About Recent Changes In Bankruptcy Laws

In 2005, personal bankruptcies were at an all time record high. Perhaps this, at least in part, was due to the changes in bankruptcy laws that took effect in October, 2005. However, it does clearly indicate the sad fact that far too many Americans are allowing themselves to fall into financial trouble all too frequently. In large part, the cause of these financial difficulties is the unwise use of credit to make unneeded, often impulse driven, purchases.

During 2005, 2,039,214 bankruptcy cases were filed in federal court, 30% more than the 1,563,145 filed in 2004 according to information released by the Administrative Office of the U.S. Courts and published in the USA Today. This increase was probably a result of the fact that the changes in bankruptcy law prevent many people that previously would have qualified to file bankruptcy under Chapter 7 from being able to do so. In past years, bankruptcy had been filed at a relative stable rate with no large fluctuations.

The bankruptcy law changes involve the use of Chapter 7 to wipe out debts. Today, people that have income that is above average and have $100 or more left over each month after paying their debts and expenses must declare bankruptcy under Chapter 13 which requires a repayment plan where debts will be repaid with a r-year plan filed with the bankruptcy court.

Under the new bankruptcy law, people must undergo credit counseling in order to file bankruptcy in many cases. Even those people who have developed financial problems due to events they were not in control of must undergo this required counseling. Sometimes people that lose their jobs or have huge medical expenses because of a spouse or child having a life-threatening medical problem, but this does not waive the requirement for credit counseling in order to file bankruptcy under the new laws.

In recent years, banks and credit card companies have wanted to see these changes to bankruptcy laws to stop abuses of the system used to wipe out debts. While this does place many people in a position of hardship, it does stop people that are high income from running up large debts only to have them wiped away by filing bankruptcy. There are two sides to the changes in bankruptcy laws, as with every issue. To avoid having to file bankruptcy, manage your money effectively and avoid having to learn all the details about these changes in the bankruptcy laws.

Next article: Reorganizing Business Debts With Chapter 11 Bankruptcy Law

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