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.

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Are You Eligible for Chapter 7 Bankruptcy?

When the Bankruptcy Abuse Prevention and Consumer Protection Act was signed into law, requirements to determine eligibility for Chapter 7 bankruptcy were established. The first step is to determine if your income falls below your state's median income. If it does not, a means test determines your eligibility.

If you have calculated your monthly income, and it is above the median income for your state, you next apply the means test to see if you can file chapter 7 bankruptcy. (To find the median income tables by state and family size, go to the United States Trustee website at www.usdoj.gov/ust and click on 'Means Testing Information.')The means test tells whether you have enough income after subtracting expenses and debt payments to pay at least a part of your unsecured debt over a five year period and should use chapter 13 bankruptcy.

You begin the means test with your currently monthly income (your average monthly income for the past six months). From that you subtract:
monthly payments you have to make for secured and priority debts. Secured debts are those which give the creditor the right to take property if you don't pay (mortgage and car loan are major examples). Priority debts are the ones the bankruptcy law says get paid first. These typically are child support, alimony, taxes, and wages owed to employees.

Next subtract allowed expenses in amounts set by the Internal Revenue Service (IRS). Usually you cannot subtract what you actually spend on food, clothing, transportation etc. You have to use the limits set by the IRS which could be lower than the cost of living where you reside.
If your monthly disposable income after the subtractions is less than $100, you can file chapter 7 bankruptcy. If it's more than $166.66 you can't use chapter 7 unless you can prove that you have special circumstances that effectively bring your disposable income to below $166.66.

So what about amounts between $100 and $166.66? You have to figure out whether what you have left over after your subtractions is enough to pay more than a quarter (25%) of your unsecured, nonpriority debts (credit card bills, medical bills, etc.) over a five year period. If what you have left over is enough for that, you are not eligible for Chapter 7 bankruptcy unless you convince the court you have special circumstances that change the figures. If your disposable income is not enough, you can use chapter 7 bankruptcy.

If you received a discharge of your debts under chapter 7 bankruptcy within the last eight years or under chapter 13 within the last six years, you are not eligible for chapter 7 bankruptcy. You also are not eligible if you have a chapter 7 or 13 bankruptcy case dismissed within the past 180 days.

Finally, you are not eligible for chapter 7 bankruptcy if the court thinks you concealed assets or tried to cheat your creditors.

As you can see, determining if you are eligible for chapter 7 has become more complicated under the new bankruptcy law. You will need to know what expenses are allowed and make sure you have subtracted eligible priority debts. It's a good idea to consult a competent bankruptcy attorney.

Be sure to visit Information About Bankruptcy for more information and helpful resources.

Bankruptcy Chapter 7 and How it Works

Chapter 7 bankruptcy: It's supposed to be the simplest and quickest way to file. Is it the best type of bankruptcy for you? After all, even if you've got to be in bankruptcy, you still want the best deal you can get to put your finances in order.

The Bankruptcy Abuse Prevention and Consumer Protection Act signed into law in April 2005 made some changes to the Bankruptcy Code. If a friend has told you about how they filed for bankruptcy before 2005, your experience will be somewhat different.

In order to file for any chapter of bankruptcy today, you have to have attended a credit counseling course from an approved credit counseling agency within the last six months. There are exceptions for emergencies or if it's determined by the trustee that a course is was not readily available. Any debt management plan made during the course must be filed with the court.

Once you have the credit counseling out of the way, you have to determine if you are eligible for chapter 7 bankruptcy. If your currently monthly income (your average monthly income for the past six months) is more than your state's median income, you have to do a means test calculation to determine your eligibility. You can find the state median income at the U.S. Trustee website at www.usdoj.gov/ust, or check with a bankruptcy attorney. Information about the means test is given in another section.

Once you have determined you are eligible for chapter 7 bankruptcy and filled out the proper forms, your documents are filed with the Bankruptcy count. There is an immediate stay granted so that creditors are prevented from taking action, your wages cannot be garnished, and any legal actions being taken against you by your creditors are halted. Within two weeks, the bankruptcy court has advised your creditors that a petition for bankruptcy has been filed.

About 20 to 30 days after filing, the trustee will begin selling your nonexempt assets. Between 20 and 40 days after your petition is filed, your trustee will schedule a meeting of your creditors. This is often called a '341 meeting' because section 341 of the Bankruptcy Code requires you to meet with your creditors.
The 341 is usually a brief meeting where you are asked about your paperwork and if you have destroyed your credit cards. The trustee will also ask if you are sure of the effects of being in bankruptcy. Your creditors usually do not even attend.

After the 341 meeting you have 30 days to reaffirm your debts on secured property (a car, for instance). Basically, this means you say you are going to keep making payments. If you do not pay for the property or reaffirm the debt within the time specified, the creditor is allowed to repossess the asset or take whatever action they are allowed under the law.
Usually, within 60 to 90 days after your 341, the bankruptcy is completed and almost all debts are written off.

Since it is a serious step that can affect you for several years, you should investigate bankruptcy alternatives before you file. Finding out what bankruptcy involves and what it would mean for you will help you ask and understand questions when you consult a competent financial advisory or bankruptcy attorney.

Be sure to visit Information About Bankruptcy for more information.

Legalities of bankruptcy

Up to your ears (and over) in debt and don't know what to do or where to turn? If you are thinking about bankruptcy, your finances are in bad shape. You should gather information before you decide on any course of action to straighten out your financial situation.

Under the United States Constitution, Article 1, Section 8, 'The Congress shall have the power'To establish an uniform Rule of Naturalization, and uniform Laws on the subject of Bankruptcies throughout the United States.' Cases are handled in bankruptcy courts in the 94 United States and U.S. Territories judicial districts.
The purpose of bankruptcy law stated by the Supreme Court in 1934 is to give an honest debtor a start over without worrying about previous debt. Under Title 11 of the United States codes, there are six kinds of bankruptcy case:
Chapter 7 - The simplest and easiest bankruptcy proceeding, it is usually called straight or liquidation bankruptcy. It can be used by individuals and businessmen.
Chapter 9 ' This is for municipalities.
Chapter 11 ' This is most often used by businesses, but it can be used by individuals
Chapter 12 - This is used by fishermen and family farmers
Chapter 13 - It is a bankruptcy in which debts are reorganized but not forgiven. It is used both by businesses and also by people who have a regular source of income.
The process of bankruptcy is determined by the Federal Rules of Bankruptcy Procedure (Bankruptcy Rules) and the local rules of each bankruptcy court. Most of the details of a bankruptcy case are handled away from the court. Under chapter 7, 12, 13, and sometimes chapter 11 bankruptcy; administrative details are handled by the trustee appointed to the case, and you will not even see the bankruptcy court. In chapter 11, all you have to do is appear at a meeting of your creditors. Chapter 13 bankruptcy may require a meeting with the bankruptcy judge to confirm debt repayment plans.

Individuals most commonly used chapter 7 and chapter 13 bankruptcy. Under chapter 7, all your assets are transferred to an estate managed by a trustee appointed by the U.S. Trustee Office who then pays your creditors. Under chapter 13, a debt repayment plan is created and debts are paid over a three to five year period.

Not all debts can or will be discharged under bankruptcy. It varies according to the chapter of the Bankruptcy Code. When a debt is discharged, it means you don't have to pay the debt. Once it is discharged, the creditor cannot take any form of action to collect the debt. The length of time it takes to get debts discharged depends on the type of bankruptcy filed for. A chapter 7 bankruptcy is the quickest. Since other chapters include a payment schedule, the time varies accordingly.

Bankruptcy is definitely the last thing you want to do to straighten out your finances. If you can't figure out any other solution to get out of debt, investigate the different chapters of bankruptcy and determine which will affect you the least and benefit you the most.

Be sure to visit Information About Bankruptcy for more information and helpful resources.