Here are some of the major changes you should know about
The picture has changed for those who are considering bankruptcy. Most filers with higher incomes won't be allowed to use Chapter 7, but will instead have to repay at least some of their debt under Chapter 13. All debtors will have to get credit counseling before they can file a bankruptcy case and additional counseling on budgeting and debt management before their debts can be wiped out. The law also imposes new requirements on lawyers; it may be tougher to find an attorney to represent you in a bankruptcy case.
There are some very important new restrictions of eligibility changes for Chapter 7. Under the old rules, cases filers use to be able to choose the type of bankruptcy that seemed best for them. Most chose Chapter 7 (liquidation of accesses) over Chapter 13 (repayment of debts). The new Chapter 7 bankruptcy law will prohibit some cases with higher incomes from using Chapter 7.
Your Income Level?
Under the new bankruptcy law, the first step in figuring out whether you can file for Chapter 7 is to measure your "current monthly income" against the median income for a household of your size in your state. If your income is less than or equal to the median, you can file for Chapter 7. If it is more than the median, you must pass "the means test" which is another requirement of the new law in order to file for Chapter 7.
The Means Test
The purpose of the means test is to figure out whether you have enough disposable income, after subtracting certain allowed expenses and required debt payments, to make payments on a Chapter 13 plan. To find out whether you pass the means test, you subtract certain allowed expenses and debt payments from your current monthly income. If the income that's left over after these calculations is below a certain amount, you can file for Chapter 7.
Counseling Requirements
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 on "Credit Counseling and Debtor Education. Counseling will give you an idea of whether you really need to file for bankruptcy or repayment plan to get you back on your financial feet.
Debt Counseling is required even if you are facing debts that you find unfair and don't want to pay. You are required only to participate or go along with any repayment plan the agency proposes. But if the agency does come up with a repayment plan you will have to submit it to the court, along with a certificate showing that you completed the counseling before you can file for bankruptcy.
Near the end of your bankruptcy case, you'll have to attend another counseling session, this time to learn personal financial management. After you submit proof to the court that you met this requirement you can get a bankruptcy discharge wiping out your debts.
Lawyers will Be More Expensive and Harder to Find
The new law and its complicated requirements make it more expensive and time consuming for lawyers to represent clients in bankruptcy cases. The new law also imposes some additional requirements on lawyers. Among them that the lawyer must personally vouch for the accuracy of all of the information their clients provide them. This means attorneys have to spend more time on bankruptcy cases, and charge their clients accordingly. This combination of new requirements have driven some bankruptcy lawyers out of the field altogether.
Chapter 13 Cases Will Have to Live on Less
Under the old Chapter 13 rules, people who filed under Chapter 13 had to devote all of their disposable income which was what they had left after paying their actual living expenses into their repayment plan. The new law is a lot different. Chapter 13 cases still have to hand over all of their disposable income, but they have to calculate their disposable income using allowed expense amounts dictated by the IRS, not their actual expenses.
Other Bankruptcy Changes
There are other changes that can affect bankruptcy cases, Property is valued at replacement cost instead of auction value. More debtors are at risk of having their property taken and sold by the trustee.
