Home > Bankruptcy Law > . . .

Changes To The Laws Of Filing Bankruptcy.
By Matt Jackson

What Is Bankruptcy?

Bankruptcy was introduced to America in 1800 in a bid to allow those in heavy debt the opportunity to start again and recover from financial ruin. Well over 1 million Americans now file for bankruptcy because they believe it is the only way out. Because of the ease of gaining credit and the number of different credit options available to American consumers, it often is the last resort but one that an increasing number of consumers are being forced to rely on. It is because of these increased changes in the financial marketplace and the number of people in irretrievable debt positions that George Bush passed new legislation in April 2005 to bring bankruptcy laws up to date. The legislation also seeks to prevent bankruptcy being a way to side step the repayment of debts.

Chapter 7 Or Chapter 13 Bankruptcy?

There are two forms of bankruptcy and the major changes in 2005 were aimed at updating chapter 7 bankruptcy. A Chapter 7 bankruptcy allows a debtor to keep certain essential assets and their financial obligations while renouncing any other debts, while a chapter 13 bankruptcy allows a reorganization of debts. Chapter 13 bankruptcy proceedings may lead to an extended period of time to repay debts and even a reduced settlement figure.

The Changes To Bankruptcy Laws.

As mentioned, the changes have mostly been made to chapter 7 bankruptcy cases. All chapter 7 applications will now be means tested and if the debtor is found to earn the equivalent of the median income for their state and is able to repay $100 per month, will no longer be eligible to file a chapter 7 bankruptcy. It will also be necessary to have paid for registered credit counseling services prior to filing bankruptcy. These are only a brief summary of the changes and the actual document consists of more than five hundred pages.

Pros Of The Changes.

Lenders argue that the changes are beneficial because they help prevent borrowers from getting out of making repayments. They also argue that the reduction in these instances will essentially mean the reduction in charges levied against genuine customers who make all repayments on a timely basis. Borrowers abusing credit cards is one primary example of this act. They simply run up huge credit card bills on various different cards and then file for chapter 7 bankruptcy. The rules aim to prevent this kind of thing happening.

Cons Of The Changes.

On the other hand those who are against the new introductions claim that the changes make the financial freedom offered to those with no other option much less achievable. They also argue that the credit card companies are in part responsible for many of the vulnerable and genuine people who find themselves in an unmanageable financial predicament.

Final Considerations Of The Changes To The Bankruptcy Laws.

In all actuality it is highly unlikely that the changes will actually make that much difference to prevent the unscrupulous use of bankruptcy. However, it could prevent people who genuinely require bankruptcy. Regardless of whether you are for or against the changes, though, they have already happened. If you feel that bankruptcy is your only option then you should consider contacting a local bankruptcy lawyer who can help you file your claim. They know the procedure and can inform you of whether you will be eligible and the most appropriate form of bankruptcy for your circumstances.

Other Links