New Bankruptcy Laws

New Bankruptcy Laws

Abstract

Bankruptcy is a federal court process designed to help consumers and businesses eliminate their debts or repay them under the protection of the bankruptcy court. Bankruptcies can generally be described as "liquidations" or "reorganizations." (Nolo, 2005) President Bush signed a bankruptcy reform bill that made it more difficult than ever for individuals to eliminate their debts through bankruptcy on April 20th, 2005. This new law, Bankruptcy Abuse Prevention and Consumer Protection (BAPCPA), took effect on October 17, 2005. This new law is the biggest reforms in U.S. bankruptcy law in over 10 years. Personal bankruptcies have jumped in September to the highest on record. Filings averaged more than 9,000 per day, up roughly fifty percent from last year’s daily volume, during the first two weeks of September. (Aborgast, 2005) The credit card industry is one of the largest advocates of this bill stating that it will cut back on the inundation of bankruptcy filings by gamblers, compulsive shoppers and drug users to name a few. The credit industry as a whole has fought hard for the past seven years to get this law passed. The impact to them will be tremendous because there were be less people filing for Chapter 7 bankruptcies that clear the individual’s debt. More people will have to make payment plans to their debt holders after receipt of credit counseling. Many people and organizations oppose the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 due to harm that can be done to individuals that are not abusing the system. (Sahadi, 2005)

New Bankruptcy Laws

Two main filings for personal bankruptcy are Chapter 7 and Chapter 13. Chapter 7 allows your assets to be liquidated and given to creditors to allow you a new beginning. There were over 1.1 million people that filed for Chapter 7 in 2004. The law has made it easy for people to wipe the slate clean using this protection. Chapter 13 bankruptcy is not as harsh as Chapter 7. You are put on a repayment plan that can last up to 5 years. There were 445,574 cases of Chapter 13 reported in 2004. (Sahadi, 2005)

In a Chapter 7, some of your property may be sold to pay down your debt. In return, most or all of your unsecured debts (that is, debts for which collateral has not been pledged) will be erased. You get to keep any property that is classified as "exempt" under the state or federal laws available to you (such as your clothes, car, and household furnishings). If you don't own much, chances are that all of your property is exempt and you have what is known as a "no asset" case.

When someone files for Chapter 13 bankruptcy they propose a repayment plan that details how you are going to pay back your debts over the next three to five years. The minimum amount you'll have to repay depends on how much you earn, how much you owe, and how much your unsecured creditors would have received if you'd filed for Chapter 7.

If you have secured debts, Chapter 13 gives you an option to make up missed payments to avoid repossession or foreclosure. You can include these past due amounts in your repayment plan and make them up over time. (Nola, 2005)

There have been a growing number of personal bankruptcies over the years. There were 900,000 personal bankruptcies reported in 1995 that grew to 1.6 million in 2005. (Renauer, 2005) The growth is astounding and the credit industry indicated that they need a change because it is costing too much money for them. Respectively, credit card industry profits tripled in this same period and this is expected to net