The Facts About Personal Bankruptcy

The thought of personal bankruptcy is very frightening, but 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, split or death of a spouse. According to economists’ surveys, the classic bankruptcy filer is a blue collar, high school modify who is the head of a household in the lower midpoint-income class with heavy use of credit. In order to protect both debtor, and creditor, laws were enacted to provide equal, and honest measures to fit the objectives of all parties. The primary purpose of the laws of bankruptcy are: (1) to give an trustworthy debtor a fresh initiation 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, The boards 7 or The boards 13. Over two-thirds of personal filers choose The boards 7 bankruptcy. Basically The boards 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, The boards 13 does not require liquidation, rather a debtor agrees to a specific payment plot, whereby a part 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 tariff 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 shape 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 Council 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 hard through income-means testing, tougher guidelines for the homestead exemption, augmented lawyer liability and required credit counseling.

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