail.
Let's face it; the cards are stacked against us. Wall Street has bribed our government into enacting legislation that favors them in every respect. Between the obscene interest rates, hidden fees, balloon payments and all the other dirty tricks tucked into the fine print, its amazing that more people haven't lost their homes and businesses.
So, where does this leave us?
It leaves us in a position where filing for bankruptcy may be the best option for many of us. The US bankruptcy laws offer one of the few shelters from Wall Street's assault on our wallets left to the average person.
Patricia Kluge filed Chapter 7, often called a straight bankruptcy, which is a liquidation proceeding. She surrendered all her non-exempt property to a trustee who will then sell it and distribute the proceeds amongst her creditors. Then, probably within four months, she will receive a discharge of all remaining dischargeable debts. Chapter 7 is the most commonly used type of bankruptcy. If you're over your head in debt and you have few or no assets to lose, this may be the best option for you.
On the other hand, if you have a regular income and non-exempt property that you don't want to lose, then Chapter 13 may be the way to go. Because the court may work with you to get the interest reduced or even eliminated, and it allows you to restructure your debt so as to pay it all off within three to five years, it's also known as a reorganization bankruptcy.
There are other types of bankruptcies, but the two I've briefly touched on are by far the ones most likely to be applicable to the average person. I have not even scratched the surface of the subject. This is only meant as a brief introduction, so if you're thinking of filing for bankruptcy, please research the topic thoroughly and/or consult a professional.
While I maintain that bankruptcy is a legitimate tool that should be used with a clear conscience when needed, I should also mention that it has its limits, and remind you that its use has negative repercussions. Certain debts, such as student loans and child support, are exempt from bankruptcy, for example, and the black mark on your financial records will follow you around for a decade. The decision whether the good outweighs the bad must be made.