Their solution to the
problem? They file for bankruptcy and are able to immediately reduce their debt load to a
mere 10 cents on the dollar, repayable on an extended schedule in very small amounts. An
officer in one of their finance companies notes that they could refinance the mortgage or
even sell the house. But you will see in a moment why that was not necessary.
Traditionally, personal bankruptcy has
been a desperate last resort for those so deeply in debt and harried by creditors, that
there really seemed to be no other solution. The typical profile included low-income,
under-educated clerical workers or laborers, or perhaps transient non-homeowners. Common
age groups were those who were in their twenties, or those over sixty five years of age.
This is no longer the case. Today's
profile includes people with good jobs, even families with two incomes. It is not
surprising to find those with six-figure incomes declaring bankruptcy. The process comes
no longer out of a dire necessity, but it is now a means by which people can rid
themselves of debts that cramp their lifestyle.
The most common applicants for bankruptcy
include recent college graduates who file in order to avoid paying back
government-guaranteed student loans. Their rationale? They feel society owed them an
You will also find older, "keep up
with the Joneses" types filing for bankruptcy. For suburban executives to Wall Street
professionals, they are unwilling to live within their means.
The passage of the Federal Bankruptcy Act
of 1978 made the whole process much easier. This change significantly liberalized personal
filing procedures in the name of consumer rights.
Chapter 7 makes no reference at all to
the debtor's income. It permits debtors to clear the slate by turning over all their
assets except those specifically exempted to creditors. Exemptions include allowable
amounts on equity in the debtor's house, accrued dividends, automobile equity, jewelry, a
nominal amount per category of household items including clothing, books, etc. and more!
Chapter 13 requires that debtors show
only a regular income to handle a reasonable three-year pay-back plan. The court's
definition of reasonable happens to be as little as 1% to 10%, even when a
payment of 50% could easily be managed. (Check the bankruptcy laws in your area. Amounts
may vary accordingly).