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Ideas/Section-10
Here is a true 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 arears, 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.
