Congress attempted to limit Chapter 7 filings because the filer's assets are liquidated to pay off as many debts as possible before any remaining debts are discharged. According to the NBKRC report, """"the continuing decline in the proportion of Chapter 13 filings contrasts with the strong drive by Congress in its 2005 bankruptcy legislation to encourage bankrupts to choose Chapter 13 over Chapter 7.""
However, the new bankruptcy laws did not account for the impending financial crisis in the United States.
Americans' Assets Are Being Destroyed by Foreclosures.
The 2005 bankruptcy laws imposed a difficult decision on consumers. Either file for Chapter 7 bankruptcy and liquidate all of their assets, or file for Chapter 13 bankruptcy and retain their assets while eventually paying off their debts. The assumption was that Americans would be reluctant to relinquish their home, which is typically their most valuable asset.
According to a post on CBSNews.com, the number of properties foreclosed on by banks increased by 35% in the first quarter of 2010 compared to the same period in 2009. When the consumer's most valuable asset is taken away, there is little reason to choose Chapter 13 over Chapter 7.
As long as the number of foreclosures continues to rise, you must anticipate an increase in bankruptcies. The principal contributor to the NBKRC report, Ronald Mann, told the Wall Street Journal, ""I don't believe anyone knowledgeable about the bankruptcy system thought the statute was well-crafted.""
Foreclosures Display No Indications of Declining
Falling property prices are primarily to blame. According to a Time article about foreclosures by Stephen Gandel, nearly 20% of homeowners owe more on their property than it is currently worth. As a result of the plummeting value of their residences, they believe that walking away from their mortgage is their best option.
Even some mortgage industry professionals recommend they do so. The consumers can then eliminate their debts by registering for bankruptcy or repairing their credit. Then, a year or two later, when their financial situation has improved, they can simply purchase another residence.
Nearsighted Laws Require Another Rewrite
It would seem that laws revised within the past five years would have an extended shelf life, but this has not been the case. As long as millions of Americans continue to lose their homes, they will file for Chapter 7 bankruptcy in an effort to secure an improved financial future. Perhaps legislators should not necessarily focus on how to prevent consumers from registering for bankruptcy, but rather on how to eliminate the causes that drive them to do so.
" - https://www.affordablecebu.com/