Some of the Changes Brought About by the New Bankruptcy Law

The new bankruptcy law has provisions that make it harder for the people in debt to file bankruptcy. It is almost certain that it will also cost more. You probably won't lose any sleep over people who abused bankruptcy, but there are people who lose jobs or have uninsured medical expenses who the new law hurts.

In addition to the new credit counseling requirement for all filers and the means test for chapter 7, there are other changes in the bankruptcy laws. Most of the changes will cost you money one way or the other. You are required to do credit counseling within six months of filing your bankruptcy petition. You are also required to attend money management classes at your expense before your debts are discharged. There are new residency requirements. Under the old bankruptcy law, the amount of equity in your house protected from creditors was set by the state where you filed. In Florida, your home would have been exempt no matter how long you lived there. Under the new bankruptcy law, if you live in a state for less than two years and it has a better exemption than where you lived previously, you can't use the more favorable exemption. If you have been moving around, the exemption of the state where you lived most of the time before the two-year period is used. It gets more complicated. If you bought your house less than 40 months (that's three and a quarter years) before filing bankruptcy, or violated securities laws, or have been found guilty of certain criminal conduct, you can only exempt up to $125,000 regardless of a state's exemption. If any of the requirements of the new law confuse you and you decide you need a bankruptcy lawyer, it's going to cost you more. Under the new law, if information provided in your case is found to be inaccurate, the lawyer is subject to various fines and fees. It will be more difficult to find an attorney willing to handle your bankruptcy because of the liability and the time and effort it takes to verify all your information. If you can find an attorney willing to take your bankruptcy case, it is going to cost you more because of the time and effort it takes the attorney to verify your information. If you do find an attorney willing to file, it will cost you a lot more. The president of the American Bankruptcy Institute has reported that some attorneys say they may increase their fees by 75 to 100 percent. See 'Further Changes Brought About by the New Bankruptcy Law' for information on Chapter 13 disposable income and changes regarding personal property.

It is clear from the changes mentioned here that it's going to be more difficult and costlier to file bankruptcy no matter what chapter you use to file. There may eventually be some modifications in the law if it becomes evident it is causing more problems than it solves.

Investigate Bankruptcy Alternatives Before You File

When your financial situation looks bleak, you might be tempted to think filing bankruptcy is the solution to your problems. You should think of it as an absolutely last resort. No alternative will cure your financial ills overnight, but you may be able to keep bankruptcy off your record.

There are three main alternatives to filing bankruptcy. They are debt settlement, debt management, and a debt consolidation loan. It sounds like they are all just about the same thing, but they're actually three different ways to avoid bankruptcy. One bankruptcy alternative is debt settlement. It can also be called debt relief or debt elimination. A debt settlement program usually requires that you have a financial hardship such as job loss, divorce, or medical problems and that you have at least $5,000 worth of unsecured debt. This basically means credit card debt, merchant credit accounts, medical bills, etc. The debt settlement works by showing that you are willing to pay your bills but can't because of a financial hardship and may have to declare bankruptcy. Since the creditors are unlikely to receive any payment if you file for bankruptcy, they will reduce the debt owed. A bankruptcy attorney may act as your negotiator or refer you to a non-profit organization. If you use a company that offers debt settlement, be sure they are reputable; you understand what they will do for you; and how much it will cost. You should be aware that the amount of debt forgiveness negotiated is reported as to income to the IRS and you will be taxed. A debt management plan (DMP) is another way to avoid bankruptcy. A DMP can reduce your monthly payments, save on interest charges, insure your creditors are paid on time, and established a budget. Debt management plans are sometimes called a credit counseling plans, but actually are different that getting credit counseling. The DMP agency works by coming to terms with your creditors. Your accounts are then closed and you send a monthly payment to the DMP who then pays your creditors until debts are paid. Just as with debt settlement, debt management plans show up on your credit report. The DMP should not charge you high fees. Your creditors actually pay for the service to help keep you from bankruptcy and ensure they receive some payment. The third, and often the most preferable of the bankruptcy alternatives, is the debt consolidation loan. With a debt consolidation loan, your debts are added together paid off by getting a second mortgage or through home refinance. One advantage debt consolidation loans is that they can be used to pay secured debt. If your unsecured debts are much greater than your secured debt though, you would probably be better off with one of the other alternatives. It would not be in your best interest to exchange unsecured debt for one secured by your home if you finally have to file bankruptcy.

If most of your debt is secured debt, these alternatives may not be able to help you, and you may be forced to file bankruptcy. It would be a good idea to use a financial advisor to help you determine what would be best for you.

Visit Information About Bankruptcy for more information.