THE LURE OF EASY BANKRUPTCY

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.