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U.S. bankruptcies drop to lowest point in four years

With the recent recession that has affected many individuals throughout the U.S., bankruptcy has been a necessary option for many people. However, in the last year the number of bankruptcies filed has decreased tremendously. According to the Administrative Office of The United States Courts, bankruptcies have dropped over 20% in the past two years.

Bankruptcy specialists have determined that Americans have started saving more and borrowing less in order to protect themselves. After the real estate market crashed and the number of people unemployed increased, individuals became worried and started to save in case something disrupted their flow of income. Another factor contributing to the decrease of bankruptcy filings is the inability to borrow as was previously allowed before the recession. When people cannot borrow money and fall deeper into debt, bankruptcies are not necessary.

There are two types of bankruptcy typically available to individuals seeking a fresh start: Chapter 7 and Chapter 13. The type and amount of debt owed and current income levels will determine what Chapter of Bankruptcy an individual must file under. If someone qualifies for a Chapter 13 Bankruptcy because of income level, the court can require that person to file under Chapter 13 instead of Chapter 7. Additionally, one cannot discharge child support, alimony or student loan debt through bankruptcy.

Further, one of the primary differences between Chapter 7 and Chapter 13 is the ability to keep one's house and car. With Chapter 7, one's car and house will most likely need to be returned to the creditor if the wholesale value cannot be paid through other means. Under Chapter 13 bankruptcy, a court-ordered payment schedule can allow a filer to keep the vehicle and house if that individual continues to follow that payment plan.

Source: Boston Globe, "Bankruptcies wane as US relearns how to save," Todd Wallack, August 18, 2012

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