United States Bankruptcy - Essay Example

Bankruptcy is defined as a person that has been legally declared insolvent due to having a level of debt that places a person in a status in which their regular income is insufficient to pay the person’s monthly obligations (Yahoo, 2008). A bankruptcy was a solution chosen by many reached a point in which lenders were extremely mad since many people with the ability to pay were filing bankruptcy in order to eliminate debt. These con artists were willing to give up the right to have credit for seven years in exchange for a clean slate gain through the elimination of all their debt.

In 2005 the US government decided to make some changes to the bankruptcy laws in order to protect the credibility of the financial / banking system in the nation and to ensure people assume responsibility for their financial mishaps. Society at large pays the price of delinquent debtors since those bank losses are factors in the interest rates people receive in their loans such as their mortgage payments. This report studies the new bankruptcy law of 2005 referred too as the bankruptcy abuse prevention act.

The bankruptcy laws are structure under different chapters which include chapter 13, 11 and 7. Chapter 11 is a bankruptcy alternative for business owners and corporation which provides protection for the business entities so that the lenders do not drive a company out of business if it becomes insolvent. It calls for a reorganization of the corporate debt and lower temporary debt payment so a company can have cash flow to create a new business plan to continue a business going. Chapter 13 is similar to chapter 11 as far as providing temporary relief from lenders, but it applies to individuals.

Chapter 13 allows a person to salvage their overall credit by entering into arrangement with creditors to pay off the debt in longer time periods, reducing interest, and holding off all payments for predetermined periods of time