Deciphering the New Bankruptcy Code
Until recently, the bankruptcy code in the United States allowed
many people to file Chapter 7 bankruptcy and discharge their debts
without any form of repayment. While the option of repayment
existed, most people chose to erase their debts rather than go
through the hassle of paying their creditors back. Due to the ease
and accessibility of filing Chapter 7 bankruptcy, the number of
filings rose to an all-time high in the United States.
Unfortunately, this only added to the financial woes that society
was already experiencing. The need for bankruptcy reform was
imminent.
The new bankruptcy code resulted in the Bankruptcy Abuse Prevention
and Consumer Protection Act (BAPCPA) of 2005, but changes in
bankruptcy code are not new for citizens of the United States.
Congress was authorized to make changes to the rules and regulations
that govern the relationship between debtors and creditors since
1801. Since then, the legislators have amended the bankruptcy code
many times. The 2005 changes, however, created the most significant
changes in the code in nearly two decades.
In April of 2005, President George Bush signed into law some new
regulations to be added to the existing bankruptcy code. Under the
new bankruptcy regulations, debtors who file for any form of
bankruptcy protection must meet several requirements. Firstly,
debtors who file for new bankruptcies are required to complete a
financial counseling course. Since a large number of bankruptcy
filings are due to irresponsible personal finance management, the
counseling course is designed to help people recognize and change
their spending behaviors. This also helps to deter future bankruptcy
filings because statistics show that many people who file bankruptcy
will do it again in the future.
The new bankruptcy code is specifically designed to discourage
debtors from filing bankruptcy. In addition to this, it also
encourages them to look at their finances and spending habits to see
why they got into the predicament to begin with. One way that the
new code accomplishes this is by requiring an attorney's signature
on the bankruptcy petition before it can be filed with the court.
Oftentimes, the lawyer is required to conduct an investigation into
the debtor's finances, especially in cases of suspected abuse. The
person's income is also evaluated to determine if the debts can be
repaid through other means as well.
Other restrictions of the new bankruptcy code make it more difficult
for debtors to file Chapter 7 bankruptcy to simply have their debts
discharged. With the new regulations, the majority of cases are
forced into a Chapter 13 bankruptcy that requires debtors to repay
their debts with a scheduled payment plan. This process involves a
court-appointed trustee to handle the finances of the debtor and a
certain percentage of their regular income is delegated to the
creditors. Repayment schedules are typically arranged so that the
debts are paid within five years. Under the old bankruptcy code,
however, it was much easier for debtors to file Chapter 7, which
simply erases their debts without any form of repayment.
As of October 17, 2005, these and other changes were added to the
United States bankruptcy code for several reasons. Because of the
toll that unpaid debts have on the economic status of society, major
changes were needed to lessen these detrimental effects. Since the
focus of these amendments was placed on behavior change and reducing
the abuse of the bankruptcy system, the new code should be able to
force debtors to think about their financial decisions more
carefully.
