It Must Be Stressed, That Under Both Plans, Certain Debts Are Ineligible For Bankruptcy Protection

Category: Finance, Credit.

The thought of personal bankruptcy is very frightening, however over 4 per 1, 000 people have filed for bankruptcy last year, and this rate has been growing at an average of nearly 7 percent. 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.

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. In order to protect both debtor, laws were enacted, and creditor to provide equal, and fair measures to satisfy the objectives of all parties. There are two types of structured plans for filing for personal bankruptcy, Chapter 7 or Chapter 1Over two- thirds of personal filers choose Chapter 7 bankruptcy. 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. Basically Chapter 7 requires the debtor to liquidate all non- exempt assets, and have them distributed among creditors. 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.

Some examples of exempt assets include equity in a primary residence, and a retirement program. It must be stressed, that under both plans, certain debts are ineligible for bankruptcy protection. These must be paid back in full. These debts include government student loans, alimony, child support, and income tax debt. Some analysts are concerned that this unprecedented level of debt might pose a risk to the financial health of American households. On March 10, the Senate passed, 2005 S. 256, the Bankruptcy Abuse Prevention and Consumer Protection Act of 200On April 20th, President Bush signed into law the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005( Bankruptcy Act of 2005) .

In an attempt to reverse the increasing trend in personal bankruptcy, the federal government has recently implemented sweeping bankruptcy reform legislation. 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.