Even though bankruptcy is a legal option that is sometimes abused, it is a progressive and often kind process. By using it, a person who is so deep in debt that they can't get out of it can officially say they can't pay their bills and be free of their debts. Depending on how bad the debt is, this could be a temporary or permanent solution.
With changes to US laws, there is little or no social or business shame in declaring bankruptcy. Even though bankruptcy is a matter of public record, it is no longer something that everyone knows about. In effect, this gives the bankrupt party a reason to try again to get their finances in order. A person can file for bankruptcy under either Chapter 7 (for permanent debt) or Chapter 13 (for temporary debt) (for temporary insolvency).
One of the benefits of filing for bankruptcy is getting a secured credit card to rebuild your bank credit. This requires a certain amount of money to be put down, but after two years, a new line of credit can be set up. In the meantime, the bankrupt person has made sure that their creditors won't bother them anymore.
- On October 17, 2005, more changes were made to discourage people from taking advantage of the generous provisions. In fact, before these changes were made, people rushed to bankruptcy courts to try to stop them from going into effect.
Under the revised Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), a person who wants to file for bankruptcy has to go through a series of tests to prove that they are truly broke and don't have enough money to pay their bills. Another rule says that to be eligible, people who live in a certain state must have lived there for at least two years. Bankruptcy laws do not provide a shelter against alimony and child support obligations.
