The New Bankruptcy Laws Introduce New Challenges
The New Bankruptcy Laws Make it More Challenging to File Chapter 7 Bankruptcy
The most recent changes to bankruptcy laws might cause it to be more challenging for you to file bankruptcy. If you’re in a higher income bracket you’ll no longer be allowed to utilize Chapter 7 bankruptcy. Instead, 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 bankkruptcy, you must take part in credit guidance prior to filing. You’re also required to go to additional counseling in the area of budgeting and debt management. The extra counseling is a prerequisite to acquire a release of your debts. And, since the law imposes new demands on attorneys, you might have a tougher time getting a attorney to accept your bankruptcy case.
Limited Eligibility for Chapter 7 Bankruptcy
Under the old bankruptcy laws, you were allowed to select the type of bankruptcy that appeared 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 let you to file Chapter 7 bankruptcy.
To check 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 family of your size in your state. If your income is lower than or equal to the median, you’ll be able to file for Chapter 7 bankruptcy. If it’s greater than the median, however, you must pass another test to file for Chapter 7 bankruptcy. The new test is called “the means test.”
The purpose of the means test is to ascertain whether you have sufficient free income, after deducting certain permitted expenses and mandatory debt payments, to make payments on a Chapter 13 plan. To find out whether you pass the means test, you deduct certain allowed expenses and debt payments from your current monthly income. If the money that’s left over after these computations is under a specific amount, you’ll be able to file for Chapter 7.
Counseling Requirements
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 determining whether you really need to file for bankruptcy or whether an informal repayment plan will help you regain your financial stability.
Counseling is essential even if it’s evident that a repayment plan isn’t viable for you. You’re expected merely to take part in the counseling. You don’t have to go along with any repayment program the agency provides. Even so, before you’ll be able to file bankruptcy, you’ll have to show any repayment program the agency offers along with a certificate proving that you finished 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 obtain the discharge that wipes out your debts until you deliver proof to the court that you completed this requirement.
Lawyers Might Be Tougher to Hire — and a Great Deal More Expensive
The new bankruptcy laws do add numerous complex demands to bankruptcy cases. Many of these new demands impose more duties on lawyers leading to bankruptcy cases being more time intensive. Among the major new requirements 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 lawyers must spend lots of time on every bankruptcy case. Thus, they’ll charge more to take each bankruptcy case. The new bankruptcy law demands have in reality forced a few bankruptcy lawyers out of the field totally.
Many Chapter 13 Filers Will Learn to Exist on Less
When you filed Chapter 13 bankruptcy under the previous bankruptcy laws, you had to dedicate all of your available income to your repayment plan. The old bankruptcy laws defined usable income as that which you had leftover after paying your actual living expenses. The new bankruptcy laws have changed this computation. While you still must hand over all of your disposable income, if your income is greater than the median in your state, you don’t get to figure your available income based on your real expenses. Instead, you have to calculate your spendable income using allowed expense sums prepared by the IRS. And these allowed expense numbers must be deducted from your average income during the six months before filing bankruptcy, not from your pay every month.
More Changes
There are additional changes that can impact you negatively if you’re filing or looking at filing bankruptcy. Do your research on the new bankruptcy laws and make sure you understand the impact they have on your bankruptcy filing.
Tags: legal, chapter 13 bankruptcy, Finance, chapter 7 bankruptcy