Bankruptcy Laws Explained…There is nothing constant in this world, everything changes and so do bankruptcy laws. New laws are passed to make modifications and improvements to the existing laws and make sure that it benefits both the debtor and the creditor. Over the past years, legislators have come up with new laws to intensify the requirements and qualifications of a debtor who wants to apply for the bankruptcy protection program. Although it is not the federal court system’s aim to rob the citizens of its right to bankruptcy protection, it also safeguards the legitimacy of a bankruptcy declaration.
In the past or before 2005 to be exact, wealthy individuals file for Chapter 7 bankruptcy because they can get away with the lenient rules and provisions of the bankruptcy laws. Even if they could afford to pay their debts through a Chapter 13 bankruptcy program they opt to file for the liquidation program, confident that the bankruptcy court will approve their petition. There has been an abuse of the system and this was what prompted lawmakers to remedy the problem by presenting new bankruptcy laws that are more stringent.
Now, it is more difficult to file for bankruptcy protection. Where debtors used to randomly decide that they want to invoke bankruptcy protection and will be granted, they cannot do so easily at present. The governing laws and provisions of the eligibility of a debtor do not depend on the amount of debt incurred anymore, but on the monthly income made by the individual. This goes on to explain that even though a debtor is drowning in his debts, as long as his monthly income is above or higher than the median income level of the state set forth by the latest US Census Bureau statistics, he is disqualified to apply for Chapter 7 bankruptcy protection. He still can opt to apply for a Chapter 13, but this program also requires a means test. The means test administered in Chapter 13 will be the determining factor of how long a debtor has to pay for the debts he has incurred. The federal and state laws offer an individual really in need of Chapter 7 protection the chance to start anew financially, but for regular income earners who do not pass the qualifications they are mandated by the court to pay off their debts through a repayment plan.
Furthermore, where the bankruptcy laws previously do not require a credit counseling program, it now makes it mandatory. This action was done to teach debtors how to handle their personal finances and it offers other bankruptcy options that a debtor may seek before making up his mind on filing for bankruptcy. The same goes for the debt counseling program that a debtor has to attend before he is discharged from bankruptcy. All of these counseling programs are made mandatory to ensure that no debtor goes the same predicament twice.
These laws were not just made to benefit the debtor. If you look at the larger picture, the creditors are also greatly affected by this turn of events. Not only do they stand to lose millions of dollars because of the debtor’s reckless declaration of bankruptcy, but they can also lose their business.
Lastly, new laws were imposed to benefit both debtors, creditors, and the bankruptcy system. Bankruptcy is not a laughing matter. It has been ranked as one of the top five life-altering events in a person’s life so make an informed decision before taking the plunge.