The Lure Of Easy Bankruptcy

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 com-fortable
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-guaran-teed 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.