Tuesday, October 18, 2016

Bankruptcy

The legal process of bankruptcy, though sometimes misunderstood, is a progressive and often merciful process. By it, a hopelessly indebted individual can make an official declaration of financial inability and be free of those obligations.

With new amendments in U.S. laws, well not so new anymore, twelve years old now, there is little or no social or corporate stigma attached to filing for bankruptcy. Filing for bankruptcy, though a matter of public record, no longer means that it becomes a matter of public knowledge. Effectively, this is an incentive for the bankrupt party to make another attempt at financial solvency. An individual can file for bankruptcy under Chapter 7(for irreversible insolvency) or Chapter 13(for temporary insolvency).

The benefits of filing for bankruptcy include rebuilding your credit. Meanwhile, the bankrupt person has assured freedom from harassment by previous creditors.

When Congress amended the US bankruptcy code(ratified in 1978) in 2005, that took effect on October 17, 2005, it was intended to discourage the abuse of the generous provisions available under chapter 7 prior to this major revision of the Code. In fact, the passing of these amendments was preceded by a literal stampede on bankruptcy courts by people hoping to beat the new laws enactment.

Under the revised Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, (BAPCPA), someone filing for bankruptcy is subjected to stringent tests to establish genuine insolvency and present income, this is called the means test. The design of this complicated test was to steer more folks into chapter 13, rather than chapter 7. Has this worked? Stay tuned, and check my posts regularly for more information on this.  

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