Bankruptcy: the Last Resort
The United States Constitution provides a method whereby individuals, burdened by excessive debt, can obtain a fresh financial start and pursue newly productive lives unimpaired by past financial problems. It is an important alternative for persons mired deep in financial difficulty.
The federal bankruptcy laws were enacted to provide debtors with a fresh start and to establish a ranking and equity among all the creditors who are clamoring for the debtor's limited resources. Bankruptcy helps people avoid the kind of permanent discouragement that can prevent them from ever reestablishing themselves as hard-working members of society. Also, creditors are ranked so that the debtor's nonexempt property can be fairly distributed according to established rules guaranteeing identical treatment to all creditors of the same rank.
On October 17, 2005, a new federal bankruptcy law took effect, bringing sweeping changes to a system that critics claimed was being abused by too many people for too long. The goal of the reform measure was to force those who had the means to repay their debts instead of wiping them away. So now a means test will be used to determine which debtors should enter a repayment plan and which should be allowed a clean slate or fresh start. If a debtor's income exceeds the means test, a presumption of fraud exists and the liquidation option under bankruptcy is not available.
This discussion is intended only as a brief overview of the types of bankruptcy filings and of what a bankruptcy filing can and cannot do. Anyone considering this course of action is encouraged to seek the advice and assistance of an attorney specializing in bankruptcy law.
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