Some laws to filing chapter 7 or 13 bankruptcy are common knowledge, such as the requirement for all filers to undergo debt or credit counseling to help better educate them on their spending habits. There is also the law stating that debtors with higher incomes will have to repay a portion of their debt prior to being allowed to file for chapter 13 bankruptcy. However, there have been laws recently taken into effect that are little known and need to be observed.
Chapter 7 Bankruptcy Restrictions The most common form of bankruptcy just got a little more exclusive. Under the old rules people could decide which chapter of bankruptcy was best for them- most choosing chapter 7. However, those with higher incomes must now be aware that they may not qualify to file for chapter 7 bankruptcy and will be forced to file under chapter 13. The gauge they use to decipher ?high income families? is to compare your current monthly income with that of the median monthly income of a family of similar size in your state. Another factor to account for is how you current monthly income will be calculated. It is not what you are currently making at the time when you file for bankruptcy but rather an average of your income from the six months prior to making your claim. This poses a big problem for those who are filing bankruptcy after recently losing a job.
Restrictions on Lawyers Among the new laws lawyers much personally vouch for the accuracy of the information provided. Thus, time spend on each bankruptcy case will increase, in turn driving up your lawyer bill.
Can You Live On Less? Under the old rules, those who filed for chapter 13 did have to devote all disposable income to a payment plan. The new laws make this a little more challenging. In addition to handing over all disposable income, chapter 13 filers will have to calculate that amount from an expense amount allowed by the IRS- meaning they get to dictate what your living costs should be. Keeping in mind under chapter 13 you are still required to calculate disposable income according to an average of what you had made over the last six months.
Value Your Property at Replacement Cost In the past heirlooms and other property that a debtor might want to keep were expected to be of little value- deeming them exempt. However, new laws force you to value all property at retail value taking into consideration age and condition- a requirement that, in most cases, will inflate the cost of your property leaving you at risk of losing it.
Don't Count on State Exemptions The new rules entail that a bankruptcy filer live in a sate for at least two years in order to gain from a state's exemption laws otherwise they can only claim those exemptions of the previous state in which they lived. The same goes for homestead exemptions only this requires over 40 months of residency.
For every person, whether or not you file Chapter 7 is up to you to determine. Although there are a number of different times when it is a very good idea, there are many that file that does not need to do so. For this reason, new laws have been put in place to determine just if you qualify to file in the first place. Your attorney will walk you through understanding if Chapter 7 is right for you, if Chapter 13 is a better choice or if you do not qualify for either.
First of all, you should know what you owe, who you owe it to and have a budget that cuts out every possible extra expense so that you can work to pay down your debt. Finding ways to actually cut through your bills can help you to really pay off those credit cards and bills, without having to file Chapter 7. The more drastic you are in doing this, the more successful you can be to avoid this problem.
Another thing that you should do is to consider using only cash for purchases. You may want to consider going to only cash in a set allowance, too. This will help you to really cut into the amount of money that you owe because you will not be adding to it each month. Give yourself a set amount of money to spend per month and does not go over.
You can also look for small ways to add dollars into your pocket. Selling off a few assets that you have and does not really need can help you to actually find benefits in the long term. If you have an extra car sitting in the garage, it may look nice, but it could be something to help you avoid filing Chapter 7. You should try to sell little things too, such as through garage sales and even by selling them in your local newspaper.
Another step in the right direction is to work with your creditors. You will find that there are non profit consumer credit counseling programs available that will work as the middle man. They will help you to find the right balance with your credit about your situation and even try to get your rates lowered.
While you can file bankruptcy on your own, it is much more efficient and economic to hire an attorney that specializes in bankruptcy. He or she will work with you to find the best possible solution for your needs. They will also work with you to meet with your creditors, to come to an agreement, and to file all of the legal work that must be filed in order for this to happen, without a problem.
Understanding what that actually means and entails is something different, though. Most people know what bankruptcy is but does not know the difference in Chapter 7 and Chapter 13. They does not know how to do it nor do they realize that it is harder than ever to have their debts discharged. Nevertheless, it is something you have to plan for. Here are some things that should be known.
Chapter 7: In this type of bankruptcy filing, your debts are discharged. All debts that are filed under this and are approved for discharge will be debts you are no longer responsible for. This type of bankruptcy filing is best for those that do not have assets or have assets that are not valuable enough for the creditors to file against.
Chapter 13: This type of filing is much different. Here, your debts are adjusted. This provides a temporary halt to the foreclosures and collections that are happening to you, in order for you to spend the next three to five years trying to pay down the debt that you owe. It will allow you to restructure the debt into easier to manage terms. In addition, it will change the interest rate on your loans to make them more affordable.
As of 2005, new bankruptcy laws went into place to keep those that have been filing Chapter 7 abusively from doing so. This law, called the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 is one that is quite comprehensive.
It provides several restrictions that will require those that are considering filing bankruptcy to follow before being able to have their bankruptcy discharged. The fact is that it is now harder than ever to file Chapter 7.
There are several things that are now taken into effect in regards to filing Chapter 7 under this new law. Here are some points that are important to know about.
- A variety of new deadlines is included. If these new deadlines are missed, your bankruptcy will not go through. Penalties for refilling will be higher and harder to work through.
- A test is provided by your attorney that will determine if you even are allowed to file bankruptcy. This will decide if you can file Chapter 7 or Chapter 13 and is called a means test. More people will be required to file under Chapter 13 which will require you to have your debts restructured so that you still have to pay them back, just at a lower rate.
- Your assets are likely to be valued higher than before and this includes furniture, cars, and other assets you have.
- There are also laws in place that require residency requirements as some individuals were seeking to use the laws of one area over another if they were more favorable to them.
- There are penalties and fees for trying to re-file. Although it was easy to do this in prior years, it is now going to be seriously challenging to do so.
- The judges are allows to provide for up to 20% in reduction to the debt is the creditors will not work with consumer credit counseling companies to help you to relieve your debt.
- There are also protections in the new law that allows for your college savings plans and your retirement funds to remain untouched by the filing of Chapter 7.
Filing Chapter 7 is almost a necessity to many. Those that have had to deal with expensive medical bills or those that were careless with credit cards often find themselves caught, under a rock and there is no way out. It is very hard to pull out of a situation like this, especially when there is no simple solution. For many, Chapter 7 really means a new beginning and the hope of a new future without debt.
Depending on how you decide to handle your financial trouble you should investigate all your options. There are many companies out there that specialize in debt consolidation and bankruptcy. Bankruptcy is not always the answer and can actually hurt you more than it will benefit you in the long run.
Both Nathan Dawson & Dennis Cole are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
Nathan Dawson has sinced written about articles on various topics from Finances, Credit Counseling and Debts Loans. Nathan Dawson writes for a great online source for finance information regarding bankruptcy laws, alternatives and suppor. Nathan Dawson's top article generates over 49500 views. to your Favourites.
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