Posts Tagged ‘new bankruptcy’
The New Bankruptcy Code – What Are The Changes?
Until recently, the bankruptcy code in the United States allowed many people to file Chapter 7 bankruptcy and discharge their debts without any form of repayment. While the option of repayment existed, most people chose to erase their debts rather than go through the hassle of paying their creditors back. Due to the ease and accessibility of filing Chapter 7 bankruptcy, the number of filings rose to an all-time high in the United States. Unfortunately, this only added to the financial woes that society was already experiencing. The need for bankruptcy reform was imminent.
The new bankruptcy code resulted in the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005, but changes in bankruptcy code are not new for citizens of the United States. Congress was authorized to make changes to the rules and regulations that govern the relationship between debtors and creditors since 1801. Since then, the legislators have amended the bankruptcy code many times. The 2005 changes, however, created the most significant changes in the code in nearly two decades.
In April of 2005, President George Bush signed into law some new regulations to be added to the existing bankruptcy code. Under the new bankruptcy regulations, debtors who file for any form of bankruptcy protection must meet several requirements. Firstly, debtors who file for new bankruptcies are required to complete a financial counseling course. Since a large number of bankruptcy filings are due to irresponsible personal finance management, the counseling course is designed to help people recognize and change their spending behaviors. This also helps to deter future bankruptcy filings because statistics show that many people who file bankruptcy will do it again in the future.
One way that the new code discourages abuse of the bankruptcy system is that it requires the signature of a lawyer for those who are considering bankruptcy. With the new guidelines, a bankruptcy petition cannot officially be filed unless a debtor has consulted with an attorney about other options that are available. This encourages a second look at the person’s finances and the circumstances regarding the debt rather than just rushing to have them discharged. A comparison of the debtor’s finances against the average income of the state’s population plays a major role in the investigation.
Other restrictions of the new bankruptcy code make it more difficult for debtors to file Chapter 7 bankruptcy to simply have their debts discharged. With the new regulations, the majority of cases are forced into a Chapter 13 bankruptcy that requires debtors to repay their debts with a scheduled payment plan. This process involves a court-appointed trustee to handle the finances of the debtor and a certain percentage of their regular income is delegated to the creditors. Repayment schedules are typically arranged so that the debts are paid within five years. Under the old bankruptcy code, however, it was much easier for debtors to file Chapter 7, which simply erases their debts without any form of repayment.
As of October 17, 2005, these and other changes were added to the United States bankruptcy code for several reasons. Because of the toll that unpaid debts have on the economic status of society, major changes were needed to lessen these detrimental effects. Since the focus of these amendments was placed on behavior change and reducing the abuse of the bankruptcy system, the new code should be able to force debtors to think about their financial decisions more carefully.