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GIZMO !
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Bulletin Board |
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THE LURE OF BANKRUPTCY
Here
is a story about bankruptcy, and the advantages it offers. A husband and wife
team of practicing psychiatrists, with a joint income of $78,000 per annum,
accumulate personal debts totaling $22,000, and also have outstanding a $33,000
mortgage on their comfortable suburban New York home. They are not in arrears,
nor even over their heads. They simply seek more discretionary spending power.
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 education.
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. Among the exemptions: Up to $7,500.00 equity in the debtor's house
(15,000 if both file); $4,000.00 in accrued dividends; $1,200.00 in automobile
equity; $500.00 in jewelry; $200 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.