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 back at least a few of your debts. If you want to file bankruptcy, you must take part in credit guidance prior to filing. You’re similarly required to attend additional counseling in the area of budgeting and debt management. The supplemental counseling is a requirement to get a release of your debts. And, since the law imposes new demands on attorneys, you might have a harder time obtaining a attorney to take over your bankruptcy suit.
Specified Eligibility for Chapter 7 Bankruptcy
Under the past bankruptcy laws, you were allowed to select the type of bankruptcy that seemed best for you. In nearly all cases that would be a Chapter 7 bankruptcy liquidation 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 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 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 average, however, you must pass a new test to file for Chapter 7 bankruptcy. The new test is known as “the means test.”
The purpose of the means test is to discover whether you have enough free income, after subtracting certain allowed expenses and mandatory debt payments, to make payments on a Chapter 13 plan. To ascertain whether you pass the means test, you deduct particular allowed expenses and debt payments from your current monthly income. If the money that’s left over after these computations is less than a certain amount 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 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 finding out whether you actually want to file for bankruptcy or whether an informal repayment plan will help you reclaim your financial stability.
Counseling is compulsory even if it’s evident that a repayment program isn’t possible for you. You’re required simply to participate in the counseling. You don’t have to consent to any repayment plan the agency provides. 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 demonstrating that you completed the counseling.
Toward the conclusion of your bankruptcy lawsuit, you’ll have to go to a new 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 deliver proof to the court that you accomplished this requirement.
Attorneys Might Be Tougher to Locate — and Much More Expensive
The new bankruptcy laws do add many complicated requirements to bankruptcy cases. Many of these brand-new requirements impose more responsibilities on attorneys resulting in bankruptcy cases being more time-consuming. Among the leading new demands on lawyers is that they must now personally vouch for the accuracy of all the information their clients give them. That additional demand means that attorneys must spend a great deal of time on every bankruptcy suit. Thus, 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 altogether.
Some Chapter 13 Filers Will Need to Survive on Less
When you filed Chapter 13 bankruptcy under the old bankruptcy laws, you had to pay all of your usable income to your repayment plan. The past bankruptcy laws defined available income as that which you had left after paying your real living expenses. The new bankruptcy laws have altered this calculation. While you still must turn in all of your usable income, if your income is larger than the median in your state, you don’t get to compute your usable income based on your objective expenses. Rather, you have to compute your available income implementing permitted expense numbers established by the IRS. And these permitted expense amounts must be deducted 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?
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