Over the years, bankruptcy legislation in the United States has undergone a number of revisions and amendments. Some believe that these revisions have been aimed at making the law more balanced between debtors and creditors. With the passage of the Bankruptcy Abuse Prevention Consumer Protection Act of 2005 (BAPCPA), people wonder whether current bankruptcy law favors debtors or creditors. Debt relief advocates argue that the law could do more to protect consumers from predatory lending practices. Let’s examine how current bankruptcy law treats both sides with respect to the most common forms of consumer bankruptcy protection.

Chapter 7 Eliminates Debt But Seriously Damages Your Credit

The most common form of consumer bankruptcy protection, Chapter 7, allows for the discharge of certain unsecured debt if the consumer meets specific eligibility requirements. Unsecured debts can be defined as obligations or liabilities that have not been secured by collateral or some other interest. Think credit cards, personal loans, and medical bills. If eligible, these debts are simply erased, leaving creditors unable to collect. The law attempts to balance the scales by disallowing some forms of unsecured debt from being discharged. This includes student loans and child or spousal support obligations.

It should also be noted that the negative effect on your credit report caused by Chapter 7 bankruptcy will remain for ten years from the date of filing. Moreover, the law prohibits a consumer from filing for Chapter 7 if their income exceeds a threshold amount. In those cases, the consumer must file for Chapter 13 protection which requires repayment through a court-approved plan.

Chapter 13 Eliminates Some Debt While Less Severely Harming Your Credit

This form of bankruptcy protection is also known as wage-earners bankruptcy, as consumers with significant income often opt for Chapter 13, thereby attempting to repay some or all of their debt through a repayment plan. Chapter 13 may also allow consumers to keep their property while they make payments under the plan. Depending on the type of debt, creditors may not receive the full amount that they are owed. Still, this form is preferred by creditors over Chapter 7 which may include a complete deletion of the debt. Although not as severe as Chapter 7, Chapter 13 will still negatively impact the consumer’s credit score.

The Verdict?

Both forms of bankruptcy protection have aspects that serve to benefit and disadvantage both the consumer and creditor. The long term-damage to a consumer’s credit serves as a dissuading factor for those who seek to get out of paying obligations without consequence. Similarly, creditors who prey on the financially vulnerable may be left out in the cold if that consumer can successfully discharge their debt through Chapter 7. For this reason, it appears that the current bankruptcy law strikes a fairness balance, providing meaningful benefits and drawbacks to debtors and creditors.

Florida Bankruptcy Lawyers

The Bankruptcy Team, PLLC is dedicated to assisting clients resolve financial dilemmas through bankruptcy, foreclosure or other legal avenues so that they can get the fresh start that they are entitled to. If you are considering filing for bankruptcy, modifying your mortgage, or are facing unmanageable credit card or student loan debt, we are here for you. Our experienced attorneys will thoroughly review your situation and advise you about viable solutions. To consult with The Bankruptcy Team, PLLC, call or contact us today.