In the 1800, by one vote, Congress passed the first American bankruptcy law. It was similar to the 1705 British law, however a fraudulent bankruptcy was not punishable by sentencing individuals to death. It was repealed three years later. (Skeel)
Congress attempted again in 1841, after the abolishment of debtor’s prison. The new act allowed both merchant and non-merchant debt Debtors could claim basic exemptions, although there were limits on what debts could be discharged. Debtors and creditors could file cases. The development of debtor fillings, voluntary bankruptcies became a waterfall event. Thousands of debtors received discharges creditors received very little. The act was repealed after two years. (History of Bankruptcy)
In 1867, Congress tried yet again. This law permitted for both merchant and non-merchant debtors, and allowed both voluntary and involuntary cases. Debtors had to take an oath of allegiance to the United States (this was right after the Civil War). The law lasted 11 years and was repealed due to too many debtors were using it and creditors were getting little back. (History of Bankruptcy)
In modern American bankruptcy had its permanent beginnings with the Bankruptcy Act of 1898. In addition the law permitted debtors to claim exemptions and removed most barriers for discharging almost all debts. At his time commentaries suggested Congress went to far in favoring debtors. Bankruptcy was primarily a “commercial regulation” not a general debtor “jubilee”. (History of Bankruptcy)
During the 1920’s, the act was amended to add grounds for denial of discharge and debts excepted from the discharges. In 1938 Congress overruled American bankruptcy law. Even though most changes affected mainly business bankruptcies, this law also created Chapter XIII, the wage earners repayment plan. (Skeel)
The next major change came in the Bankruptcy Act of 1978. It was amended in 1984 to add many new categories of non-dischargeable debts. The law has been maneuvered since then, however Congress has not changed the vital nature of bankruptcy in America for at least 100 years. (Skeel)
However recently changes in bankruptcy law have emerged. The House of Judiciary Committee passed the senate version of the Bankruptcy Reform Act. (Boute)
The law will not only stop many people from being able to qualify to file bankruptcy it will also increase the cost of legal representation. Since the law makes the debtor’s attorney personally liable to creditors if there are errors or mistakes in the debtors paperwork. (Boute)
This means that if the client is deceitful and lies or is incorrect by accident. The Attorney can be required to pay damages to the creditors. Given that scenario the attorneys may need to bare more expenses by hiring a private investigator, which the client will have to bear the extra cost. The cost can possibly add $1,500 to $2,500 in additional fees. (Bankruptcy laws)
The reason the bill is mostly oppose by women’s groups, consumers rights groups, professors and academics in the bankruptcy field. Is that it makes it even harder to discharge unsecured debts in bankruptcy and save homes keep cars in bankruptcy? (Bankruptcy laws)
The most burdensome part is the concept of a “means test”. It starts on the notion of determining whether your income was equal or above the average household income in the state. That would be based on your prior years of income, not your current income. So, if you have lost a job or were injured you may still be subject to this test even though that income no longer exits. (Boute)
If individuals are subject to this means test than you would have your living expenses compared to a “Template“ of what the IRS thinks you should live on regardless of the cost of the immediate region you reside in. The IRS would take the average cost of the state and if you reside in a region that the living expense was higher than that average, you are “out of luck”. (Bankruptcy laws)
The means test would compare individuals prior income on a monthly basis to this calculation of what you are supposed to live on for example if you had $100.00 in monthly “income” above the necessary “loving expenses” according to the template you would not be able to file Chapter 7 bankruptcy and would need to file a 5 year Chapter 13 bankruptcy reorganization giving all the supposed “disposable income” to your unsecured creditors. (Bankruptcy laws)
Regardless if you did not have the income to pay the monthly amount, but did have enough left over to pat 25% of your unsecured debt over that 5 year period. Then you would still be denied the right to file a Chapter 7 bankruptcy to discharge debts.
Even as the new law goes into effect, there are six new bankruptcy bills still pending. Three are in response to the recent hurricanes. Others are no doubt sure to follow: Many members of Congress have railed against the airlines use of bankruptcy to write off their pension obligations is one example. (Boute)
In many states Florida, Boston, and several others around United States an increase of debtors lined up on the sidewalks and halls of the U.S. Bankruptcy clerk of court offices. In a last minute rush to file their claims before the tough bankruptcy law came into affect. The Florida claimants were the last among an estimated 10,000 South Floridians who filed for bankruptcy since October 1, 2005. (State receives)
Research shows that about half the families in bankrupsy filing have serious medical problems. Two thirds of those who file have lost a job or small business. Twenty percent have just suffered a family breakup- a husband who disappeared, a wife who died, a family that separated by long distance. (North Carolina Statistics)
Statistics in North Carolina 2002:
Total Consumer Business
Chapter 7 17466 17096 370
Chapter 11 144 17 127
Chapter 12 8 -- 8
Chapter 13 18764 18693 71
Total 36382 35806 576
(North Carolina Statistics)
Some bankruptcy experts indicate that the new means testing will affect perhaps 5 percent of 15 present of filers. Bankruptcy is meant to provide legitimate relief for some overburden Americans. Unfortunately, some individuals have taken advantage of current law to avoid financial obligations. The new law will force more bankruptcy filers capable of repaying their debts to do so and not have them be relieved so easily.
Bibliography
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History of Bankruptcy. Retrieved November 21 2005 From
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North Carolina Statistics.Retreived November 17 2005 From
Skeel, D.A. A History of Bankruptcy Law in America.
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Janesville Gazette Retrieved November 17 2005 From