The Truth About Bankruptcy & What It Offers!

Here is a true story about bankruptcy and the advantages it offers.

A married couple who were both practicing psychiatrists had a combined income of $128,000 per annum. They managed to accrue personal debts totalling $44,000, and also were committed to a $53,000 mortgage on their comfortable suburban New York home. They weren't in arrears, not even over their heads. But they simply wanted more discretionary spending power.

Their solution to the problem?

They decided to file for bankruptcy, and by doing so immediately lowered their debt load to a mere 10 cent on the dollar, repayable on an extended schedule in smaller more affordable amounts. An officer in one of their finance companies had advised them that they could easily refinance the mortgage or even sell the house.

But you will see in a moment why that was not necessary.

Conventionally, bankruptcy is usually a desperate and last resort for those so deeply in debt (and, harassed by creditors) that there seems to be no other viable solution. The typical profile includes low-income, undereducated clerical workers or laborers, and even transient non-homeowners. Common age groups are those who are in their twenties or those over sixty five years of age.

This is no longer the case.

Today's profile includes people with good jobs, even families with two or more incomes. It's not surprising to find somebody with a six-figure income declaring bankruptcy. The route of bankruptcy NO longer comes out of a dire need. But it's now a way by which people can rid themselves of debts that cramp their lifestyle. Of course, taking this path for these reasons raises moral and ethical issues. However, what we are discussing here is a legal avenue put in place by governmental authority.

Nowadays, the most common contenders for bankruptcy comprise of recent college graduates who file in order to avoid paying back government-guaranteed student loans.

Their justification? They feel society owed them an education.

These days you will also find the older, "keep up with the Joneses" types filing for bankruptcy. Everyone from suburban executives to Wall Street professionals who have over extended themselves in credit or are unwilling to live within their financial means.

The introduction of the Federal Bankruptcy Act of 1978 made the bankruptcy process just a whole lot easier. This significant change in law radically liberalized personal filing procedures in the name of consumer rights.

Chapter 7 makes no reference at all to the debtor's income.

It simply gives debtors the legal right to clear the slate by turning over all their assets except those expressly exempted to creditors.

Among the exemptions are:

Up to $7,500.00 equity in the debtor's house (15,000 if both file); $4,000.00 in accrued dividends; $1,200.00 in automobile equity; $500.00 in jewelry; $200 per category of household items (including clothing, books, etc.) and more!

Chapter 13 requires that debtors show only a regular income to handle a reasonable three-year pay-back plan. The court's definition of reasonable happens to be as little as 1% to 10%, even when a payment of 50% could easily be managed.