Medical Bills and Job Losses Have Pushed U.S. Residents To Seek Bankruptcy Protection
While filing for bankruptcy can ruin one's credit record, it can protect consumers from debt collection actions, including being taken to court.
Mounting medical bills and job losses have pushed many U.S. residents to seek protection from creditors by filing for bankruptcy in federal court, which saw a 68 percent increase in bankruptcy filings over the past year.
Steven Peck, a California Business Attorney, says chronic medical conditions are triggering a rise in bankruptcy filings because some of the major medical bills consumers face aren't always fully covered by health insurance.
"Most clients who come to see me have done everything they can do to avoid bankruptcy, and every penny of available income has been spent, but debts are still owed, including late fees, interest, penalties, court costs, etc.," Peck says.
Debt-burdened consumers also can get overwhelmed as garnishments, repossessions and foreclosures loom, he added.
The National Bankruptcy Research Center reported that bankruptcy filings rose by nearly a third last year."As foreclosure and unemployment rates rise, consumers and businesses turn to bankruptcy for reprieve. A fundamental goal of the bankruptcy code is to grant the debtor a "fresh start" from burdensome debts, according California Bankruptcy Attorney Steven Peck.
But while the bankruptcy code offers a fresh financial start for those crumbling under the weight of heavy debts, debtors who must list their assets and liabilities, by business professionals who must disclose their relationships and financial arrangements, and by trustees who must zealously attend to their fiduciary duties.
There are several bankruptcy filing categories in which a debtor can file, and the most common are filings under Chapter 7 and Chapter 13 of the bankruptcy code.
Under Chapter 7, in return for having debts discharged -- meaning debtors are no longer obligated to pay them -- a debtor must turn over certain non-exempt property to a bankruptcy court trustee to be sold and the proceeds distributed to creditors.
Non-exempt properties include tax returns, real property other than the debtor's home, or a second car for a single filer. In order for a debtor to keep any property subject to liens and mortgages, such as cars or homes, the debtor must continue to make regular payments to retain the property, indicates California Business Attorney Peck.
Under Chapter 13, debtors propose a repayment plan to make installments of past-due debts to creditors for a period of three to five years. During the repayment plan period, the law forbids creditors from starting or continuing collections efforts against the debtor. But if agreed-upon payments fall behind, the trustee and/or the creditor can ask the court to allow foreclosure proceedings against the debtor.
The surge in bankruptcy filings have occurred even after the bankruptcy laws were substantially changed in 2005 to make it more difficult for individuals," according to Peck, to have their debts discharged under Chapter 7 of the bankruptcy code.
The National Bankruptcy Research Center, which compiles and analyzes bankruptcy data, stated that personal bankruptcy filings across the nation rose to 1.41 million last year, representing a 32-percent jump from 2008. It added that 2009 saw the highest bankruptcy filings since 2005 when reforms made bankruptcy filing tougher.
The 2005 bankruptcy law overhaul pushed more consumers into Chapter 13 filings instead of Chapter 7, according to the center. However, to file under Chapter 13, an individual must have a regular income, and with the national unemployment rate at 10 percent, many filings may not met that standard.
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