The Facts About Personal Bankruptcy

The thought of personal bankruptcy is very frightening, however
over 54 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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