Debt settlement is an approach to debt reduction in which the borrower and lender agree on a reduced balance that will be regarded as payment in full. This is a very reliable method of eliminating unsecured debt. And it is legally accepted approach of avoiding debt. But unfortunately most people are not aware of settlement. With enactment of the new bankruptcy law many borrowers have realized that going for debt settlement is a better answer than bankruptcy. Now they know that filing bankruptcy is not the best solution for their financial obligations. Therefore we need to do a critical analysis to find out how new law of bankruptcy has made debt settlement more attractive.
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Recent changes to the bankruptcy laws have made it more difficult for borrowers to file bankruptcy. Under the old rules, borrowers could choose the type of bankruptcy that seemed best for them. Therefore most borrowers choose chapter 7 bankruptcy, because if they choose chapter 13 they will have to repay the amount. But the law passed in 2005 prohibits some borrowers with higher incomes from using Chapter 7 bankruptcy.
Under the new law, the first step is to measure your "current monthly income" against the median income for a household of your size. If your income is less than or equal to the median, you can file for Chapter 7 bankruptcy. But if your income is greater than the median income, you will have to fulfill another requirement in order to file under chapter 7. To find out whether you pass this means test, you have to subtract certain allowed expenses and debt payments from your current monthly income. If the income that's left over after these calculations is below a certain amount, you can file for Chapter 7.
Under the old rules, people who filed under Chapter 13 bankruptcy had to devote all of their disposable income to their bankruptcy repayment plan. Under the new law also Chapter 13 borrowers still have to hand over all of their disposable income. But if their income is higher than the median income in their state, they have to calculate their disposable income using allowed expense amounts dictated by the IRS, not their actual expenses.
This new law enacted in 2005, have affected some bankruptcy filers negatively. The la has made it more expensive and time consuming. As this new law has imposed some additional requirements on lawyers, attorney fees also have gone up. Therefore after considering this whole issue, many borrowers are now taking steps forward to eliminate their unsecured debt through debt settlement. As the new bankruptcy law has become very tough, debt settlement has become mare attractive manner of avoiding unsecured debt.
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