People do many things simply because its easy to do or just plain simple. We like going to fast food restaurants because we can just shout out a number and we get everything we see in the picture, big traveling arrangements that are boiled down to all inclusive packages make it easier for us to take that vacation to the Bahamas, and even taxes (for some of us) aren't that bad to file when the tax website holds your hand every step of the way. We hate the hassle of having to jump through hoops, so then why is filing for bankruptcy so encumbered by the government?
At the heart of every bankruptcy lies an initial choice, which way do I file -- Chapter 7 or Chapter 13? Under Chapter 7, households give up all of their nonessential assets (as determined by the law of the state where they live), but pay nothing out of any future income to clear their debts; those debts are simply erased. Under Chapter 13, households make payments out of future income, but are more likely to retain their homes and automobiles. The process has always been a paper work intensive experience but since 2005 the process has only become more bogged down.
In 2005 Congress made things worse by changing the rules to make it harder for bankrupt people to avoid paying their outstanding bills, they were concerned with people gaming the system and thus felt that making the process even harder was the best way to keep these people from using it. Under the newer regulations debtors must produce documents that estimate potential increases in expenses or income during the year to come, a monthly net income statement and a complex “means test calculation” that certifies expenditures in a large number of specific, carefully defined categories. Additionally, under the 2005 changes Chapter 13 does not let people avert foreclosure by paying the actual value of their homes, instead under the newer regulations it provides for lenders to prevent normal bankruptcy relief.
Under the old system Chapter 13 was an important tool for debtors looking to keep their home and move on with their lives, since the 2005 changes to the system its importance has taken a hit. The amount of Chapter 13 filings have fallen in 2009 to only 28 percent of all filings, down from 42 percent in 2006. The numbers clearly show that the 2005 changes have not put debtors with homes in a better position, a streamlining of the entire process is needed and dare I say that those in charge should look at our federal income tax system as an example of how to grease the skids of our bankruptcy system.
