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 make it more challenging 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 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 area of budgeting and debt management. The additional counseling is a prerequisite to obtain a release of your debts. And, since the law imposes new demands on attorneys, you might have a harder time obtaining a attorney to accept your bankruptcy suit.
Narrow Eligibility for Chapter 7 Bankruptcy
Under the past bankruptcy laws, you were allowed to select the type of bankruptcy that looked best for you. In nearly 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 permit you to use Chapter 7 bankruptcy.
To find 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 equivalent to the median, you’ll be able to file for Chapter 7 bankruptcy. If it’s more than the average, however, you must pass a new test to file for Chapter 7 bankruptcy. The other test is known as “the means test.”
The purpose of the means test is to verify whether you have adequate available income, after deducting certain allowed expenses and required debt payments, to make payments on a Chapter 13 plan. To find out 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 calculations is less than a certain sum 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 actually need to file for bankruptcy or whether an informal repayment program will help you reclaim your financial stability.
Counseling is mandatory even if it’s clear that a repayment plan isn’t viable for you. You’re required merely to participate 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 submit any repayment program the agency proposes along with a certificate proving that you completed the counseling.
Near the end of your bankruptcy suit, you’ll have to go to a another counseling session. This counseling session is fashioned to teach you personal financial management skills. You can’t have the discharge that wipes out your debts until you show proof to the court that you completed this requirement.
Attorneys Might Be Tougher to Find — and Much More Pricey
The new bankruptcy laws do add numerous complex requirements to bankruptcy filings. Many of these brand-new requirements impose more responsibilities on attorneys leading to bankruptcy cases being more time intensive. Among the leading new requirements on lawyers is that they must now personally ensure the accuracy of all the information their clients give them. That extra requirement means that lawyers must spend a good deal of time on every bankruptcy case. Thus, they’ll bill more to take every bankruptcy suit. The new bankruptcy law requirements have in reality driven a few bankruptcy attorneys out of the field altogether.
Some Chapter 13 Filers Will Learn to Exist 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 older bankruptcy laws defined spendable income as that which you had left after paying your actual living expenses. The new bankruptcy laws have changed this computation. While you still must deliver all of your usable income, if your income is greater than the average in your state, you don’t get to compute your usable income based on your objective expenses. Rather, you have to calculate your disposable income implementing allowed expense totals specified by the IRS. And these permitted expense amounts must be deducted from your average income during the six months before 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?