Ways To Get Out Of Debt

The New Bankruptcy Laws Present New Challenges

March 11th, 2009

The New Bankruptcy Laws Make it More Challenging 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 permitted to utilize Chapter 7 bankruptcy. Instead, you’ll have to file under Chapter 13 bankruptcy and pay back 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 also required to go to further counseling in the area of budgeting and debt management. The additional counseling is a necessity to receive a discharge of your debts. And, since the law imposes new requirements on lawyers, you might have a more difficult time finding a attorney to take on your bankruptcy case.

Specified Eligibility for Chapter 7 Bankruptcy

Under the former bankruptcy laws, you were permitted to select the type of bankruptcy that seemed best for you. In nearly 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 allow you to file Chapter 7 bankruptcy.

To determine 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 equivalent to the average, you’ll be able to file for Chapter 7 bankruptcy. If it’s more than the median, however, you must pass a new test to file for Chapter 7 bankruptcy. The other test is called “the means test.”

The intention of the means test is to detect whether you have enough free income, after subtracting certain permitted expenses and required debt payments, to make payments on a Chapter 13 plan. To determine whether you pass the means test, you subtract certain allowed expenses and debt payments from your current monthly income. If the money that’s remaining after these calculations is under a specific sum, 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 approved by the United States Trustee’s office. The reason for this counseling requirement is that it helps you in determining whether you actually want to file for bankruptcy or whether an informal repayment program will help you reclaim your financial stability.

Counseling is compulsory even if it’s clear that a repayment program isn’t workable for you. You’re expected just to participate in the counseling. You don’t have to go along with any repayment program the agency offers. Even so, before you’ll be able to file bankruptcy, you’ll have to submit any repayment plan the agency proposes along with a certificate demonstrating that you finished the counseling.

Near the end 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 cancels out your debts until you show proof to the court that you completed this requirement.

Lawyers Might Be Tougher to Retain — and Lots More Expensive

The new bankruptcy laws do add many complex demands to bankruptcy filings. Many of these new demands impose more obligations on attorneys resulting in bankruptcy cases being more time intensive. Among the leading new requirements on lawyers is that they must now personally vouch for the accuracy of all the info their clients give them. That extra requirement means that lawyers must spend significant amounts of time on each bankruptcy suit. So, they’ll bill more to handle each bankruptcy suit. The new bankruptcy law demands have in reality squeezed a few bankruptcy attorneys out of the field entirely.

Many Chapter 13 Filers Will Learn to Survive on Less

When you filed Chapter 13 bankruptcy under the older bankruptcy laws, you had to give all of your spendable income to your repayment plan. The former bankruptcy laws defined available income as that which you had remaining after paying your actual living expenses. The new bankruptcy laws have adjusted this computation. While you still must hand over all of your spendable income, if your income is greater than the median in your state, you don’t get to compute your spendable income based on your objective expenses. Instead, you have to work out your spendable income implementing permitted expense numbers established by the IRS. And these allowed expense numbers must be withheld from your median income during the six months prior to filing bankruptcy, not from your real 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?