Over the decades Americans have become accustomed to finding debt relief in the form of bankruptcy. Each year, one out of every seventy-five households in the United States files bankruptcy.
In 2005, President George W. Bush signed the Bankruptcy Abuse Prevention and Consumer Protection Act; changing the laws that allow for debt relief of many Americans. This meant big changes for everyone, especially the average American Family.
The Chapter 7 bankruptcy is the form filed by most people and it wipes the slate clean of all debt except for most back taxes, alimony, child support and student loans. This type of bankruptcy may not be quite as effective in the future under the bankruptcy laws. Even though filing a Chapter 7 bankruptcy, the court looks at a person’s ability to repay, at least part of the debt.
With the bankruptcy law, there is a test to determine whether the filer will be allowed to void payment of all debt. If the amount of his or her income — net after expenses — is less than $100 a month, then Chapter 7 may still be used.
Should the test determine that you have enough income to pay at least 25% of your debt, you will most likely be required to file a Chapter 13 bankruptcy. Under this law, it is the Attorney that is responsible in determining which clients are eligible to file a Chapter 7 bankruptcy and which clients will be required to file a Chapter 13 bankruptcy. There are severe penalties to Attorneys that neglect their responsibility in this, and as a result, their fees will logically be elevated since they will be required to spend more time on each case. A bankruptcy that may have cost $400 a few years ago, will cost upwards of $1300.
There has been an additional change to the laws that will make the bankruptcy process very different for consumers, each person who files bankruptcy will be required by the court to go to credit counseling. The debtor will be obligated to provide a certificate of credit counseling and a repayment plan from an approved agency within 180 days of filing. Proof of completion of a financial management course is mandatory for discharge of a bankruptcy petition.
Though these bankruptcy laws are more restrictive than the previous laws, it does push people to watch their financial situation more closely than what they formerly have, and not to use bankruptcy to buy luxury items and drop payment by bankruptcy. It is a fact that the bankruptcy laws will change the way Americans live and spend.
With such tight bankruptcy rules it will become increasingly important for people to be careful of predator lending institutions. These high interest loan companies will drag you through the mud if you cannot afford to pay, and there will be no relief for you in the bankruptcy courts. The downside to this law is that it will only take one small mistake to put a bad mark on you that may haunt you the rest of your life. This law is likely to ruin many people’s lives, especially the young who have not yet learn to manage their finances.