The New Bankruptcy Law

Bankruptcy has been the answer to extremely troubling and difficult financial times for many people in America. Many individuals, for one reason or another, have found it to be the new start in life that they desperately needed. Unfortunately, bankruptcy has also served as a crutch to many as well, allowing them to relinquish debt that they were completely capable, however selfishly unwilling, to pay. As with any law, or policy, Americans are forced to accept the good with the bad, choosing which outweighs the other. In an effort to combat the increasingly growing abuse of the bankruptcy laws in our system today President George Bush has signed into law a new bill that many hope will help to alleviate much of this.

Bankruptcy laws began to surface in the United States in the early 1800's. Initially being created to temporarily relieve bad economic conditions caused by land disputes, community panic, and then, finally, the Civil War. During this time there was little protection for the consumer that found their personal life in financial ruin. Prior to the creation of Bankruptcy laws debtors were severely punished by loss of property, or in some places imprisonment, if they were unable to repay a debt they owed. The idea of a Bankruptcy law was promising for society, however, these laws all did very little to protect the debtor and where repealed shortly after being created.

As the need increased, more bankruptcy laws were later created that would better serve to protect the public debtor whether they were individuals or business that required aide for debt relief. It was the Bankruptcy Reform Act of 1978 that was passed in 1978 that served substantially revamp bankruptcy practices. Two major changes occurred for the bankruptcy act; the first, Chapter 11, which would prove to be a strong business reorganization Chapter, and the second, Chapter 13, which replaced the old Chapter 13 allowing individual access to a more powerful personal bankruptcy. In general, the Reform Act of 1978 made it easier for both businesses and individuals to file for bankruptcy and to reorganize their assets. Of course, this wasn't the end for reformation concerning the bankruptcy bill. Beginning with President Bill Clinton, in the mid 1990's, a need for reform regarding bankruptcy policies has continuously been recognized.

Current bankruptcy laws are designed to give debtors, who have found that they are no longer capable of meeting their financial obligations for one reason or another, a fresh start by relinquishing their debts, and at the same time, maintaining certain personal property assets such has a home, and in some cases, their automobile so that they can truly receive a fresh start in life. While proving to be a beneficial method of dealing with financial tragedy, Bankruptcy has proven to be a nightmare for others.

As bankruptcy filings soared for individuals in the late twentieth and early twenty first centuries, so did the problems a situation of this magnitude causes both for judicial and corporate America, along with the "trickle down" effect bankruptcy eventually has on consumers in today's market place. The "trickle down" effect can best be described as the increased cost of credit consumers are forced to pay on behalf of bankruptcy filers. Although this may not be a charge that specifically states "fee for corporate losses incurred by individual bankruptcy filings last fiscal year" and arrives along with the description of other charges outlined in your "Truth in Lending" disclosure, someone must pay the price for goods rendered and this fee is usually passed on to the consumer through various measures when the individual that consumed the goods are either unable or unwilling to pay his or her share of the cost.

President Bush has approved a new bill on Bankruptcy entitled, S. 256 -Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, that he hopes will bring back the true reason that bankruptcy laws were passed in the first place, these are, "protection for those that have no other choice, curb abuses of bankruptcy protections, reduce uncertainty in financial markets through improved financial contract netting rules, increase financial education to prevent unnecessary filings and help avoid future credit problems, promote international trade through coordination of cross-border insolvency cases, and provide increased protection for family farmers facing financial distress."

These changes to the current laws will force individuals, wishing to apply for bankruptcy, to complete and pass a means test. One specific qualification of this "means test" is that in order for a filer to file a Chapter 13 bankruptcy he or she must first prove that they make below the current state minimum in the state that they reside in. Other changes include a waiting period of 8 years vs. the current waiting period of 6 years before qualifying to file bankruptcy again if necessary, giving up certain assets in order to apply for chapter 13, even if they do qualify based on the results of the "means test, and no provisions for disabled military veterans. It is of no surprise that many individuals, as well as organizations, disagree with the president's decision to sign the bill.

Numerous lobbyists for the new bankruptcy bill blame the need for a reformation to the current policy on filers who hastily file for bankruptcy without exploring other, less societal damaging, alternatives. Such alternatives consist of credit counseling agencies, non profit organizations that work as a mediator between creditors and debtors to set up a suitable payment arrangement between the two and ensure repayment of the debts owed. Others believe that it is form of abuse to our system that occurs when serial filers constantly file in order to avoid repayment of debt or filers simply choose to file chapter 7 instead