FYI: Bankruptcy

Continuing the exposition on the perfidy of many of our socio-economic “sacred cows” – this one is about bankruptcy

by Richard @ Flexible Reality: Mar. 3rd, 2019


The Federal bankruptcy law was first passed in 1841-43, and amended several times since then. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 was the first to institute a “means test” among other “creditor friendly” provisions.

However, according to a 2009 study, 62.1 percent of all bankruptcies were due to medical bills, In 2015, the Kaiser Family Foundation found that medical bills made 1 million adults declare bankruptcy that year.

But there are a multitude of issues with a Chapter 7 filing, including the possibility you could forfeit your home or possessions to pay outstanding debt. In addition, a bankruptcy itself costs from $1,500 -$3,000 and the discharge stays on your record for 10 years. You may not be able to rent an apartment, get an auto loan, or buy a home. Some employers would reject your job application for that reason.

While there is no limit to the total number of Chapter 7’s a person can file, there must be an eight-year span between filings. There is also the means test, which determines how much disposable income a person has available, and if beyond basic survival needs the filing can be declined.

In addition, some debts are not dischargeable, including the big one: student loans, Others include: debts that you left off your bankruptcy petition, unless the creditor actually knew of your filing, many types of taxes, child support or alimony, fines or penalties owed to government agencies, personal injury debts arising out of a drunk driving accident, debts arising out of tax-advantaged retirement plans,condo or cooperative housing fee debts, attorneys’ fees for child custody or support; and criminal restitution and other court fines or penalties.

Another curious issue arises based on the 8 year break, where a person is prohibited from filing a second time, thus any creditor is almost guaranteed repayment by a borrower, but they generally cannot obtain credit for more than four years after a filing. Creditors say this is to permit a potential borrower to “rebuild” their credit, during which time borrowers are obligated to deal with companies that charge much higher fees, in many cases 29-32% interest on top of an initiation fee.

And finally the issue of how much total debt is involved in Chapter 7 filings typically used by individuals, and Chapter 13’s filed by businesses and corporations. Or a median amount. Good luck locating that information from typical data sources.

What we have now is less “creditor – friendly” than in other first-tier countries, but it is far superior to what we had before 1897 when borrowers could be thrown in jail until they could find some way to repay creditors.

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