As it gets easier to get loans, credit cards, and other forms of credit, the rate of bankruptcy in the United States also goes up. Between 1994 and 2004, the number of bankruptcies in the United States nearly doubled. As a response, the government looked more closely at why people and businesses were filing for bankruptcy. New laws were made to make sure that people and businesses had good reasons for filing for bankruptcy.
The Bankruptcy Abuse Prevention and Consumer Protection Act is one of the most important bankruptcy laws in the United States. It was passed in 2004. This law has only been in effect since October 2005, but it has already caused a lot of trouble in the areas of finance and bankruptcy law. Chapter 13 debtors have to follow stricter rules and budgets, and the law also makes it harder for people to qualify for Chapter 7 bankruptcy, which is full bankruptcy.
Before being able to file for bankruptcy in the United States, debtors must have filed tax returns for the last four years in a row. This is a big change in the law. Also, it is harder to find debts that can be "discharged," which means that the court system can let you off the hook for them. The Act says that people with dischargeable debt have to show that they have a good reason for it. It also says that more people with non-dischargeable debt have to make budgets and take responsibility for them.
Chapter 13 bankruptcy is one of the two main types of bankruptcy laws. It lets the debtor keep some assets if they have a steady income and a small amount of debt. This type of bankruptcy is great for people who have gotten into a lot of financial trouble but still have enough money to pay for some assets. The court will set up a budget and payment plan that will allow mortgages or cars to be paid off in full within three to five years.
The law says that a debtor must file for Chapter 7 bankruptcy if there is no way to pay back the debt. This is often called "complete liquidation of assets," with the exception of items that are exempt. In a bankruptcy hearing, the court decides what items are exempt. Usually, these are things that are necessary, like a car or things that are used at work. Also, the courts will divide debts into two groups: debts that can't be paid off and debts that can be paid off.
There are also two kinds of debts that can't be cancelled: those that can't be cancelled because the debtor did something wrong and those that can't be cancelled because it's against the law. If the debtor did something wrong, it could be like stealing or laundering money. If the debtor did something wrong, it could be like paying child support or a court judgement.
Keep in mind that people who file for either type of bankruptcy almost always still have to pay taxes, student loans, alimony, child support, or court fees. This is where many people who file for Chapter 7 bankruptcy are misled, since it is often called "a fresh start." Even though the court can set up payment plans to help the debtor pay off public policy debts, even Chapter 7 debtors will still have to make payments.
Another important thing to know about bankruptcy law is that a bankruptcy will stay on a person's credit report for about ten years. This will make it very hard to get any kind of credit, even a credit card, but especially a loan for a car or a mortgage for a house. Some creditors will still give bankrupt people small amounts of credit, but the interest rates and fees are usually through the roof. This makes it even harder for people who owe money to start over.
Last but not least, remember that co-signers will have to pay back debts if you file for bankruptcy. If your parents helped you get a car loan when you were young and you still owe money on it, they are responsible for making payments. These friends or family members who helped you in the past may be brought into the bankruptcy law court proceedings. This can put a strain on friendships and family ties.
If you have specific questions about bankruptcy law, you should talk to a bankruptcy lawyer or legal aid in your county or state. Laws and procedures for bankruptcy can be a little different from one state to the next. If you plan to file for bankruptcy in a certain state, make sure you know people there.
