As applying for loans, credit cards and other forms of credit are easier to
come by, so are the bankruptcy rates in the United States. In a ten year period,
between 1994 and 2004, bankruptcy rates in the United States nearly doubled. The
government’s reaction was to take a closer look at reasons parties were filing
for bankruptcy, new laws were instated to ensure that individuals and businesses
had valid reasons for applying for bankruptcy.
One of the primary laws regarding bankruptcy that was passed in the United
States in 2004 is the Bankruptcy Abuse Prevention and Consumer Protection Act.
This law just went into effect in October 2005, but has already caused quite a
stir in the financial and bankruptcy law arenas. Besides making it more
difficult to qualify for Chapter 7 bankruptcy, or complete bankruptcy, the law
imposes stricter rules and budgets on Chapter 13 debtors.
A major change the law makes throughout the United States is the need for
debtors to have filed tax returns for four years in a row before qualifying for
bankruptcy. As well, dischargeable debts, or those debts where personal
liability is taken away by the court system, is more difficult to come by. The
Act requires that debtors prove good reason for dischargeable debt and is even
requiring more debtors to take responsibility with non-dischargeable debt
budgets.
As far as the two major types of bankruptcy laws are concerned, Chapter 13
bankruptcy is that which allows the debtor to keep some assets upon proving only
limited debt and a steady income. This bankruptcy is excellent for those debtors
who have gotten themselves into major financial difficulty but still have means
of paying for some assets. The court will set up a repayment schedule and budget
that allows for full repayment of mortgages or cars within three to five
years.
If repayment is simply not an option, the bankruptcy law requires that a
debtor will file for Chapter 7 bankruptcy. This is often referred to as complete
liquidation of assets, except for exempt items. Exempt items in a bankruptcy
hearing are determined by the court and are usually items that are a necessity,
such as a car or work related items. As well, the courts will distribute debts
into two categories: non-dischargeable and dischargeable debt.
Non-dischargeable debts also fall into two categories: non-dischargeable due
to wrongful conduct on the debtor and non-dischargeable due to public policy.
Wrongful misconduct by the debtor could mean theft or laundering money while
public policy could include child support payment or court related
judgments.
Keep in mind that in either type of bankruptcy, an individual is almost
always required to still pay for taxes, student loans, alimony, child support or
court related fees. This is the place where many bankrupt parties are misled in
the Chapter 7 bankruptcy, as it is often referred to as "a fresh start". While
the court can set up payment plans to help the debtor repay public policy debts,
even Chapter 7 debtors will still be required to make payments.
Another major point regarding bankruptcy law is that a bankruptcy will stay
on a credit report for approximately ten years. This will make it extremely
difficult to become eligible for any type of credit, even a credit card, but
especially for a car loan or a house mortgage. While some creditors will still
offer limited credit to bankrupt individuals, the interest rates and finance
charges are usually through the roof. This makes it even more difficult for
debtors to get back on their feet.
Last but not least, keep in mind that bankruptcy law will require any
co-signers to be responsible for debt payments. If mom or dad signed for a car
loan when you were young and you still owe on that car, they are liable for
payments. These friends or family members who were once doing you a favor may be
brought into the bankruptcy law court proceedings, which can put a strain on
friendships and family relations.
For specific bankruptcy law questions it is best to contact a bankruptcy
attorney or legal aide in your county or state. Bankruptcy laws and proceedings
may vary slightly from state to state, so be sure to make contacts in the state
where you plan to file for bankruptcy.
Credit: Ian W Anderson of Bankruptcy 411, the bankruptcy information site.
For more bankruptcy information and articles like this one visit: Bankruptcy Law
