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The New Bankruptcy Laws Usher In New Challenges
By plrprousers | February 9, 2009
The New Bankruptcy Laws Make it More Challenging to File Chapter 7 Bankruptcy
The most recent modifications to bankruptcy laws might make it more challenging 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 off at least a few of your debts. If you want to file bankruptcy, you must take part in credit guidance before you’ll be able to file. You’re similarly required to attend additional counseling in the area of budgeting and debt management. The supplementary counseling is a requirement to acquire a release of your debts. And, since the law imposes new demands on attorneys, you might have a more challenging time finding a lawyer to take over your bankruptcy case.
Limited Eligibility for Chapter 7 Bankruptcy
Under the early bankruptcy laws, you were allowed to select the type of bankruptcy that appeared best for you. In almost 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 discover 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 median income for a family unit 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 average, however, you must pass another test to file for Chapter 7 bankruptcy. The new test is known as “the means test.”
The intention of the means test is to discover whether you have enough free income, after taking off 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 allowed expenses and debt payments from your current monthly income. If the money that’s remaining after these computations is below a specific amount, you’ll be able to file for Chapter 7.
Counseling Requirements
Before filing for bankruptcy under either Chapter 7 or Chapter 13, you must attend 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 actually want to file for bankruptcy or whether an informal repayment program will help you reclaim your financial stability.
Counseling is mandatory even if it’s obvious that a repayment program isn’t workable for you. You’re required only to take part in the counseling. You don’t have to accept any repayment program the agency proposes. Even so, before you’ll be able to file bankruptcy, you’ll have to introduce any repayment program the agency provides along with a certificate showing that you finished the counseling.
Toward the conclusion of your bankruptcy case, you’ll have to go to a new 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 deliver proof to the court that you accomplished this requirement.
Lawyers Might Be Tougher to Locate — and a Lot More Expensive
The new bankruptcy laws do add numerous complex demands to bankruptcy cases. Many of these recent requirements impose more duties on attorneys resulting in bankruptcy cases being more time-consuming. Among the major new requirements on lawyers is that they must now personally ensure the truth of all the data their clients give them. That extra requirement means that lawyers must spend lots of time on every bankruptcy suit. Therefore, they’ll charge more to take every bankruptcy suit. The new bankruptcy law requirements have actually driven a few bankruptcy attorneys out of the field entirely.
Some Chapter 13 Filers Will Need to Live on Less
When you filed Chapter 13 bankruptcy under the previous bankruptcy laws, you had to turn over all of your disposable income to your repayment plan. The former bankruptcy laws defined disposable income as that which you had left after paying your real living expenses. The new bankruptcy laws have adjusted this computation. While you still must turn over all of your spendable income, if your income is larger than the average in your state, you don’t get to calculate your usable income based on your actual expenses. Rather, you have to calculate your usable income using permitted expense numbers prepared by the IRS. And these allowed expense sums must be deducted 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?
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