The Facts About Personal Bankruptcy
By Jay Stockman, Thu Dec 8th

The thought of personal bankruptcy is very frightening, howeverover 5.4 per 1,000 people have filed for bankruptcy last year,and this rate has been growing at an average of nearly 7percent. Researchers have determined that the primary cause ofpersonal bankruptcy is uncontrollable levels of consumer debtoftentimes coupled with an unexpected event, such as a majormedical expense not covered by insurance, the loss of a job,divorce or death of a spouse. According to economists' surveys,the classic bankruptcy filer is a blue collar, high schoolgraduate who is the head of a household in the lowermiddle-income class with heavy use of credit. In order toprotect both debtor, and creditor, laws were enacted to provideequal, and fair measures to satisfy the objectives of allparties. The primary purpose of the laws of bankruptcy are: (1)to give an honest debtor a fresh start in life by relieving thedebtor of most debts, and (2) to repay creditors in an orderlymanner to the extent that the debtor has property available forpayment.

There are two types of structured plans for filing for personalbankruptcy, Chapter 7 or Chapter 13. Over two-thirds of personalfilers choose Chapter 7 bankruptcy. Basically Chapter 7 requiresthe debtor to liquidate all non-exempt assets, and have themdistributed among creditors. Some examples of exempt assetsinclude equity in a primary residence, and a retirement program.On the other hand, Chapter 13 does

not require liquidation,rather a debtor agrees to a specific payment plan, whereby aportion of any unsecured debts is paid, and the balance isforgiven. It must be stressed, that under both plans, certaindebts are ineligible for bankruptcy protection. These debtsinclude government student loans, child support, alimony, andincome tax debt. These must be paid back in full.

Some analysts are concerned that this unprecedented level ofdebt might pose a risk to the financial health of Americanhouseholds. In an attempt to reverse the increasing trend inpersonal bankruptcy, the federal government has recentlyimplemented sweeping bankruptcy reform legislation. On March 10,2005, the Senate passed S. 256, the Bankruptcy Abuse Preventionand Consumer Protection Act of 2005. On April 20th, PresidentBush signed into law the Bankruptcy Abuse Prevention andConsumer Protection Act of 2005 (Bankruptcy Act of 2005). Thisact makes filing for bankruptcy more difficult throughincome-means testing, tougher guidelines for the homesteadexemption, increased lawyer liability and required creditcounseling.

About the author:Jay B Stockman is a contributing editor for Online BankruptcyResources Visit http://online-bankruptcy-lawyer.com/ formore information.