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The Facts About Personal Bankruptcy
By: Dr. Jay B Stockman O.D.
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.
About the Author:
Jay B Stockman is a contributing editor for Online Bankruptcy Resources Visit
http://online-bankruptcy-lawyer.com/ for more information.
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