The New Bankruptcy Laws Usher In New Challenges

The New Bankruptcy Laws Make it More Challenging to File Chapter 7 Bankruptcy

The most recent changes 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 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 would like to file bankruptcy, you must take part in credit guidance before you’ll be able to file.  You’re similarly required to attend further counseling in the field of budgeting and debt management.  The extra counseling is a prerequisite to receive a release of your debts. And, since the law imposes new demands on lawyers, you might have a tougher time finding a lawyer to take over your bankruptcy suit.

Restricted Eligibility for Chapter 7 Bankruptcy

Under the early bankruptcy laws, you were allowed to choose the type of bankruptcy that appeared best for you.  In virtually all cases that would be a Chapter 7 bankruptcy settlement 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 use 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 median income for a family unit of your size in your state. If your income is lower than or equivalent to the median, you’ll be able to file for Chapter 7 bankruptcy. If it’s more than the average, however, you must pass another test to file for Chapter 7 bankruptcy.  The new test is known as “the means test.”

The intention of the means test is to discover whether you have enough free income, after taking off certain allowed expenses and required debt payments, to make payments on a Chapter 13 plan. To ascertain whether you pass the means test, you take off particular allowed expenses and debt payments from your current monthly income. If the money that’s remaining after these computations is below a specific 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 attend credit counseling with an agency sanctioned by the United States Trustee’s office. The reason for this counseling requirement is that it helps you in finding out whether you really want to file for bankruptcy or whether an informal repayment plan will help you regain your financial stability.

Counseling is compulsory even if it’s evident that a repayment program isn’t possible for you.  You’re required merely to participate in the counseling.  You don’t have to go along with any repayment plan the agency offers. Even so, before you’ll be able to file bankruptcy, you’ll have to introduce any repayment plan the agency offers along with a certificate demonstrating that you finished the counseling.

Near the end of your bankruptcy suit, you’ll have to attend a different counseling session.  This counseling session is fashioned to teach you personal financial management skills. You can’t receive the discharge that wipes out your debts until you show proof to the court that you accomplished this requirement.

Lawyers Might Be Harder to Retain — and Much More Pricey

The new bankruptcy laws do add numerous complex requirements to bankruptcy filings. Some of these brand-new requirements impose more obligations on lawyers resulting in bankruptcy cases being more time intensive. Among the leading new demands on lawyers is that they must now personally guarantee the accuracy of all the information their clients give them.  That additional requirement means that lawyers must spend a lot of time on every bankruptcy case.  Thus, they’ll charge more to handle every bankruptcy case.   The new bankruptcy law requirements have in reality pushed a few bankruptcy lawyers out of the field completely.

Many Chapter 13 Filers Will Need to Exist on Less

When you filed Chapter 13 bankruptcy under the former bankruptcy laws,  you had to give all of your available income to your repayment plan.  The old bankruptcy laws defined disposable income as that which you had leftover after paying your actual living expenses. The new bankruptcy laws have adjusted this calculation.  While you still must fork over all of your spendable income, if your income is larger than the median in your state, you don’t get to compute your disposable income based on your actual expenses.  Instead, you have to work out your disposable income applying permitted expense totals defined by the IRS. And these permitted expense amounts must be deducted from your average income during the six months prior to filing bankruptcy, not from your wages 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?