The Facts About Personal Bankruptcy
Jay Stockman
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.
Jay B Stockman is a contributing editor for Online Bankruptcy
Resources. Visit
http://online-bankruptcy-lawyer.com/ for more
information.
<< -------------- End of Free Reprint Article ----------- >>
Find More Free Articles
See Also:
Back to All
Articles About Money & Finances
Index of All
Free Reprint Articles
