Bankruptcy and Beyond - Continued
A summary of the primary changes affecting consumers resulting from the new bankruptcy regulations. Read the Bill
Under the new rules, governed by the federal law found in Title 11 of the United States Code, fewer people will be allowed to file under Chapter 7, and more must now file under Chapter 13.
The New Bankruptcy Law
Major changes you should know about. Debtors will have to go through credit counseling before they can petition for bankruptcy. Additional counseling on budgeting and debt management is required before their bankruptcy can be discharged. Those filing with higher incomes will be prohibited from using Chapter 7. They will now have to use Chapter 13 and repay at least some of their debt.
The new regulations imposes additional requirements for the accuracy of the filing on the lawyers, which may make it more expensive for the attorney to represent the debtor in a bankruptcy case.
Debt Counseling Required:
Before you can file for bankruptcy under either Chapter 7 or Chapter 13, you must complete credit counseling with an agency approved by the United States Trustee's office. (To find an approved agency in your area, go to the Trustee's website, www.usdoj.gov/ust, and click "Credit Counseling and Debtor Education.") The purpose of this counseling is to give you an idea of whether you really need to file for bankruptcy or whether an informal repayment plan would get you back on your economic feet.
Counseling is required even when it's obvious that repayment isn't going to work. The debtor is required to participate, not actually go along with any repayment plan the counselor advuses. When the counselor / agency does come up with a repayment plan, the plan will have to be submited to the court, along with a certificate showing that the counseling was completed, before the bankruptcy can be filed.
Repayment Period
Repayment period for Chapter 13 bankruptcies has been extended from 36 montohs to 60 months.
Means Test
Applicants must also pass a Means Test to see if their income and ability to pay excludes them from filing.
State Exemptions
State exemptions cannot be used unless the debtor has been a resident for at least 2 years.
Homesteads, Asset Protection Trust & Vehicles
The changes to these three categories are complex and rather than do a poor job of covering these three areas they need to be discussed in depth with a bankruptcy attorney in the state of residence.
Child Support and Alimony
These debts go from a repayment priority of 7th place to 1st place.
Tithing
Now up to 15% of income can be given to charity.
Once the bankruptcy case is over, attendance is required at another counseling session, this time to learn personal financial management. Only after proof is submited to the court that this last requirement is fulfilled does the bankruptcy discharge and wipe out the debts.
The Aftermath
Once the bankruptcy has been discharged the rebuilding process may start. A new set of pitfalls are present. Credit, insurance and other items may be more expensive to aquire. If the rebuilding process is not done with care a cycle that is worse than the pre-bankruptcy debt can occur.
