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What is Chapter 8 Bankruptcy?

by Erin B. Shank

Most people really do not have to worry about Chapter 8 Bankruptcy, aside from wondering how their state income tax dollars (where applicable) are being spent if the state itself is facing a financial crisis. After all, governments are, ideally, not supposed to fail, especially financially. However, we have seen it time and again: state governments wind up in trouble, screaming for a budget cut here and a program cut there. And the major argument in such cases is whether or not the federal government should jump in and bail out individual states. After all, they will do it for large corporations who, theoretically, should be capable of bailing themselves out. Advocates of the plan say the federal government certainly should help a state in financial crisis. Opponents, on the other hand, want another solution. Each side has a valid argument, but the opponents are not completely wrong in keeping with the laws that created separation between the states and federal government. While federal regulations and oversight exists, the states have their own degree of individual power, which brings to mind the idea that each should be capable of solving its own problems.

I recently saw a question posted on one of those unreliable “answers” sites. I found this during a random Google search and clicked on it simply because the preview piqued my curiosity. The original poster asked a legitimate question, “What is Chapter 8 Bankruptcy?” This question was met with a rather rude and uninformed answer that there is no Chapter 8 and the answer briefly elaborated to name Chapters 7, 11, and 13, although others exist. The answer was not completely wrong, but it says the answerer failed to look into the matter and only used minimal knowledge to answer the question.

Chapter 8 is a theoretical band-aid for state financial booboos. While no laws have yet been passed, Chapter 8 Bankruptcy would offer states an alternative option to federal bailouts. The idea is to ease the financial burden for sates, but also to ease any obligation on the part of the federal government, given the already high deficit, other obligations, and state sovereignty.

Right now, it is a question of constitutionality, at both federal and state levels. The jury looks to be out on this one for some time to come.

erin b shank

I have been practicing exclusively bankruptcy law in Texas for almost 40 years. Unlike most other law firms, my firm is exclusively dedicated to helping individuals and small businesses find a way out of their financial difficulties through the use of our nation’s bankruptcy laws.

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