Filing a Bankruptcy in America Increasing: For Profit?

There are two major forms of bankruptcy in the United States, which apply to the consumer. The laws were recently amended and fall under the jurisdiction of the federal courts and are enacted by Congress. Simply put, bankruptcy is the inability to pay debts owed to a creditor. The individual can apply for a “voluntary” route or a creditor may obtain a restructuring of debts or force an “involuntary” procedure on an individual.

The US Constitution gives the individual or an entity the right to absolve itself of its debts if they are unable to pay them. Cases are filed in the US Bankruptcy Court; in spite of this, state law is vital to the administration of bankruptcy filings. Due to the great abuse of bankruptcy laws, the Bush administration made substantial changes to the code via the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. This law affects procedures filed after October 17, 2005. The law was designed to slow the growth of bankruptcy numbers.

However, 2007 federal court data shows that bankruptcy case numbers actually increased by 38% over 2006 with Chapter 7 and 13 the most common. The top ten states with the highest number of filings per capita were found in the southeast and mid-west with Hawaii, Alaska the US possessions having the fewest. In the United States Code, under Title 11, are the chapters of law outlining bankruptcy. There are six forms. Chapter 7 (65% of all cases) refers to individual and business liquidations. Chapter 11 concerns mainly the reorganization of a business entity (although individuals may also use it). Chapter 13 involves cases in which individuals have a regular source of income and present a plan for repayment.

Three other chapters delineate procedures for municipalities, farmers, fishermen and international segments. Chapter 7 now requires that a means test to be applied to all individuals applying for bankruptcy. This should make it harder to declare bankruptcy under Chapter 7 laws. For a consumer debtor, the means test was applied over 180 day period in which the individual had to have less than the average yearly income for a household of equal size in their state in order to qualify. Also, they had to undergo mandatory debt counseling. In Chapter 7, your liquid assets are used to pay off some portion of your debt. The rest are discharged. You are free of debt. In Chapter 13, a debtor files a plan to repay the debt over a specified time period. The judge determines plan approval with input from the debtor and creditors. After the payment of agreed amounts of the debt, the rest of the debt is canceled.

You can file for bankruptcy without a lawyer. However, it is not recommended because the laws are very complex. The paperwork may be overwhelming to a novice. A debtor contemplating bankruptcy should consult expert legal advice to determine the best path for you and your family or business.