Consumer bankruptcy (insolvency)

Consumer bankruptcy or insolvency occurs when individuals with regular INCOMEs can no longer afford to meet their payment obligations. Consumer bankruptcy is both a legal and business concern. Under Chapter 13 of the U.S. Bankruptcy Code, individuals can develop, under court supervision, plans to satisfy their creditors. Chapter 13 allows reductions in consumers’ debts and/or extensions of time to pay debts. Consumers are also allowed to retain certain exempt ASSETS, usually their home, one motor vehicle, tools of their trade, and some other personal assets. Chapter 13 bankruptcy is available to individuals and sole proprietors of businesses, subject to limitations on unsecured debts and secured debts. Chapter 7 of the U.S. Bankruptcy Code provides the option of liquidation or straight bankruptcy. Liquidation, selling all assets and dividing the proceeds among creditors, is available to individuals, partnerships or corporations operating in the United States. Consumer bankruptcy is a major concern for U.S. businesses. CONSUMPTION spending represents two-thirds of U.S. GROSS DOMESTIC PRODUCT. Consumer spending is critical to the economy, but American consumers owe over $1 trillion to creditors. Business interests, particularly consumer-finance companies, complain U.S. personal bankruptcy laws are too lenient. Early in 2001, the George W. Bush administration pushed for increased restrictions to consumer-bankruptcy laws. CONSUMER ADVOCACY groups criticize lenders for inadequate disclosure of fees and rates to consumers and for irresponsible lending practices. Access to credit is critical to the sale of many consumer PRODUCTs. Businesses balance the need for sales against the credit-worthiness of customers. Lenders use the FIVE C’S OF CREDIT in evaluating lending requests and review credit-agency reports before extending credit. Nevertheless, consumer bankruptcy remains a major issue in the U.S. economy.