By Frank Hague
There are 2 sides to the changes in bankruptcy rules. It will
be a lot harder to file bankruptcy under chapter 7 and get a
totally clean slate.
For businesses, relying on issuing credit, the new personal
bankruptcy law is doing great, reducing personal bankruptcy
claims from the thousands to double digits.(In the short run).
However, lawyers working with the actual people filing for
bankruptcy say that the new law is seriously flawed because it
puts more financial burdens on already broke clients and
reduces potential debt repayment to small businesses.
And then of course you have the credit card companies charging
high interest rates which in quite a few cases caused the
bankruptcy in the first place.
According to some financial specialists, much of the debt
people accumulate is a result of keeping up with the Joneses
and not thinking ahead.
For 80% of clients counseled each month, the debt is credit
card related and averages $32,000 - a result of six to eight
cards. Consumer credit organizations say the new law provides
debt-reducing strategies for those considering filing
bankruptcy and curbs abuse.
Under the new law it has become a requirement that the person
filing bankruptcy obtains credit counseling both before and
after filing for which that person will be charged..
So now the consumer would then know the advantages and
disadvantages of declaring bankruptcy. Yet it seems merely
another expense for an already financially stressed
People filing bankruptcy in general are not overspenders, but
merely faced with temporary financial disasters such as
costs, layoffs, a divorce, gambling debts or other crises.
Before you can file bankruptcy,you are now required to
credit counseling with an agency approved by the U.S. Trustees
This credit counseling is designed to help you determine
whether or not bankruptcy is appropriate.
Once you complete your bankruptcy, the law requires you to
attend another credit counseling session.
These are new requirements, before this law was passed the law
did not require a person to go through counseling either
or after the filing of bankruptcy.
Second, under the old law, a person could decide to file under
Chapter 7 or Chapter 13. Under the new law, the court will
at your monthly income and apply a means test relating to the
state in which you live. If your income is less than or equal
to the medium income then you will be allowed to file Chapter
which in effect will give you a clean slate.
This medium income can vary from $28,000 in Missouri to
in Alaska. If your income is greater, you may be forced to
Chapter 13 unless you can demonstrate you do not have enough
Under Chapter 13 you will not get a clean slate but will have
to make payments on your debts.
Also, your attorney now has to personally certify that your
bankruptcy filing is accurate. This means more work for the
attorney, with higher legal fees.
Advantages of declaring Bankruptcy:
Legal protection from creditors
Takes care of all or most debt
In some cases, can keep home and car
May stop complete financial ruin
Provides a fresh start
Disadvantages of declaring Bankruptcy:
May have to repay partial debt load and return collateral to
May lose assets, including house and car (If the house is
more than a certain amount).
Bankruptcy becomes public record, and
Remains on credit record for seven to 10 years
“In the past, a bankruptcy offered a fresh start for the
filer,” said Columbia attorney Gwen Froeschner Hart. “The new
federal legislation offers language directed at helping
If you analyze credit card expenses for most people you'll see
that they often include medical bills and day-to-day expenses
for the elderly or those earning low or fixed incomes. Records
show that 50% of credit card holders do not pay their full
credit card bills every month.
33% of the population can't afford medical insurance so have
charge their prescription drugs.
With the recent Medicaid cuts and rigid bankruptcy legislation
who knows what is going to happen to these people.
There are some who say consumers are abusing creditors. The
irony is that credit card companies are begging for customers
and offering large amounts of unsecured credit, yet at the
time, lobbying for stricter debt controls.
About The Author: Frank Hague is interested in anything to do