Reference - Facts About Bankruptcy
The thought of personal bankruptcy is very frightening, however over
5.4 per 1,000 people have filed for bankruptcy last year, and this rate
has been growing at an average of nearly 7 percent. Researchers have
determined that the primary cause of personal bankruptcy is
uncontrollable levels of consumer debt oftentimes coupled with an
unexpected event, such as a major medical expense not covered by
insurance, the loss of a job, divorce or death of a spouse. According to
economists’ surveys, the classic bankruptcy filer is a blue collar, high
school graduate who is the head of a household in the lower
middle-income class with heavy use of credit. In order to protect both
debtor, and creditor, laws were enacted to provide equal, and fair
measures to satisfy the objectives of all parties. The primary purpose
of the laws of bankruptcy are: (1) to give an honest debtor a fresh
start in life by relieving the debtor of most debts, and (2) to repay
creditors in an orderly manner to the extent that the debtor has
property available for payment.
There are two types of structured plans for filing for personal
bankruptcy, Chapter 7 or Chapter 13. Over two-thirds of personal filers
choose Chapter 7 bankruptcy. Basically Chapter 7 requires the debtor to
liquidate all non-exempt assets, and have them distributed among
creditors. Some examples of exempt assets include equity in a primary
residence, and a retirement program. On the other hand, Chapter 13 does
not require liquidation, rather a debtor agrees to a specific payment
plan, whereby a portion of any unsecured debts is paid, and the balance
is forgiven. It must be stressed, that under both plans, certain debts
are ineligible for bankruptcy protection. These debts include government
student loans, child support, alimony, and income tax debt. These must
be paid back in full.
Some analysts are concerned that this unprecedented level of debt might
pose a risk to the financial health of American households. In an
attempt to reverse the increasing trend in personal bankruptcy, the
federal government has recently implemented sweeping bankruptcy reform
legislation. On March 10, 2005, the Senate passed S. 256, the Bankruptcy
Abuse Prevention and Consumer Protection Act of 2005. On April 20th,
President Bush signed into law the Bankruptcy Abuse Prevention and
Consumer Protection Act of 2005 (Bankruptcy Act of 2005). This act makes
filing for bankruptcy more difficult through income-means testing,
tougher guidelines for the homestead exemption, increased lawyer
liability and required credit counseling.
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