The New Bankruptcy Laws Usher In New Challenges

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

The most recent modifications to bankruptcy laws might cause it to be more difficult for you to file bankruptcy. If you're in a higher income bracket you'll no longer be allowed to utilize Chapter 7 bankruptcy.  Rather, you'll have to file under Chapter 13 bankruptcy and pay back at least a few of your creditors. If you want to file bankruptcy, you must take part in credit guidance prior to filing.  You're likewise required to go to further counseling in the discipline of budgeting and debt management.  The additional counseling is a necessity to get a release of your debts. And, since the law imposes new demands on lawyers, you might have a more difficult time acquiring a attorney to accept your bankruptcy suit.

Narrow Eligibility for Chapter 7 Bankruptcy

Under the past bankruptcy laws, you were permitted to choose the type of bankruptcy that looked best for you.  In most all cases that would be a Chapter 7 bankruptcy settlement rather than a Chapter 13 bankruptcy repayment. But, if you're in a high income bracket, the new bankruptcy laws won't let you to file Chapter 7 bankruptcy.

To find out whether you're able to file Chapter 7 bankruptcy under the new bankruptcy laws, you must first assess your "current monthly income" against the average income for a household 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 average, however, you must pass a new test to file for Chapter 7 bankruptcy.  The new test is called "the means test."

The intention of the means test is to find out whether you have enough available income, after deducting certain permitted expenses and required debt payments, to make payments on a Chapter 13 program. To discover whether you pass the means test, you take off certain permitted expenses and debt payments from your current monthly income. If the money that's left after these computations is below a particular amount of money, you'll be able to file for Chapter 7.

Counseling Prerequisites

Prior to filing for bankruptcy under either Chapter 7 or Chapter 13, you must complete credit counseling with an agency accredited by the United States Trustee's office. The reason for this counseling requirement is that it helps you in finding out whether you actually need to file for bankruptcy or whether an informal repayment program will help you recoup your financial stability.

Counseling is necessary even if it's obvious that a repayment program isn't feasible for you.  You're expected merely to take part in the counseling.  You don't have to consent to any repayment plan the agency proposes. Even so, before you'll be able to file bankruptcy, you'll have to introduce any repayment plan the agency proposes along with a certificate proving that you completed the counseling.

Toward the conclusion of your bankruptcy case, you'll have to attend a another counseling session.  This counseling session is fashioned to teach you personal financial management skills. You can't get the discharge that wipes out your debts until you deliver proof to the court that you completed this requirement.

Lawyers May Be Tougher to Locate -- and a Good Deal More Costly

The new bankruptcy laws do add many complex demands to bankruptcy filings. Many of these brand-new demands impose more responsibilities on lawyers leading to bankruptcy cases being more time-consuming. Among the major new demands on attorneys is that they must now personally vouch for the truth of all the information their clients give them.  That extra requirement means that attorneys must spend a good deal of time on each bankruptcy suit.  So, they'll bill more to take each bankruptcy case.   The new bankruptcy law demands have actually squeezed a few bankruptcy attorneys out of the field altogether.

Many Chapter 13 Filers Will Need to Survive on Less

When you filed Chapter 13 bankruptcy under the past bankruptcy laws,  you had to devote all of your spendable income to your repayment plan.  The previous bankruptcy laws defined spendable 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 turn over all of your spendable income, if your income is larger than the median in your state, you don't get to calculate your usable income based on your real expenses.  Instead, you have to work out your disposable income implementing permitted expense sums determined by the IRS. And these permitted expense totals must be deducted from your average income during the six months before filing bankruptcy, not from your pay 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?