Bankruptcy, Not As Easy As Before

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Of all the people that file for personal bankruptcies, over a third of them do so because of a financial situation or crisis outside of their control. Most of the time, this financial crisis is directly related to a debilitating health problem.

If you do not have health insurance, a catastrophic illness such as cancer, can wipe you out financially. Even for many people with health insurance, the combination of premiums and deductibles, can put a major dent in their finances. Especially hit hard are the elderly and families where a single woman is the head of the house hold. It's frightening to think of just how close many people in this country are to foreclosure, bankruptcy, or financial ruin.

The second biggest reason that people file for bankruptcy is either the loss of a job or divorce. A sudden loss of a job due to company layoffs, company outsourcing, or a company going out of business can easily wreck the financial situation of a household that is heavy in debt and basically living from paycheck to paycheck. A divorce can lead to a situation of having to support two households instead of one and also possibly alimony payments.

Unfortunately, the new bankruptcy law, which became effective October 2005 was basically written by the credit card companies. As you might expect, they changed the law to work in their favor and put in basically no provisions to protect citizens that may have fallen into the above categories.

In fact, under the new bankruptcy law, the more equity you have in your home, the greater the chance you'll have to use it to pay off your creditors, thus increasing the chance that you'll forfeit it through foreclosure. The new changes in the law make filing for bankruptcy more expensive, making it more difficult for the people that really need it to take advantage of it. In addition, the new law, instead of wiping out some debts that would have been dissolved under the old bankruptcy bill, will force the person into a repayment plan.

Other fees also make filing for bankruptcy more expensive. You will be required to attend financial counseling both before and after filing for bankruptcy, which you will have to pay for. The bankruptcy laws are also more complex, which means that your lawyer fees will be higher.

The prior bankruptcy laws were predicated on a belief that a person who had worked all his life, paid his bills on times, and was generally a good citizen, could have a chance to wipe the financial slate clean and start over in the event that through circumstances out of his control, he was unable to pay his bills. Sure, the system was taken advantage of by some, but in a society of laws, that's unavoidable.

And, yes, some changes were probably needed in the old bankruptcy laws as some provisions were archaic and out of date. But making changes should not mean that you take away the safety net for people. Especially when the debt situation that many of these people found themselves in were surely worsened by the outrageous late fees, percentage hikes, and other "profit centers" built into the lending practices of most of the major credit card companies.

David Hoyer is a freelance writer who writes articles relating to dealing with bankruptcy, bad credit, and personal loans and other financial issues.Visit his site at http://www.bankruptcyfocus.com .