The Facts On Chapter 7 Bankruptcy Laws
The bankruptcy law allows a debtor, who manifests an inability to pay his creditors, to resolve his debts through the division of his assets between his creditors. The main purpose of Chapter 7 or Chapter 13 bankruptcy law is to give certain debtors the chance to free themselves (to be discharged) of the financial obligations they have accumulated, after their assets are distributed, even if their debts have not been fully paid. In the last fifteen years or so, both lawyers and economists with an interest in legal matters, have paid attention to the topic of bankruptcy law. The researchers in this area, both theoretical and empirical, have expressed different views and lead to several changes in the law text, especially regarding the Chapter 7 bankruptcy law in 2005. But, let's start with the beginning and take a look at the first occurrence of the notion of bankruptcy law. The old law… A version of the bankruptcy law existed since the Roman Empire. Yet, the U.S. bankruptcy law that is applied today springs from the British bankruptcy statutes dating from the sixteenth century. In the beginning, bankruptcy was mostly initiated by creditors and often led into doing prison time for the debtor. In 1898, the Congress passed a bankruptcy law called the Bankruptcy Act of 1898. The current bankruptcy system is based on this act. Like the previous laws, the 1898 act also focused on liquidation. Still, it also introduced several chapters regarding the rehabilitation of a business. Starting with the XX century the bankruptcy was more a viable tool of survival then a method of death. The birth of modern bankruptcy The late 1960's made a big difference in the bankruptcy law history. During those years a legislation designed to strengthen the effectiveness of an individual's discharge from its debts in liquidation proceedings, was proposed. Later, in 1978, the Bankruptcy Reform Act considerably strengthened the powers and enhanced the jurisdiction of bankruptcy judges. The same document replaced Chapters X and XI with Chapter 11 corporate reorganizations and Chapter XIII with Chapter 13. What happened after the 1978 act? The Code has been amended several times after the 1978 act. The most important amendments date from 1986 and respectively 1994. Some sweeping changes in the Unites States bankruptcy law were made in April 2005 and they went into effect on October 17, 2005. The document, known as the "Bankruptcy Abuse Prevention and Consumer Protection Act of 2005" is designed to catch abusive consumer bankruptcy filings and it received a lot of criticism during the years. The means test The "means test" is the name of the test used to determine whether an individual can file under Chapter 7, which forgives the whole debt, or Chapter 13, which establishes a financial plan and demands payment of the secured debt and as much of unsecured debt as possible. The means test is a pretty major change in the bankruptcy law and although it is rather complex, most debtors have no problem meeting its requirements. Individuals can use a means test calculator, available online to determine their eligibility. In modern times, bankruptcies of giant corporations as well as wealthy celebrities regularly appear in the newspapers and on television. Since 1996, more then one million people a year have voluntarily filed bankruptcy in U.S. We can observe that the current bankruptcy law in U.S. is widely regarded as being more in the favor of the debtor than the laws of other developed countries. This law provides individuals generous exemptions and also a relatively easy discharge of debts. It also lets the managers of bankrupt businesses in control of their companies and gives them a chance to form a reorganization plan. |
