Various factors inform the decision to declare a debtor bankrupt. According to Feeney (2010), the main factor is the determination of the ability of the debtor to repay. Under the US bankruptcy law, the debtor’s income is scrutinized under a formula that usually exempts particular and basic expenses. Such necessities as food and rent are exempted from the principle in order tom determine whether the debtor is able to foot at least a quarter of the debts (Skeel, 2006). Feeney (2010) explicates that the determination is made to ascertain whether the debtor can pay at least 25 percent of the non-priority unsecured loans or debts. It is important to mention that the court takes into account the status of the debtor to ensure that the debtor does not lack such amenities as food and housing considered basic human needs. However, if it is found that he can still repay partial amount (usually 25 percent), he or she is ineligible for bankruptcy protection under the law (Skeel, 2006).
Another factor that bankruptcy law enshrines is making comparisons between the debtor’s income and the state median income. This is the average income accruing all people within the state. The law recognizes that incomes vary across the states. For example, the median state income of California is relatively higher than that of most states. Hence, it would be considerably hard to get a bankruptcy declaration in California as opposed to many other states(Skeel, 2006). After making comparisons of the income, the court decides whether the debtor is able to repay his debt. In case the debtor’s income is higher than the average state median income and is able to repay at least 25% of the debt, he or she might not be declared bankrupt and as such, lacks protection from bankruptcy law (Skeel, 2006).
These factors are important because they ensure that the debtor complies with his or her debt obligations and does not use the law to defraud his creditors. As elucidated by Skeel (2006), it is imperative to utilize these factors as threshold for protecting the interests of the creditor. While many people repay their loans and other debts, it would become very easy and quick to use the loophole to commit fraud. Apparently, many people would forfeit their debts making it extremely difficult for the creditors to operate. In addition, bankruptcy law ensures that the debtors are not deprived of their dignity as human beings becauseof their inability to repay debts (Skeel, 2006). The principle of determining the ability to repay takes into account the basic needs of the individual and exempts such factors as food and housing from the formula used to calculate the debtors ability to repay (Skeel, 2006).
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