Bankruptcy: A Legal Problem

What is the true meaning of bankruptcy? When a debtor can’t pay their debts when they are due, or even at all, then he or she has to face extremely harsh consequences. However, the debtor has numerous rights, such as the right to petition for bankruptcy relief under the federal law. Bankruptcy provides two goals for debtor. The first one is to protect a debtor by giving him/her a fresh start with erasing all creditors’ claims. The second one is to ensure fair treatment to creditors who are competing for a debtor’s assets. All these proceedings are held in the federal bankruptcy courts.

Ever since the new law of bankruptcy in 1994, The Bankruptcy Reform Act of 1994, the reality of personal bankruptcy in the United States changed forever. Statistics shows that during the 12 months ending June 30, 2004, a record of 1.63 million bankruptcies were filed. This is about double the number that filed a decade ago in 1993. Also, the middle value of total outstanding debt owed by households rose 9.6% between 1998 and 2001. Credit card lending quadrupled between 1990 and 2003. Both the poverty rate and number in poverty increased for people 18 to 64 years old (11.3 percent and 20.5 million in 2004, up from 10.8 percent and 19.4 million in 2003). There are 23.8% of American households that have no credit cards, no bank cards, no retail cards, nothing.

Since one out of every 73 households filed for bankruptcy in the year 2003 and more Americans filed for bankruptcy last year in the United States than in the entire decade of the 1960s, President