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Bankruptcy Reform Act Of 2005 And Explaining Essay

Bankruptcy Reform Act of 2005 and Explaining Why Congress Instituted This Act When an individual or a firm comes to a financial situation where its assets are unable to cover the debt or liabilities and there is no capital or asset that can be liquidated to pay the debt the firm or person becomes insolvent. Formerly there were prison sentences for debtors, but the laws from the medieval periods have been amended. In the United States the person or firm that reaches the stage of bankruptcy can file for an absolute dilation of credit by being declared bankrupt. Legal motions have to be made in the appropriate court of law that deals with the issue. This is available to both the corporate and individual debtors with the first legislation coming to be passed in 1800. Individuals incurring debts from the lenders have put the lenders in a spot by taking recourse to bankruptcy. (Skeel, 2001)

Likewise when the firms fold up there is a situation of the stock holders and lenders being unable to recover. The debt could be of many types -- there could be a distressed debt, or a corporate bankruptcy, and other types like credit risk default corporate distress and bankruptcy and this could affect the business more when the business crashes and the debtors who are stake holders have nothing to hold on to. This anomaly was the subject of senate discussions with the investor lobbies wanting the law to be amended with more teeth for the debt recovery process that did not shield the debtor absolutely from the creditor. Insistence...

This doctrine then resulted in the formation of organization and forces that were pro-creditor or pro-debtor. (Skeel, 2001)
American bankruptcy law thus is unique and not seen in most nations. After 1994 when the Republican Party came to power the way the issue was handled attained a shift. The problem with the consumer and corporate debst began in the1970s and the senate did have discussions over the issue. However the judges of the courts and the methods of creating insolvency as a means of escaping payment was disscussed now and then, the real issue comes when dealing with consumers of financial products. There was a struggle from the side of the lending firms and banks to regulate the bancruptcy petitions and the law, while debtors set up a clamour for easier laws. The need was felt for a stricter law as more and more middle class people began filing for insolvency. (Skeel, 2001) The codes that were produced in 1979 still made the creditors insist that the debtor must pay. This fundamental requirement that the ability o pay must be reckoned in terms of the debtor's position was a moral stand. The issues came to head and aftermath of globalization there was a lot of consumers and likewise consumer debt.

Bankruptcy Reform Act of 2005 was passed taking in view the crash of the credit card system and financial mess that resulted with individuals filing for bankruptcy. The act brought about vast changes in the way the bankruptcy law functions both…

Sources used in this document:
References

Altman, Edward I; Hotchkiss, Edith. (2010) "Corporate Financial Distress and Bankruptcy:

Predict and Avoid Bankruptcy, Analyze and Invest in Distressed Debt" John Wiley & Sons.

Paik, Yongwook. (2010) "Bankruptcy Reform Act of 2005 and Entrepreneurial Activity"

Marshall School of Business, University of Southern California.
Protection Act of 2005 (BAPCPA)" United States Justice Department. Retrieved 26 August, 2012 from http://www.justice.gov/ust/eo/bapcpa/index.htm
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