This will be the first full year for the new Bankruptcy Rules...
So I recently asked a Bankruptcy Lawyer what the effect would be, and he replied that there will be a LOT fewer people filing for Bankruptcy...
But I beg to differ:
Consider:
Under the new rules it's not debts to assets that makes you eligibile for Chapter 7 Bankruptcy, (the favorite kind), but rather debts to income that counts!
This means that someone with $100,000 in debt and $20,000 in assets would NOT BE ALLOWED to have a Chapter 7 liquidation IF HE HAD AN INCOME OF SAY $50,000+
Assuming the State Average income is less than $50,000 for that debtor!
SO UNDER THE NEW LAW HIGHER INCOME PEOPLE WOULD BE FORCED INTO THE LESS DESIREABLE CHAPTER 13 "RE-ORGANIZATION"...
The dirty little secret is that bankruptcy never was for the "poor" but always for the slightly confused middle class wage earners!
HERE'S WHY MORE PEOPLE WILL BE FILING BANKRUPTCY:
You would think that IF you gotta pay anyway...why even bother with bankruptcy? Right?
But that's not how it works for most debtors.... The more usualy scenario is that they get "behind" and start getting "letters" and phone calls about their debts... Of course they ignore them because they are "doing the best they can." Right?
But then come the LAW SUITS...sooner or later some debtor will "reduce his claim to judgement"...AND A GARNISHMENT OF WAGES WILL BE FILED!!
BINGO!! THIS IS WHEN THE DEBTOR RUSHS TO HIS ATTORNEY BECAUSE HE CAN NOT TOLERATE THE GARNISHMENT OF HIS WAGES...WHICH TAKES "MOST" OF HIS WAGES DEPENDING ON THE STATE LAWS IN PLAY.
Once wages are garnished, and most bankrupt has "decent" wages...BANRUPTCY IS INEVITABLE! I have never known a single debtor that could withstand wage garnishment.
BUT WAIT! Our debtor has "higher wages" and thus can't file Chapter 7... He is forced into Chapter 13 SIMPLY TO STOP THE WAGE GARNISHMENTS...! AND NOT BECAUSE HE "WANTS" TO AVOID CHAPTER 7 LIQUIDATION.
In conclusion, more people will file bankruptcy and they will be in bankrupcy longer (5 years perhaps) under the NEW LAW which forces people will "living wages" to repay their debts...
The fact that Chapter 7 is not available to them will be irrelevant; because most people go to bankrupcy to PROTECT THEIR WAGES, NOT THEIR ASSETS WHICH ARE USUALLY MINIMUAL.
(The KEY house and care notes were ALWAYS "revived" under the old system, and will be under the new rules too.)
UNDER THE NEW RULES THERE WILL BE A FLOOD OF BANKRUPTCIES...NOT FEWER BECAUSE WHILE YOU CAN CHANGE THE "RULES" YOU CAN'T CHANGE THE NATURE OF THE PEOPLE WHO MUST FILE BANKRUPTCY...
BECAUSE IT ALWAYS WAS ALL ABOUT "WAGE PROTECTION," AND NOT "ASSET PROTECTION"...
AND THAT HAS NOT CHANGED UNDER THE NEW LAW!
