Bankrupsy Debts Means to Liquidate Assets like Real Estate Quickly.
Approximately 4,026 bankrupsy petitions are filed each day in the United States. At this rate, nearly 1.5 million people will seek debt relief through bankrupsy by the end of 2008. Currently, consumers owe more than $2 trillion in debt, which averages out to approximately $20,000 per household.
In the past, filing bankrupsy allowed debtors to discharge outstanding debts and obtain a fresh start. Most debtors elected to file Chapter 7 bankruptcy, liquidating assets and wiping their financial slate clean. Today, filing Chapter 7 is nearly an impossible feat and requires consumers to jump through enormous government hoops.
In 2005, Congress signed the Bankruptcy Abuse Prevention and Consumer Protection Act. Although BAPCPA was intended to protect consumers, in actuality it made it increasingly difficult for consumers to file Chapter 7.
The new bankruptcy laws require debtors to obtain credit counseling from an approved U.S. Trustee Program agency. Additionally, debtors must pass the "means test", which determines their ability to repay a portion of their debts.
The means test is used by the Internal Revenue Service (IRS) to determine if debtors have a legitimate reason for filing bankrupsy. Debtors must undergo a thorough examination of their income and expenses to determine if they qualify for Chapter 7 bankruptsy.
If the debtor does not meet BAPCPA requirements, they can elect to file Chapter 13. This bankruptsy chapter requires debtors to repay a portion of outstanding debts over a specified timeframe. Chapter 13 places tight financial restrictions on debtors, oftentimes causing them to fail out of bankruptcy.
Many financial experts believe the new bankruptcy laws led to the tremendous increase in home foreclosures. Debtors forced into reorganization through Chapter 13 are still stuck with the debt they desperately need relief from. In order to adhere to their bankrupsy repayment plan, they are unable to meet their mortgage obligation. If they can't pay their mortgage note, the bank will initiate the foreclosure process.
To make matters worse, a "burden of proof" provision of BAPCPA places bankruptcy attorneys at risk. Lawyers must sign the bankrupsy petition, verifying they have thoroughly investigated the petition and believe the debtor's claim is valid. This provision has a two-fold effect…
First, it increases the amount of time lawyers work on the case; thus, increasing the cost of filing bankrupsy. Secondly, since attorneys are assuming more risk, many have increased their rates. Others have bailed out of bankruptcy filings altogether. This makes it more difficult to find qualified bankruptcy attorneys at reasonable rates.
Fortunately, there are bankruptcy alternatives including debt consolidation, debt settlement and budgeting. These alternatives should be investigated prior to commencing bankruptcy filing. Additional information on bankruptcy alternatives, foreclosure and money management, can be found in our comprehensive article database.