If you a lot of debt and find you can't get your head above water, you may have thought about filing for bankruptcy. If this is the case, you will need to take note that the bankruptcy laws have changed. There are new laws in place that may affect how your debts are handled.
Here are the major changes that occurred as a result of the new rules and changes:
1. Tougher Bankruptcy Laws
As of October 17, 2005, President Bush's Bankruptcy Abuse Prevention and Consumer Protection Act went into effect. This new law was put in place to help make it more difficult for anyone to cancel their debts under Chapter 7. Instead, most consumers have found themselves filing Chapter 13, which involves paying back creditors over a five year period.
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The laws were created as a result of banks and lending institutions lobbying in Congress that bankruptcy was hurting them.
Here are the various chapters and how you need to qualify to file.
Chapter 7
There are two forms of Chapter 7 bankruptcy. One is for business and the other is for individuals.
Business
If a business is involved, filing a Chapter 7 will mean dissolving the business, unless the Chapter 7 Trustee allows it to continue. If the Trustee does take over the business, he will sell all the assets and distribute the proceeds to creditors.
NOTE: No company is discharged from Chapter 7. Only individuals are discharged.
Individual
Any individual of the United States of America can file for Chapter 7. The only exception to this is if the individual filing, already filed in the previous 180 days.
With Chapter 7, individuals are allowed to keep certain exempt property. Any other assets are sold by the interim trustee to repay creditors. There are many types of unsecured debt that are discharged by Chapter 7 bankruptcy, just as there are various types of debt that are not discharged including child support, income taxes that are less than three years old, property taxes, student loans, fines, and restitution imposed by a court for any crimes the debtor committed.
Filing Chapter 7 is not as easy to do as it once was. Now individuals filing Chapter 7 are forced to undergo a means test. Basically, it tests the income level of the filer, as provided by the Code. If the debtor's income is higher than the median income of the state they live in, they cannot file Chapter 7. But if the debtor's income is lower than the median income, they can file.
Chapter 13
If you decide to file Chapter 13, you are under what is called a wage earner's plan. It helps debtors, who have a regular income, pay their creditors. Under the plan, debtors propose a repayment plan where they will make monthly payments, or installments, over three or five years. If the debtor's current monthly income is less than the state median, the plan will be for three years, unless there is just cause for the plan to be extended.
If the debtor's currently monthly income is higher than the state median, the plan will be for five years. Once the plan has been initialized, no creditor is allowed by law to proceed with collection efforts.
To qualify for Chapter 13, the individual, whether self-employed or not, must have unsecured debts that are less than $360, 475 and secured debts are less than $1,081,400. A corporation or partnership cannot file Chapter 13.
The bad part of bankruptcy is it stays on the debtor's credit report for 7 to 10 years.
2. Credit Counseling
Based on the new laws, when anyone files bankruptcy, they must go through mandatory credit counseling. Based on the ruling, debtors have to undergo an individual or group briefing from a nonprofit budget and credit counseling agency that has been approved by the United States trustee or bankruptcy administrator, within 180 days before filing.
In most cases these credit counseling centers are on the up-and-up, but there are those who have people looking to line their pockets while emptying yours. So be careful and weigh them carefully. If you do find such a situation, report the counseling service to your bankruptcy trustee.
If you decide to find a counselor on your own, check to see if there are any complaints against the organization with your local Better Business Bureau. Make sure they are certified by the National Foundation of Credit Counselors or the Association of Independent Consumer Credit Counseling Agencies. Also, check to see if they have a not-for-profit status.
3. The Cost Factor
Under the old bankruptcy law, filing Chapter 7 usually would cost about or under $1,000. But under the new law, it will cost an additional $60 more. Plus, your attorney will be required to double-check all your financial information. This will take more time. And, there is a greater liability on your lawyer. Because of this increase in liability, his liability insurance may increase, which, of course, gets passed on to you. So you end up paying higher lawyer fees.
Why Were the Laws Changed?
What this new law does is prevent wealthy individuals from filing Chapter 7, when in fact they can pay their debts. Such companies like Citibank, MBNA, and other credit card issuers actively contributed proposed amendments along with generous financial support to reforming the bankruptcy laws. They did it in an effort to have the bankruptcy laws favor them. They were losing money because of bad debts.
Is Bankruptcy Right For You? Talk to Bankruptcy Attorneys Free and Confidential. Licensed bankruptcy attorneys are available. Attorneys will call you to discuss your case for free. Find out if bankruptcy is right for your situation.
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