Bankruptcy: The Opportunity, But Not The Entitlement, To A Fresh Start

The mission statement of the United States Bankruptcy Court for the District of Maryland is to “promote social and economic order by reconciling the opportunity of debtors to a fresh start with the right of creditors to be paid.” A Google search of “fresh start bankruptcy” turned up about 2,560,000 results. A search of bankruptcy court cases for the phrase “fresh start” yielded 7,529 results, the most recent being on September 6, 2012 (the phrase appears in a published case almost every day).

The discharge in bankruptcy has been described as “unquestionably the heart and soul of the ‘fresh start’ that Congress intended to provide the poor but honest debtor in bankruptcy.” In re Jones, 367 B.R. 564, 568 (E.D. Va. 2007).  Back in 1934 the US Supreme Court articulated the power of the fresh start by explaining that a bankruptcy discharge

gives to the honest but unfortunate debtor who surrenders for distribution the property which he owns at the time of bankruptcy, a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt.

Local Loan Co. v. Hunt, 292 U.S. 234, 244, 54 S. Ct. 695, 699, 78 L. Ed. 1230 (1934).

Certainly, there is a cost to this fresh start. Besides the filing fee (which can be waived for the neediest of debtors) there is the obligation of “good faith”. Among the 7,529 case results for “fresh start”, the phrase “good faith” appears 2,055 times. In testing whether a debtor has acted in good faith, bankruptcy courts look to a number of factors, including:

  • whether the debtor has stated debts and expenses accurately;
  • whether the debtor has made any fraudulent representation to mislead the bankruptcy court;
  • whether the debtor has been forthcoming with the bankruptcy court and the creditors
  • whether the debtor has attempted to unfairly manipulate the court, creditors and the bankruptcy code.

To earn their fresh start, debtors must do more than simply submit their names and social security numbers to the bankruptcy court. This is why the initiating document in bankruptcy court is called a “Petition”: debtors are petitioning the court to grant them a discharge of their debts. The petition is granted only after the debtor fairly, completely and accurately discloses their assets and debts, income and expenses under penalty of perjury. In this way, by engaging in honest and forthright conduct, a debtor will enjoy the powerful fresh start promised by the Bankruptcy Code in the American system of laws and government.


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