Personal bankruptcy has been on the rise over recent years, due largely to increased amounts of unsecured consumer debt (credit cards), and in response, the Senate passed a new bill in March making it more difficult to get out from under the strain of debt.
Sought by credit card and finance companies, the bill's goal is to deter debtors who simply seek to avoid repayment of their debts by forcing them to file under Chapter 13 of the bankruptcy code instead of Chapter 7, which allowed people to erase most of their unsecured debts. Under Chapter 13, some repayment is required, generally under a court approved plan. By limiting Chapter 7 filings, fewer people will be allowed to keep their homes while defaulting on the rest of their debt.
Approximately 1.3 million Americans declared bankruptcy in 2000, a 75 percent increase from 1990.
The bill is expected to be signed into law by President Bush and will go into effect six months later. People seeking to file under Chapter 13 will then have to show enough income to pay off at least 25 percent of their debts over five years, and if they qualify, they would be barred from filing under Chapter 7.
For more information on the status of the new bill, (number S.220.PCS) please visit the U.S. Senate Website.
Robin Vaccai-Yess is a certified financial planner and a certified divorce planner. She is the founder of Center for Financial Wellness, Inc., a fee-only financial planning and advisory services firm based in New Paltz, New York. Visit her online Center for Financial Wellness.