Bankruptcy Rule Changes Making It More Difficult To File May Be Backfiring
Prior to the 2005 changes to the bankruptcy code, millions of Americans over the decades have chosen to file for Chapter 7 bankruptcy in order to free themselves from financial debt.
Since the new law went into effect, however, individuals have found it more difficult to file for bankruptcy.
But, specifically, they have found it more difficult to file for Chapter 7 bankruptcy.
Chapter 7 bankruptcy is what most people think of when they think of filing for debt relief.
The reason is that, under this form of bankruptcy, you get to liquidate most or all of your debts and restart with a new financial lease on life.
The new rules, however, disqualify millions of people from using Chapter 7.
Instead, they are forced to file under Chapter 13.
Under Chapter 13, your debts are not discharged.
Instead, you and the courts work together to come up with a financial plan to help you pay back the debts that you owe.
Some of your debts may be decreased, or restructured, but not discharged.
One of the driving forces behind the change in the law were credit card companies.
Under the old plan, they felt that too many consumers were charging up huge amounts on their credit card and then filing for bankruptcy to get rid of their debts.
The thought was that by changing the law and forcing consumers to restructure their debts instead of discharging them, the companies could recoup a financial windfall and bring in billions of extra dollars.
And it worked.
At least for the last few years.
But, even as the credit card companies have begin to rake in more money, partly due to the changes in the law, the number of bankruptcies in the country have continued to increase.
The number of people filing for bankruptcy last year increased by almost one fourth.
And bankruptcies for this year are on track for a similar increase.
The two things driving this the most are the bad state of the economy and the record number of foreclosures that are being forced by the banks.
In addition, the reported unemployment rate is just over nine percent.
But this figure does not take into account the millions of people who have either stopped looking for work or who are reluctantly working part time instead of full time.
In fact, many economists estimate the real unemployment rate to be at about twenty percent.
Homeowners are in trouble as well.
In many markets, people are actually losing equity in their homes the longer they stay.
It is estimated that twenty five percent of all people with mortgages now owe more on their homes than what it is worth.
So, in a real case of irony, while the changes the credit card companies forced through, made it more difficult for the average person to discharge his debts, over the years they also forced him into increasingly financial dire circumstances.
And now, in many cases, their circumstances have become so dire, that even with the new rules, many consumers are finding that they have no trouble qualifying for Chapter 7.
Since the new law went into effect, however, individuals have found it more difficult to file for bankruptcy.
But, specifically, they have found it more difficult to file for Chapter 7 bankruptcy.
Chapter 7 bankruptcy is what most people think of when they think of filing for debt relief.
The reason is that, under this form of bankruptcy, you get to liquidate most or all of your debts and restart with a new financial lease on life.
The new rules, however, disqualify millions of people from using Chapter 7.
Instead, they are forced to file under Chapter 13.
Under Chapter 13, your debts are not discharged.
Instead, you and the courts work together to come up with a financial plan to help you pay back the debts that you owe.
Some of your debts may be decreased, or restructured, but not discharged.
One of the driving forces behind the change in the law were credit card companies.
Under the old plan, they felt that too many consumers were charging up huge amounts on their credit card and then filing for bankruptcy to get rid of their debts.
The thought was that by changing the law and forcing consumers to restructure their debts instead of discharging them, the companies could recoup a financial windfall and bring in billions of extra dollars.
And it worked.
At least for the last few years.
But, even as the credit card companies have begin to rake in more money, partly due to the changes in the law, the number of bankruptcies in the country have continued to increase.
The number of people filing for bankruptcy last year increased by almost one fourth.
And bankruptcies for this year are on track for a similar increase.
The two things driving this the most are the bad state of the economy and the record number of foreclosures that are being forced by the banks.
In addition, the reported unemployment rate is just over nine percent.
But this figure does not take into account the millions of people who have either stopped looking for work or who are reluctantly working part time instead of full time.
In fact, many economists estimate the real unemployment rate to be at about twenty percent.
Homeowners are in trouble as well.
In many markets, people are actually losing equity in their homes the longer they stay.
It is estimated that twenty five percent of all people with mortgages now owe more on their homes than what it is worth.
So, in a real case of irony, while the changes the credit card companies forced through, made it more difficult for the average person to discharge his debts, over the years they also forced him into increasingly financial dire circumstances.
And now, in many cases, their circumstances have become so dire, that even with the new rules, many consumers are finding that they have no trouble qualifying for Chapter 7.
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