A bicameral bill known as The Consumer Bankruptcy Act of 2022 addresses the issue of bankruptcy in the United States and has been introduced in Congress. The aim of the bill is to address a bankruptcy process that sponsors of the bill report is currently overly complicated and biased against minorities.
Current U.S. bankruptcy law
Currently, there are two ways a consumer can file for bankruptcy: Chapter 7 bankruptcy or Chapter 13 bankruptcy.
Consumers can file for Chapter 7 bankruptcy if they have assets and income under a certain threshold. Also referred to as “liquidation bankruptcy” in a Chapter 7 filing, some (but not all) of a consumer’s assets will be sold at auction by a bankruptcy trustee. The proceeds from the sale go toward paying back the consumer’s creditors in priority order.
If a consumer does not qualify for Chapter 7 bankruptcy, they can file for Chapter 13 bankruptcy. Also referred to as a “wage-earner’s plan,” in a Chapter 13 bankruptcy, the consumer will enter into a repayment agreement that a bankruptcy trustee oversees, wherein regular payments will be made for three- to five-years. After the repayment period is up, most remaining debts will be discharged.
The Consumer Bankruptcy Act of 2022
The Consumer Bankruptcy Act of 2022 would create a new Chapter 10 filing and would do away with the Chapter 13 filing option. Under the proposed Chapter 10 bankruptcy, consumers could either have their debts discharged or enter a three-year plan in which they would make partial payments to their creditors.
Under the bill, homeowners would be given more choices to sell their property without having a lien on it or having to modify their mortgage. Those who own an automobile would not have this asset sold, but instead, would pay their lender the fair market value of the vehicle.
We must remember that this legislation is still making its way through Congress, and as of now, current bankruptcy laws providing for Chapter 7 and Chapter 13 options still stand. Filing for bankruptcy is a major decision that can have long-lasting consequences. Still, it is often a viable way to come clean on your debts so you can move forward financially.