The New Bankruptcy Laws Make it Harder to File Chapter 7 Bankruptcy
The most recent changes 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 creditors. If you would like to file bankkruptcy, you must take part in credit guidance prior to filing. You’re also required to go to additional counseling in the area of budgeting and debt management. The extra counseling is a prerequisite to acquire a release of your debts. And, since the law imposes new demands on attorneys, you might have a tougher time getting a attorney to accept your bankruptcy case.
Limited Eligibility for Chapter 7 Bankruptcy
Under the older bankruptcy laws, you were permitted to select the type of bankruptcy that seemed best for you. In most 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 use Chapter 7 bankruptcy.
To find out whether you’re able to file Chapter 7 bankruptcy under the new bankruptcy laws, you must first evaluate 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 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 other test is known as “the means test.”
The purpose of the means test is to ascertain whether you have sufficient free income, after deducting certain permitted expenses and mandatory debt payments, to make payments on a Chapter 13 plan. To find out whether you pass the means test, you deduct certain allowed expenses and debt payments from your current monthly income. If the money that’s left over after these computations is under a specific amount, 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 complete 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 discovering whether you really need to file for bankruptcy or whether an informal repayment program will help you recover your financial stability.
Counseling is necessary even if it’s obvious that a repayment plan isn’t doable for you. You’re required merely to take part in the counseling. You don’t have to consent to any repayment plan the agency offers. Even so, before you’ll be able to file bankruptcy, you’ll have to show any repayment plan the agency proposes along with a certificate certifying that you completed the counseling.
Near the end of your bankruptcy suit, you’ll have to attend a another 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 show proof to the court that you finished this requirement.
Lawyers May Be Harder to Hire — and a Great Deal More Pricey
The new bankruptcy laws do add numerous complicated requirements to bankruptcy filings. Some of these brand-new requirements impose more duties on attorneys leading to bankruptcy cases being more time intensive. Among the major new demands on lawyers is that they must now personally ensure the accuracy of all the info their clients give them. That extra demand means that attorneys must spend significant amounts of time on every bankruptcy suit. Thus, they’ll charge more to handle each bankruptcy suit. The new bankruptcy law requirements have actually squeezed a few bankruptcy attorneys out of the field totally.
Some Chapter 13 Filers Will Learn to Survive on Less
When you filed Chapter 13 bankruptcy under the previous bankruptcy laws, you had to contribute all of your usable income to your repayment plan. The older bankruptcy laws defined available income as that which you had leftover after paying your actual living expenses. The new bankruptcy laws have altered this computation. While you still must turn in all of your usable income, if your income is greater than the median in your state, you don’t get to figure your available income based on your true expenses. Rather, you have to calculate your usable income utilizing permitted expense amounts prepared by the IRS. And these permitted expense numbers 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 more modifications that can affect you negatively if you’re filing or thinking about filing bankruptcy. Do your research on the new bankruptcy laws and make sure you understand the affect they have on your bankruptcy filing.
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