Personal Bankruptcy - Essay Example

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The section 106 of the Act makes it necessary for those who are to submit a petition under Liquidation (chapter 7) or wage earner plan (chapter 13)…
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Personal Bankruptcy
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Essay What were the major reforms made to federal bankruptcy laws in 2005? The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 have introduced major changes in the debtor-creditor relations. The section 106 of the Act makes it necessary for those who are to submit a petition under Liquidation (chapter 7) or wage earner plan (chapter 13) to have received credit counseling from those who have been approved by the Bankruptcy trustee which would essentially brief the petitioner about the alternatives and economic issues related to bankruptcy. Section 102 of the Act also requires the attorneys representing the petitioner to have conducted a formal enquiry before filing the claim. Section 316 of the Act requires the creditors to mention any additional income such as those from family is expected in the following year. A petitioner whose bankruptcy case had been previously adjudicated will have to wait for 8 years before filing another claim. The new act also allows conversions of liquidation into wage earner plans and liquidation cases in which the debtor’s income falls under a certain level will only be considered. Petitioner can use the exemptions allowed by the state only if they have resided in the state for at least 730 days. With regard to their houses, the creditors are allowed to exempt the first $125,000 of the value only if the home was purchased within a period of 1215 days. In case a tenant, who is using the home for illegal purposes, files a bankruptcy against the owner, section 311 of the Act would still allow the owner to evict the tenant. Credit card charges made for purchase of luxury goods for a minimum of $500 should be paid within 90 days of the credit and the limits for cash advances are $750 and student loans are dischargeable according to section 310 of the Act. However, the Act still protects the $1,000,000 of a debtor’s retirement benefits. The education savings account is also exempted if the funds have been placed into the account one or two years prior to filing for bankruptcy. In case of auto loans, if a debtor files for bankruptcy, he would be expected to pay only a secured portion of the auto loan in order to retain the vehicle with him. In case of liquidation fillings the petitioner will have to pay the alimony and child support required from him before payment of any other non-secured debt according to section 212. Section 314 of the new act has also ruled that many unnecessary types of debts which fall under chapter 13 will no longer be applicable.
What particular industry probably led the drive to encourage Congress to change the law? Why do you think so?
The credit system was the center of the federal bankruptcy reform passed in 2005 and these industries have majorly contributed to the reform which was passed by the Congress. These industries had heavily lobbied for the reform stating that its consumers has to pay high credit card fees mainly owing to the increasing number of bankruptcies that were being filed with the government and which in turn caused the industry to suffer nearly $40 billion a year. It also added in its campaign that the government should make an effort to reduce the hidden taxes which every American family was paying over the past many years due to increasing bankruptcies within the country. However, even after the implementation of the reform these industries have not cut down on their credit card fees and instead it has earned heavily from the penalty fees of its customers. Hence the underlying fact of the reform is that the finance industries have essentially earned huge profits from it while the public is yet to see the benefits.
1. Moore, T. (2006). The Bankruptcy Reform Act of 2005. Journal of Business and Economics Research, 4 (6): 65-70. Retrieved from
2. Dugas, C. (2009). As Bankruptcy filing mounts attention turns again to reform. USA Today. Retrieved from Read More
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