Magazine article Insight on the News

More American Debtors Turn to Chapters 7 & 13

Magazine article Insight on the News

More American Debtors Turn to Chapters 7 & 13

Article excerpt

As the bankruptcy process becomes easier, the stigma of insolvency has gone belly up. Meanwhile, business and banking lobbies continue to pressure Congress to pass tougher laws.

Americans are going bankrupt at a record rate. In 1998 (through September only), nearly 1.5 million Americans filed for bankruptcy, the highest number ever. And declaring bankruptcy has never been easier.

"The stigma of filing for bankruptcy seems to be diminishing," says Daniel Mica, president of the Credit Union National Association, which has lobbied for tougher bankruptcy laws. "People are starting to think more and more that this is just another way to deal with debt."

Take, for instance, the case of a former restaurateur named Anthony (who asked not to be further identified). Anthony quickly erased more than a quarter-million dollars in debt after spending just 40 minutes doing the paperwork and five minutes at his bankruptcy hearing. "It's like filling out a loan application," he says.

Retailers, bankers and credit-card companies complain they lose $40 billion yearly to what they call irresponsible buyers and people "working the system." (Spiraling credit-card and consumer debt has topped $1.3 trillion.) The nation's business lobby nearly convinced Congress to pass laws requiring debtors to pay at least part of their unexcused commitments, but the measure died. Fervor for altering the system remains undiminished, however, and legislators in Washington are expected to debate bankruptcy reform again this year.

About 75 percent of bankruptcy proceedings last year were Chapter 7 filings -- petitions to discharge burdensome debt. Chapter 13 bankruptcy protection is a reorganization of debt that provides up to five years for payment. Alimony, child support and student loans, along with 15 other types of debt, cannot be eliminated under any bankruptcy plan.

About 70 percent of personal bankruptcy cases are processed outside the courtroom and never come before a judge. Swift legal proceedings have shortened the entire process from seven months to less than four. Bankruptcy trustees often process dozens of debtors at a time, closing some cases in less than a minute.

"Bankruptcy is the only federal legal proceeding where there's no judge, no robe, no flag," says Samuel Gerdano, executive director of the American Bankruptcy Institute in Alexandria, Va. …

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