Bankruptcy: What the New Law Means to You

On April 20 of this year, President Shrub signed a bankruptcy reform law. When this law went into consequence in October it made it much more than hard for Americans to utilize Chapter 7 bankruptcy to get a fresh start on their financial lives.

Under the old law, you could take to register either a Chapter 7 or Chapter 13 Bankruptcy. In a Chapter 7 proceeding, you are allowed to maintain your exempt property, such as as much of the equity in your home. Most of your other debts, such as as money owed on credit cards, are discharged.

In comparison, a Chapter 13 Bankruptcy is a reorganisation bankruptcy. In this type of legal proceeding you hold to pay off your debts over a time period of three to five years.

The consequence of the new law is that fewer people will be able to register for Chapter 7 Bankruptcies and will be forced to register for Chapter 13 Bankruptcies, instead.

Major Changes

Possibly the biggest change to bankruptcy law is that there will now be a qualifying test. Under this two-part test, you will first be required to apply a expression that exempts certain disbursals such as as food, rent, etc., to see if you can afford to pay 25 percent of your “non-priority unsecured debt” (credit cards, medical measures and the like). Second, your income will be compared to your state’s average income.

If your income is above your state’s average income, and if you can afford to pay 25 percent of your unsecured debt, you will not be allowed to register for a Chapter 7 Bankruptcy.

You may be able to register for a Chapter 7 Bankruptcy if your income falls below your state’s average income but you can pay 25 percent of your unsecured debt. However, if the tribunal believes you would be abusing the system by filing a Chapter 7, you can be required to register for a Chapter 13 Bankruptcy, instead.

More differences

If you filed a Chapter 7 Bankruptcy under the old law, the tribunal would determine what you can afford to pay based on what you and the tribunal determines are sensible and necessary life expenses.

Under the new law, the tribunal is required to apply life criteria that are derived by the Internal Gross Service to determine what is sensible to pay for rent, food, etc., and how much you should then have got left over to pay your debts. The Internal Revenue Service ordinances are more than stringent and if you desire to contend them, you will need to inquire for a hearing in presence of the bankruptcy judge. This tin easily intend more than clip and expense.

Tougher exemptions

When you declared bankruptcy under the old law, your state might have got got allowed you to maintain all or much of the equity you have in your home. However, the new law topographic points tougher limitations on this exemption. So before you file, be certain to discourse this with a knowledgeable bankruptcy attorney so that you will cognize exactly how much of your home’s equity you can anticipate to protect.

Credit counseling

Here’s another tough restriction. Under the new bankruptcy law, you must ran into with a credit counsellor in the six calendar months before you apply for bankruptcy. However, from what I have got read, many of the "certified" counselors are totally backed up and cannot manage any new cases.

You must also attend money management courses of study – at your disbursal – before your debts are discharged.

Before you do anything, make certain you speak to a good bankruptcy attorney.