Research shows bankruptcy reform may not benefit debtors

Filing for bankruptcy is rarely an easy decision for a Southaven resident to make. After consulting with an attorney, one's legal options can be clearer and a debtor may then be in a position to choose between Chapter 13 and Chapter 7 bankruptcy. Regardless of the type of personal bankruptcy, though, many debtors have questions regarding how easy it is to file and if they are eligible to move forward with the process.

Individuals who are considering filing for bankruptcy may have heard about 2005 reforms, which made it tougher for some individuals to file. Recently, reports have pointed to unexpected effects of the mid-2000s reforms. According to researchers from Columbia University and the New York Federal Reserve, the reforms appear to have led to a drop in the bankruptcy rate. However, according to other researchers, the changes may have also had some negative economic effects.

According to researchers from the Social Security Administration and Princeton University, making it tougher to file bankruptcy can increase the default rate on mortgages. A mortgage that has fallen into default, of course, can throw a family into financial turmoil and also make matters tough for the lender. In addition, tougher filing rules mean that there is greater incentive for individuals to try and evade creditors rather than earn an income. Moreover, those who are able to declare bankruptcy - and thus eliminate debt - have a greater ability to pay their other bills and meet other creditors' demands.

Being able to file for bankruptcy is crucial for many local residents who may be suffering from unexpected life changes such as unemployment. Bankruptcy can allow a debtor to either wipe out certain debts via liquidation or assets or repay debts via a manageable plan. A Southaven bankruptcy firm can further inform residents of their eligibility for Chapter 7 or Chapter 13.

Source: The Economist, "Bankruptcy and the economy: A fresh start," March 14, 2015

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