How Bankruptcy Was Thought of in the Old Days

January 22, 2011 by  Filed under: Bankruptcy 

Back in the day, when you heard the word bankruptcy, people imagined becoming homeless. It wasn’t that long ago when bankruptcy carried a stigma. Filing bankruptcy can still be emotionally draining but does not carry the doom and gloom of the past. It wasn’t that long ago when bankruptcy carried this mark of disgrace. Nowadays, with a large amount of unemployment and debt causing many foreclosures, filing bankruptcy has become a common occurrence. In 2010 alone there was 1.5 million bankruptcies filed. The bankruptcy code changed in October 2005 because Congress recognized an abusive trend which allowed debtors to indiscriminately run up their credit cards, purchasing luxury items and vacations, then filing Chapter 7 bankruptcy to walk away from it all. This ends up costing billions of dollars that was lost leaving the creditors holding the bag. With all of this money lost, the honest consumer ends up picking up the tab. In this day and age, bankruptcy no is longer associated with the term failure.

In the early 2000’s, prior to the bankruptcy code changes, credit card companies became so loose with their qualification of debtors, anyone could get a high limit credit card. On an investigative reporting show on TV they showed a gentleman that got a credit card for his dog, just to prove how easy it was. It’s no wonder that the United States is in the financial predicament it’s in now. With this available credit, most Americans succumb to temptation living way above their means. These individuals bought expensive cars on credit, wearing designer clothes and buying big-screen TVs. When the debt got too high on that credit card, they would apply for another one and just transfer the balance. As the debt continued to rise, with only minimum payments being paid, living paycheck to paycheck becomes a reality. All it takes is one unexpected expense or even a job loss to push one of these debtors over the edge into bankruptcy. This kind of irresponsible behavior will send anyone into bankruptcy. In the past, people used to save to take a special vacation or to buy luxury items, not charge it.

Fast-forward to today, with 10 years of free unlimited credit, the current economic situation of America continues to unravel. Couple that with the 10% unemployment rate, and many individuals are looking to find a way out of debt. When Congress changed the law in 2005 they made it tougher to qualify for Chapter 7 bankruptcy. But even with the changes, many Americans legitimately qualify to file for Chapter 7. Many Americans continue to be unemployed or partially employed, lowering their income enough to make them qualify for Chapter 7 under the new means test. If a person is one of the few that is employed currently and making a good income, Chapter 13 bankruptcy might be the way out. A Chapter 13 bankruptcy will allow the debtor to catch up with reduced payments over 3 to 5 year time frame wiping out any unsecured debt left over at the end of the payment plan. Coming into 2011, it is expected to be another record year for bankruptcy filing. Along with the large number of bankruptcy filings will be a large number of foreclosures with the option arm mortgages that are expected to come due this year and next year.

The author formed DIY4LAW.Com that specializes in filing bankruptcy under Chapter 7 and Chapter 13 bankruptcy and helps individuals with debt problems and helping stop foreclosure by putting them in touch with a local bankruptcy attorney. Check our website for more answers to bankruptcy questions for a debt free future.

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