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Bankruptcy types and impact

During the 1990s, business and personal bankruptcies soared. This happened in spite of the greatest economic boom in U.S. history. It was also a booming time for lawyers who specialize in the intricacies of bankruptcy law. In 1998, a record 1.4 million businesses and individuals filed for protection under the bankruptcy code, which was a 300 percent increase since 1980. 96% of the filings were personal bankruptcies. However, in 1999, that number dropped 8.5%.

Many analysts attribute the high number of bankruptcies to aggressive credit offers by banks and (to a lesser extent) department stores. These companies lure even the most credit-challenged (young people and those who have problems managing money) into accepting their credit cards by sometimes offering secured lines of credit, in which the cardholder places as little as $100 in a savings account and receives a line of credit that is five times that amount.

Another reason cited by analysts for the increase is that the old stigma associated with bankruptcy if you filed for bankruptcy protection, you were somehow inferior no longer exists in most areas of the country.

A third reason is a change in attitude regarding the credit cards issuers. Not long ago, if an individual filed for bankruptcy, that person was unable to obtain credit for years (a bankruptcy filing remains on your credit bureau file for 10 years). However, credit card companies operated on a different premise. If you had recently filed bankruptcy, you were no longer in debt. Therefore, you must have had sufficient cash flow to service new debt. Within a month of filing, your mailbox would have been flooded with credit card offers.

In the business arena, filing for bankruptcy (thus stopping creditors from taking legal action) has evolved into just another business strategy.

The three most common types of bankruptcy are as follows:
â?¢Chapter 7: The debtor's assets are sold to pay creditors, and creditors have no right to the debtor's future earnings.
â?¢Chapter 11: A business continues to operate, and creditors receive a portion of both current assets and future earnings. This form of bankruptcy is also available to wealthy individuals.
â?¢Chapter 13: For the typical consumer, creditors usually receive a portion of the individual's current assets and future earnings.

Although bankruptcy laws are sometimes abused an individual may file personal bankruptcy every seven years and some individuals do exactly that bankruptcy is designed as a safety net for individuals or businesses that experience financial difficulties for whatever reason.

Discussion Board Assignment Guidelines:

Research the three types of bankruptcy, and answer the following questions:
â?¢Who may file Chapter 7 bankruptcy?
â?¢What are some of the reasons that people file bankruptcy?
â?¢How does bankruptcy affect interest rates on loans? Credit cards?

Solution Preview

Your posting seemed to say that you needed the references for the answers to these questions, so I located the answers, and copied and pasted each of the Web site contents here for you.

â?¢Who may file Chapter 7 bankruptcy? From Web reference site:
To qualify for relief under chapter 7 of the Bankruptcy Code, the debtor may be an individual, a partnership, or a corporation or other business entity. 11 U.S.C. §§ 101(41), 109(b). Subject to the means test described above for individual debtors, relief is available under chapter 7 irrespective of the amount of the debtor's debts or whether the debtor is solvent or insolvent. An individual cannot file under chapter 7 or any other chapter, however, if during the preceding 180 days a prior bankruptcy petition was dismissed due to the debtor's willful failure to appear before the court or comply with orders of the court, or the debtor voluntarily dismissed the previous case after creditors sought relief from the bankruptcy court to recover property upon which they hold liens. 11 U.S.C. §§ 109(g), 362(d) and (e). In addition, no individual may be a debtor under chapter 7 or any chapter of the Bankruptcy Code unless he or she has, within 180 days before filing, received credit counseling from an approved credit counseling agency either in an individual or group briefing. 11 U.S.C. §§ 109, 111. There are exceptions in emergency situations or where the U.S. trustee (or bankruptcy administrator) has determined that there are insufficient approved agencies to provide the required counseling. If a debt management plan is developed during required credit counseling, it must be filed with the court.
One of the primary purposes of bankruptcy is to discharge certain debts to give an honest individual debtor a "fresh start." The debtor has no liability for discharged debts. In a chapter 7 case, however, a discharge is only available to individual debtors, not to partnerships or corporations. 11 U.S.C. § 727(a)(1). Although an individual chapter 7 case usually results in a discharge of debts, the right to a discharge is not absolute, and some types of debts are not discharged. Moreover, a bankruptcy discharge does not extinguish a lien on property.

What are some of the reasons that people file bankruptcy? From the Web reference site: ...

Solution Summary

Web-based sites that explain bankruptcy types, who can file, WHY people file and the impact of bankruptcy on future credit