The New Bankruptcy Laws Make it More Challenging to File Chapter 7 Bankruptcy
The most recent modifications 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. Instead, you’ll be required to file under Chapter 13 bankruptcy and pay off 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 also required to attend further counseling in the field of budgeting and debt management. The supplemental counseling is a prerequisite to get a release of your debts. And, since the law imposes new requirements on lawyers, you might have a more difficult time finding a attorney to accept your bankruptcy suit.
Specified Eligibility for Chapter 7 Bankruptcy
Under the early bankruptcy laws, you were permitted to select the type of bankruptcy that appeared best for you. In virtually 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 allow 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 average 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 greater than the median, however, you must pass another test to file for Chapter 7 bankruptcy. The other test is known as “the means test.”
The purpose of the means test is to ascertain whether you have adequate available income, after subtracting certain permitted expenses and mandatory debt payments, to make payments on a Chapter 13 program. To find out 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 computations is under a certain sum 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 helps you in finding out whether you actually need to file for bankruptcy or whether an informal repayment program will help you regain your financial stability.
Counseling is mandatory even if it’s apparent that a repayment plan isn’t viable for you. You’re expected merely to participate in the counseling. You don’t have to go along with any repayment program the agency proposes. Even so, before you’ll be able to file bankruptcy, you’ll have to introduce any repayment plan the agency offers along with a certificate attesting that you finished the counseling.
Near the end of your bankruptcy case, you’ll have to attend a another counseling session. This counseling session is fashioned to teach you personal financial management skills. You can’t get the discharge that cancels out your debts until you present proof to the court that you completed this requirement.
Lawyers May Be Harder to Locate — and a Good Deal More Pricey
The new bankruptcy laws do add many complicated requirements to bankruptcy filings. Some of these new demands impose more obligations on lawyers resulting in bankruptcy cases being more time-consuming. Among the leading new requirements on lawyers is that they must now personally guarantee the accuracy of all the info their clients give them. That extra requirement means that attorneys must spend a good deal of time on every bankruptcy case. So, they’ll charge more to take every bankruptcy suit. The new bankruptcy law requirements have actually driven a few bankruptcy lawyers out of the field totally.
Some Chapter 13 Filers Will Have to Survive on Less
When you filed Chapter 13 bankruptcy under the older bankruptcy laws, you had to contribute all of your usable income to your repayment plan. The previous 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 usable 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. Instead, you have to work out your disposable income utilizing permitted expense amounts set by the IRS. And these permitted expense totals must be subtracted from your median income during the six months before filing bankruptcy, not from your actual 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?