The New Bankruptcy Laws Present New Challenges

The New Bankruptcy Laws Make it More Difficult to File Chapter 7 Bankruptcy

The most recent changes to bankruptcy laws might make it more difficult for you to file bankruptcy. If you're in a higher income bracket you'll no longer be permitted to use Chapter 7 bankruptcy.  Rather, you'll have to file under Chapter 13 bankruptcy and pay off at least a few of your creditors. If you would like to file bankruptcy, you must take part in credit counseling prior to filing.  You're similarly required to attend additional counseling in the area of budgeting and debt management.  The supplementary counseling is a requirement to receive a release of your debts. And, since the law imposes new demands on attorneys, you might have a tougher time acquiring a lawyer to take over your bankruptcy case.

Restricted Eligibility for Chapter 7 Bankruptcy

Under the past bankruptcy laws, you were allowed to choose the type of bankruptcy that looked best for you.  In most all cases that would be a Chapter 7 bankruptcy liquidation instead of a Chapter 13 bankruptcy repayment. But, if you're in a high income bracket, the new bankruptcy laws won't permit you to use Chapter 7 bankruptcy.

To check out whether you're able to file Chapter 7 bankruptcy under the new bankruptcy laws, you must first measure your "current monthly income" against the average income for a family of your size in your state. If your income is lower than or equal to the average, you'll be able to file for Chapter 7 bankruptcy. If it's greater than the median, however, you must pass a new test to file for Chapter 7 bankruptcy.  The new test is known as "the means test."

The purpose of the means test is to discover whether you have adequate available income, after deducting certain allowed expenses and mandatory debt payments, to make payments on a Chapter 13 program. To ascertain whether you pass the means test, you subtract particular allowed expenses and debt payments from your current monthly income. If the money that's remaining after these calculations is under a particular amount of money, you'll be able to file for Chapter 7.

Counseling Prerequisites

Before filing for bankruptcy under either Chapter 7 or Chapter 13, you must attend credit counseling with an agency authorized by the United States Trustee's office. The reason for this counseling requirement is that it helps you in determining whether you really want to file for bankruptcy or whether an informal repayment program will help you recover your financial stability.

Counseling is compulsory even if it's clear that a repayment plan isn't viable for you.  You're required merely to take part in the counseling.  You don't have to accept any repayment plan the agency proposes. Even so, before you'll be able to file bankruptcy, you'll have to deliver any repayment plan the agency offers along with a certificate proving that you completed the counseling.

Toward the conclusion of your bankruptcy suit, you'll have to go to a different counseling session.  This counseling session is fashioned to teach you personal financial management skills. You can't have the discharge that cancels out your debts until you submit proof to the court that you accomplished this requirement.

Lawyers Might Be Harder to Locate -- and Much More Costly

The new bankruptcy laws do add many complex requirements to bankruptcy cases. Many of these brand-new demands impose more duties on attorneys leading to bankruptcy cases being more time-consuming. Among the major new requirements on lawyers is that they must now personally guarantee the accuracy of all the information their clients give them.  That additional demand means that attorneys must spend lots of time on each bankruptcy suit.  Therefore, they'll bill more to take every bankruptcy case.   The new bankruptcy law requirements have actually pushed a few bankruptcy attorneys out of the field completely.

Some Chapter 13 Filers Will Learn to Survive on Less

When you filed Chapter 13 bankruptcy under the older bankruptcy laws,  you had to contribute all of your spendable income to your repayment plan.  The past bankruptcy laws defined disposable income as that which you had remaining after paying your real living expenses. The new bankruptcy laws have modified this computation.  While you still must hand over all of your available income, if your income is greater than the average in your state, you don't get to calculate your spendable income based on your actual expenses.  Instead, you have to figure your usable income utilizing permitted expense amounts prepared by the IRS. And these permitted expense totals must be withheld from your median income during the six months before filing bankruptcy, not from your actual wages every month.

Additional Changes

There are additional changes that can impact you negatively if you're filing or looking at filing bankruptcy.  For plain-English guidance in the new bankruptcy laws, get a copy of The New Bankruptcy: Will It Work for You?