March 11th, 2009
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 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 debts. If you would like to file bankruptcy, you must participate in credit counseling prior to filing. You’re similarly required to attend additional counseling in the field of budgeting and debt management. The extra counseling is a requirement to acquire a discharge of your debts. And, since the law imposes new demands on attorneys, you might have a tougher time getting a lawyer to take over your bankruptcy case.
Special Eligibility for Chapter 7 Bankruptcy
Under the older bankruptcy laws, you were allowed to choose the type of bankruptcy that looked best for you. In nearly all cases that would be a Chapter 7 bankruptcy settlement instead of a Chapter 13 bankruptcy repayment. But, if you’re in a high income bracket, the new bankruptcy laws won’t permit you to utilize Chapter 7 bankruptcy.
To check 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 unit 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 a new test to file for Chapter 7 bankruptcy. The new test is known as “the means test.”
The intention of the means test is to see whether you have adequate free income, after subtracting certain permitted expenses and mandatory debt payments, to make payments on a Chapter 13 program. To discover whether you pass the means test, you deduct particular permitted expenses and debt payments from your current monthly income. If the money that’s left over after these calculations is under a specific sum 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 attend credit counseling with an agency approved by the United States Trustee’s office. The reason for this counseling requirement is that it assists you in determining whether you really need to file for bankruptcy or whether an informal repayment plan will help you reclaim your financial stability.
Counseling is compulsory even if it’s obvious that a repayment plan isn’t possible for you. You’re expected just 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 plan the agency offers along with a certificate evidencing that you completed the counseling.
Near the end of your bankruptcy case, you’ll have to go to a another counseling session. This counseling session is designed to teach you personal financial management skills. You can’t obtain the discharge that cancels out your debts until you deliver proof to the court that you fulfilled this requirement.
Lawyers Might Be Tougher to Hire — and Much More Pricey
The new bankruptcy laws do add numerous complicated requirements to bankruptcy cases. Many of these new demands impose more obligations on lawyers resulting in bankruptcy cases being more time intensive. Among the leading new demands on attorneys is that they must now personally guarantee the truth of all the data their clients give them. That extra requirement means that lawyers must spend a lot of time on each bankruptcy case. Therefore, they’ll bill more to take each bankruptcy case. The new bankruptcy law demands have actually forced a few bankruptcy attorneys out of the field totally.
Many Chapter 13 Filers Will Need to Survive on Less
When you filed Chapter 13 bankruptcy under the previous bankruptcy laws, you had to give all of your available income to your repayment plan. The past bankruptcy laws defined spendable income as that which you had remaining after paying your actual living expenses. The new bankruptcy laws have modified this computation. While you still must turn over all of your available income, if your income is greater than the average in your state, you don’t get to compute your usable income based on your true expenses. Rather, you have to figure your usable income implementing permitted expense sums specified by the IRS. And these permitted expense amounts must be subtracted from your average income during the six months before filing bankruptcy, not from your real wages 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?