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Bankruptcy Today: Does the Consumer Really Win?

Bankruptcy Today: Does the Consumer Really Win?

There is no denying it. Many people are struggling to pay their bills. Even though millions of jobs have returned to the market, unemployment continues to remain high. For a large percentage of those struggling, bankruptcy seems to be the only option they have left in order to prevent themselves from drowning under the mountain of debt surrounding them. In fact, the number of bankruptcies filed increased 13.8% to over 1.5 million in 2010 since the bankruptcy reform law designed to prevent bankruptcy abuse passed in 2005. The real concern is whether or not bankruptcy really helps today’s consumers.

There is no denying that bankruptcy provides certain advantages. A chapter 13 bankruptcy helps them restructure their debt so that they are able to make smaller payments to pay it off while a chapter seven bankruptcy completely wipes the slate clean and allows the consumer to walk away from their debts. Both types provide protection from creditor harassment, wage garnishment, and seizure of collateral. Many people are filing bankruptcy to stop the bank from foreclosing on their home. Unfortunately, it is no longer a guarantee that a bankruptcy will stick once it is filed in the courts.


The 2005 bankruptcy reform law brought in a few changes, besides the state rules and regulations. The major intent of bankruptcy reform was to require people, who can really afford to make payments towards their debt, to actually make these payments, while still affording them the right to have the rest of their debt erased and/or paid for, through a Chapter 13 bankruptcy.

This could still potentially hurt consumers as even one missed payment could result in the dismissal of their bankruptcy case and put them right back in the same bad debt situation they were trying to get themselves out of.

This also doesn’t take into consideration the effect a bankruptcy has on a person’s credit rating. A bankruptcy is generally reported on a person’s credit report for up to ten years. This will make it extremely difficult to qualify for loans and certain types of employment.

If a person is approved for a loan, the interest rate offered to them usually rivals that given by loan sharks. In the past, many businesses were willing to take a chance on people with bad credit. But since the economic downfall, credit is hard to come by even for people with a high credit score. If you are thinking about filing for bankruptcy, explore all aspects of the process before making a decision that will impact your life for a decade, or more.

Oscar E. Diaz.

About the Author: Oscar Diaz is a lawyer with 22+ years of experience in Corporate, International and Tax Law. He is licensed and admitted to practice law in Venezuela only. This article constitutes an opinion, and is not legal advice in any way. If you need legal advice, you should contact a lawyer licensed in your state and/or country. Oscar Diaz is not selling, promoting and/or marketing any legal service. This article is for informational purposes only.

Oscar Diaz is a lawyer with more than 20 years of experience in Corporate, International and Tax Law. He is licensed and admitted to practice law in Venezuela only. He was included as one of the “150 Best Lawyers in Latin America”, by Abogados LatinoAmerica, in 1999.



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