Abuse in Bankruptcy Driving Changes in the Legislation

You might've probably heard about the 2005 reforms on bankruptcy but might not realize that bankruptcy abuse drove modifications in the legislation which resulted in making it even more difficult for people to file Chapter 7 bankruptcy. Even those people who really might have an unavoidable situation and have not simply caused their own bankruptcy through wanton mismanagement of their money will have to stick by the new legislation on bankruptcy.

Bankruptcy is under the jurisdiction of federal court. It might not be filed in state courts nor are the cases heard by judges below the federal level. In October 2005, the laws controlling who can file bankruptcy under Chapter 7, the chapter which will allow for debts to be discharged without repayment, have significantly changed.

The reason for this was bankruptcy abuse. Chapter 7 gave a means of using credit in order to obtain goods and services and then filing bankruptcy and having many or more of the debts wiped off. This was used even by the wealthy in order to avoid paying back creditors. This was clearly being used in an unethical manner, and the reform legislation tended to change the rules about who can and cannot file Chapter 7 bankruptcy.

You might be quite surprised to find out that there was sufficient bankruptcy abuse in order to drive changes in legislation. Nevertheless, it was a fact that some people might declare bankruptcy, have their many debts wiped away and then repeat similar financial mistakes that might lead them into the bankruptcy court in the first place. They would then file another case for bankruptcy and, again, have the largest part of their debts wiped away.

This abuse in bankruptcy was unfair to the American consumer as a whole. Every time someone files bankruptcy, the money lost by producers of goods and services that were unable to recoup the money owed to them must comprise the lost funds into the overall cost of goods and services that were provided to the American public. In other words, you pay a small portion of the funds lost by merchants and service providers each and every time that you purchase any goods or services. The more money lost by American businesses due to bankruptcy abuse, the money the cost to everyone else rises.

Bankruptcy abuse caused for changes in legislation that might require a person filing Chapter 7 bankruptcy to meet certain needs that will prove that they aren’t high income and that they don’t have over $100 each month left after paying debts and expenses. Those that don’t meet these criteria must repay their debts by using a repayment plan filed under Chapter 13 bankruptcy. This should help in reducing the cost impacted to Americans over time as the businesses that have lost money due to the abuses to the bankruptcy system will see the effects of the legislation of 2005.

Article Source: http://www.debtfinancearticles.com.

About the Author:
Elliott Dawson is contributing auto editor at http://www.debtfinancearticles.com/. This article may be reproduced provided that its complete content, links and author byline are kept intact and unchanged. No additional links permitted. Hyperlinks and/or URLs must remain both human clickable and search engine spiderable.