This October marks the fifth anniversary of the implementation of the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act, which was passed to make it more difficult for Americans to seek the debt relief that Chapter 7 bankruptcy provides. Its seems that this Act hasn't really had much of an effect on the number of bankruptcy cases that file under Chapter 7 as its still the most common form of bankruptcy filed in the United States.
The new bankruptcy law created income and credit counseling requirements intended to reduce the number of bankruptcy cases filed in the United States. It also funneled more cases into Chapter 13, which requires some repayment of outstanding debt. Whereas, Chapter 7 allows most people to wipe out their unsecured debt.
Leading up to the changes, nearly 80 percent of two million bankruptcy cases filed in the United States in 2005 were under Chapter 7. In 2006, just over 58 percent of the less than 600,000 bankruptcy cases filed under Chapter 7. Unfortunately for those who crafted the law, economic conditions didn't remain as good as they were in 2005 and 2006. The downturn in the economy and the real estate meltdown led to a growing number of people trying to save their homes from foreclosure through bankruptcy. In 2009, over 1.4 million bankruptcy cases were filed in the United States and 2010 looks like it will come even closer to the record set when the law changed in 2005. So far in 2010 there's been about 1.6 million bankruptcy cases filed in the United States.
Some bankruptcy experts have even questioned if the new income requirements and restrictions on the use of bankruptcy protections have prolonged the recent recession. With more people waiting until their financial situation is even worse so that they can qualify for Chapter 7 bankruptcy.
In 2009, just over 70 percent of bankruptcy cases were filed under Chapter 7. Reaching the same percentages of Chapter 7 cases filed in 2004 and 2005. So have the changes to the law really had much of an effect? Time will tell - but the bottom line is when someone becomes inundated with debt declaring bankruptcy may be their only viable option.
If you are struggling financially and aren't sure if bankruptcy is the best option for you. Please don't hesitate to contact me as I offer a free confidential initial consultation where you can get all your questions answered.