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On April 20, 2005,
President Bush signed a bill that alters the status of bankruptcy laws in
America. One hundred eighty days after passing the bill, or on October 17,
2005, the bankruptcy reform will come into action. Essentially, the intent of the
new law is to eliminate the abuse of Chapter 7 bankruptcy, which is a form
of bankruptcy that allows debtors to file and eliminate their debt in order
to get a fresh start. Instead, debtors will be classified according to a formula
to determine whether they might be able to pay off some of their debt and
file for Chapter 13 bankruptcy. The intent is not to make things more difficult
for people, but to obligate those who can pay off some debt to do so, while
not eliminating the Chapter 7 opportunity for those who absolutely need to
start over.
There is concern that the new law
will be severe for some people. Those dealing with certain life issues may
have a hard time contributing to the payments required by Chapter 13 over
a period of a certain number of years; however, the point is to make filing
for bankruptcy under Chapter 7 a concession reserved for people who prove
that they have absolutely no means with which to eliminate debt and eliminate
Chapter 7 filing as an easy way out.
One major change the law creates
from past bankruptcy law is that it reduces the duty of bankruptcy judges
to determine who can file for Chapter 7 and who must file for Chapter 13 bankruptcy.
The new law has a formula by which these judges now have to apply to people
based on the area in which they live. The formula is based on a computation
of income and expenses and then takes into account the median annual income
of the area. If the formula yields that a person is to file Chapter 13, the
person has five years to fulfill repayment obligations. This is two years
longer than the past law, which was also unconcerned with whether the debt
was fully repaid.
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