Many Consumers Barred From Bankruptcy Courts by Stringent Qualifications Set Forth in Recent Reform Laws
Many consumers are barred from bankruptcy courts by stringent qualifications set forth in recent reform laws.
(PRWEB) January 2, 2006 -- The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 marks the most sweeping reform of the country’s bankruptcy laws since they were enacted in 1978. The legislation, which is strongly supported by major credit institutions, aims to curb the rising trend of bankruptcy filing and strengthen the system’s integrity by making it extremely difficult for high income consumers and serial filers to qualify for Chapter 7 bankruptcy. However, financial experts warn that the new legislation will have detrimental effects for the majority of bankruptcy filers who are in genuine financial distress by severely restricting their ability to qualify for bankruptcy.
Under the new provisions of the reform legislation, all debtors must present a certificate from an accredited nonprofit credit counseling organization verifying the debtor has completed credit counseling and an individual budget analysis. This certificate must be submitted no later than 180 days before filing. The reform bill also places a cap on the money that is legally protected from bankruptcy proceedings. This includes a reduction in the amount of money that can be saved in an IRA or retirement account and a reduction in the money that can be allocated for private or patriarchal school tuition.
However, the most controversial element of the reform is the “Means-Test”. The “Means-Test” determines a debtor’s eligibility to file Chapter 7 bankruptcy by examining three distinct elements of the debtor’s income over the last six months. If the debtor’s income exceeds the state’s median income, if the debtor has at least $100 excess monthly income, or if the debtor has enough excess monthly income to pay at least 25 percent of their total debt over a five year period, then he or she will be denied access to Chapter 7 bankruptcy. As a result, people with even the slightest ability to repay their debts are no longer able to seek debt reduction through bankruptcy.
Is the Reform Justified?
Over the last decade, the number of bankruptcy cases filed in the United States has nearly doubled. Lawmakers viewed this rising pattern as an indication that people were abusing the system. However, this is not necessarily the case. According to Suzann Boas, president of the Consumer Credit Counseling Service of Atlanta, most consumers considering bankruptcy have already reached a point where debt reduction is the only way they will ever become debt free. When a potential filer visits her organization for pre-bankruptcy credit counseling, Susan explains, she is rarely able to help the person with services her organization offers, including debt consolidation. Unfortunately, the provisions of the new bankruptcy legislation exclude many of the struggling consumers who legitimately need assistance from filing Chapter 7 bankruptcy.
Help for Big Spenders
All hope is not lost. While many consumers no longer qualify for Chapter 7 bankruptcy, debt arbitration or debt settlement remains a viable and easily accessible option for consumers who are serious about getting out of debt. Unlike debt consolidation, which simply rearranges debt and interest rates, a debt arbitration company negotiates a mutually beneficial settlement with the consumer’s creditors to reduce the actual principle balance by an average of 40-60 percent. Debt arbitration also enables the consumer to combine all payments into one manageable monthly payment that he or she controls. And best of all, it is not a bankruptcy.
About Knockout Debt
Knockout Debt is a professional debt arbitration company that specializes in helping heavily indebted consumers regain financial stability by negotiating a significant reduction of the consumer’s total principle debt. By utilizing experienced negotiators, long-standing relationships with creditors, and financial acumen, Knockout Debt designs customized debt reduction solutions that enable clients to lower their debt to income ratio without filing bankruptcy.
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