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 permitted to use Chapter 7 bankruptcy. Rather, you’ll be required to file under Chapter 13 bankruptcy and pay back at least a few of your debts. If you would like to file bankruptcy, you must take part in credit guidance before you’ll be able to file. You’re also required to go to further counseling in the discipline of budgeting and debt management. The additional counseling is a prerequisite to acquire a discharge of your debts. And, since the law imposes new demands on lawyers, you might have a more challenging time finding a attorney to accept your bankruptcy suit.
Restricted Eligibility for Chapter 7 Bankruptcy
Under the early bankruptcy laws, you were permitted to select the type of bankruptcy that looked best for you. In almost 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 permit you to file Chapter 7 bankruptcy.
To see 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 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 more than the average, however, you must pass a new test to file for Chapter 7 bankruptcy. The other test is known as “the means test.”
The intention of the means test is to ascertain whether you have enough free income, after subtracting certain permitted expenses and mandatory debt payments, to make payments on a Chapter 13 program. To ascertain whether you pass the means test, you subtract certain permitted expenses and debt payments from your current monthly income. If the money that’s left over after these computations is below a particular amount, 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 really need to file for bankruptcy or whether an informal repayment program will help you reclaim your financial stability.
Counseling is required 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 agree with any repayment program the agency proposes. Even so, before you’ll be able to file bankruptcy, you’ll have to show any repayment plan the agency provides along with a certificate attesting that you completed the counseling.
Toward the conclusion 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 obtain the discharge that wipes out your debts until you submit proof to the court that you finished this requirement.
Lawyers Might Be Harder to Retain — and a Great Deal More Pricey
The new bankruptcy laws do add many complex requirements to bankruptcy filings. Some of these brand-new demands impose more duties on lawyers resulting in bankruptcy cases being more time-consuming. Among the leading new demands on lawyers is that they must now personally ensure the accuracy of all the information their clients give them. That additional demand means that lawyers must spend a great deal of time on each bankruptcy case. So, they’ll charge more to handle each bankruptcy case. The new bankruptcy law requirements have in reality squeezed a few bankruptcy lawyers out of the field completely.
Some Chapter 13 Filers Will Have to Exist on Less
When you filed Chapter 13 bankruptcy under the previous bankruptcy laws, you had to give all of your disposable 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 altered this calculation. While you still must fork over all of your usable income, if your income is larger than the average in your state, you don’t get to compute your usable income based on your actual expenses. Rather, you have to calculate your usable income implementing permitted expense numbers established by the IRS. And these allowed expense sums must be subtracted from your average income during the six months before filing bankruptcy, not from your actual 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?