The New Bankruptcy Laws Usher In New Challenges

The New Bankruptcy Laws Make it More Difficult to File Chapter 7 Bankruptcy

The most recent changes 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.  Rather, 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 participate in credit guidance prior to filing.  You're likewise required to go to further counseling in the discipline of budgeting and debt management.  The additional counseling is a prerequisite to receive a discharge of your debts. And, since the law imposes new requirements on attorneys, you might have a more difficult time finding a lawyer to take on your bankruptcy suit.

Modified Eligibility for Chapter 7 Bankruptcy

Under the old bankruptcy laws, you were allowed to choose the type of bankruptcy that looked best for you.  In virtually all cases that would be a Chapter 7 bankruptcy liquidation rather than a Chapter 13 bankruptcy repayment. But, if you're in a high income bracket, the new bankruptcy laws won't allow 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 assess your "current monthly income" against the median 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 median, however, you must pass a new test to file for Chapter 7 bankruptcy.  The new test is called "the means test."

The purpose of the means test is to verify whether you have sufficient available income, after deducting certain permitted expenses and mandatory debt payments, to make payments on a Chapter 13 plan. To ascertain whether you pass the means test, you take off particular permitted expenses and debt payments from your current monthly income. If the money that's left after these computations is under a certain amount of money, 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 approved by the United States Trustee's office. The reason for this counseling requirement is that it assists you in discovering whether you actually 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 obvious that a repayment program isn't workable for you.  You're expected only to participate in the counseling.  You don't have to go along with any repayment plan the agency offers. Even so, before you'll be able to file bankruptcy, you'll have to deliver any repayment plan the agency offers along with a certificate evidencing that you finished the counseling.

Toward the conclusion of your bankruptcy lawsuit, you'll have to attend 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 give proof to the court that you accomplished this requirement.

Lawyers Might Be Harder to Hire -- and a Lot More Pricey

The new bankruptcy laws do add many complex requirements to bankruptcy filings. Some of these brand-new requirements impose more obligations on lawyers resulting in bankruptcy cases being more time-consuming. Among the leading new demands on attorneys is that they must now personally vouch for the truth of all the information their clients give them.  That extra demand 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 demands have in reality forced a few bankruptcy attorneys out of the field completely.

Many Chapter 13 Filers Will Learn to Exist on Less

When you filed Chapter 13 bankruptcy under the former bankruptcy laws,  you had to pay all of your spendable income to your repayment plan.  The old bankruptcy laws defined spendable income as that which you had leftover after paying your actual living expenses. The new bankruptcy laws have modified this computation.  While you still must turn over all of your disposable income, if your income is larger than the average in your state, you don't get to figure your spendable income based on your actual expenses.  Instead, you have to work out your spendable income using permitted expense totals defined by the IRS. And these permitted expense amounts must be deducted from your median income during the six months prior to filing bankruptcy, not from your earnings 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?