Bankruptcy had almost ruined the businesses of creditors and due to bankruptcy; many creditors were getting defaulted as people were not paying back at all and gaining relief by filing insolvency under chapter 7. According to chapter 7; no money is paid by the debtor if the court of law accepts him as completely bankrupt. Due to this rule the creditors were facing losses and later they hesitated from providing any loans to any kind of debtor. To remain in business the creditors did not even provided a loan to those borrowers who had a good credit rating. When there was no lending and borrowing; the rate of economic growth of America started slowing down.
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Government took notice of this and made certain changes in the rules of bankruptcy. The first change was made ion the qualification criteria. Changes were made in the eligibility criteria; according to these changes those people who have been earning lower than the minimum wage level of the state they are living will only be allowed to file under chapter 7. Those who are earning higher than minimum wage rate could exercise bankruptcy under chapter 13.
Another major change in the laws was that a debtor has to take up counseling before filing for insolvency; in these counseling classes they were informed about the disadvantages of filing bankruptcy and the advisor tries to discourage the clients from filing. Next; the debtors has to hire a lawyer for the entire process of insolvency.
According to facts and figures; the rating of filing insolvency under chapter 13 is three times lower than the rate of filing under chapter 7. People who used to have enough money to pay off their debts even started to file in order to evade the entire liability amount. According to chapter 7 people earning below the minimum wage level over the past 6 months cannot file under chapter 7. For example if you are earning $50,000 for the past 6 months and the minimum wage rate of your state is $35,000 then you cannot file under chapter 7. You will be allowed to file under chapter 13 in which the loan is rescheduled and repayment method is relaxed; but no amount of loan is deducted or written off.
There are other ways such as liability settlement which is being supported by the government and the private sector and has more benefits to offer than insolvency.
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