The New Bankruptcy Laws Make it Harder 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 have to file under Chapter 13 bankruptcy and pay off at least a few of your debts. If you would like to file bankkruptcy, you must take part in credit counseling before you'll be able to file. You're similarly required to attend further counseling in the area of budgeting and debt management. The supplemental counseling is a requirement to acquire a discharge of your debts. And, since the law imposes new requirements on lawyers, you might have a trickier time acquiring a attorney to accept your bankruptcy suit.

Limited Eligibility for Chapter 7 Bankruptcy

Under the old bankruptcy laws, you were allowed to select the type of bankruptcy that appeared best for you. In most all cases that would be a Chapter 7 bankruptcy liquidation instead of a Chapter 13 bankruptcy repayment. But, if you're in a high income bracket, the new bankruptcy laws won't let you to file Chapter 7 bankruptcy.

To discover out whether you're able to file Chapter 7 bankruptcy under the new bankruptcy laws, you must first measure your "current monthly income" against the median income for a household 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 greater than the median, however, you must pass a new test to file for Chapter 7 bankruptcy. The new test is called "the means test."

The intention of the means test is to discover whether you have adequate available income, after taking off certain allowed expenses and mandatory debt payments, to make payments on a Chapter 13 program. To find out whether you pass the means test, you take off certain allowed expenses and debt payments from your current monthly income. If the money that's left over after these computations is below a particular amount, you'll be able to file for Chapter 7.

Counseling Required

Prior to filing for bankruptcy under either Chapter 7 or Chapter 13, you must complete credit counseling with an agency sanctioned by the United States Trustee's office. The reason for this counseling requirement is that it assists you in determining whether you actually want to file for bankruptcy or whether an informal repayment plan will help you reclaim your financial stability.

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

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

Lawyers Might Be Tougher to Hire -- and a Great Deal More Expensive

The new bankruptcy laws do add numerous complex demands to bankruptcy cases. Many of these new demands impose more duties on lawyers leading to bankruptcy cases being more time intensive. Among the major new requirements on attorneys is that they must now personally vouch for the truth of all the information their clients give them. That extra requirement means that lawyers must spend lots of time on every bankruptcy case. Thus, they'll charge more to take each bankruptcy case. The new bankruptcy law demands have in reality forced a few bankruptcy lawyers out of the field totally.

Some Chapter 13 Filers Will Learn to Survive on Less

When you filed Chapter 13 bankruptcy under the previous bankruptcy laws, you had to contribute all of your usable income to your repayment plan. The older bankruptcy laws defined available income as that which you had leftover after paying your actual living expenses. The new bankruptcy laws have altered this computation. While you still must turn in all of your usable income, if your income is greater than the median in your state, you don't get to figure your available income based on your true expenses. Rather, you have to calculate your usable income utilizing permitted expense amounts prepared by the IRS. And these permitted expense numbers must be deducted from your average income during the six months before filing bankruptcy, not from your real pay every month.

Additional Changes

There are more modifications that can impact you negatively if you're filing or planning on filing bankruptcy. Do your research on the new bankruptcy laws and make sure you know the impact they have on your bankruptcy filing.