Joseph Agiato, Bankruptcy Laws Get Tougher - More Expensive
If you've been thinking about filing for bankruptcy, your best bet might be to
file now.A new bankruptcy law takes effect in November that will make it harder
and more expensive for most families to file for bankruptcy and discharge their
debts.
The major result of the new law is that fewer people will be able to file for
Chapter 7 Bankruptcy and will be forced to file for Chapter 13 Bankruptcy,
instead.
A Chapter 13 bankruptcy is basically a reorganization bankruptcy. Under Chapter
13, you must file a plan with the court showing how you will pay off your debts
over a period of three to five years. Once both you and your creditors agree on
the repayment plan and the bankruptcy court approves it, both you and your
creditors are bound by it.
Beginning in November, if you want to file for a Chapter 7 bankruptcy, there
will be a qualifying test. Under this two-part test, you will first be required
to apply a formula that exempts certain expenses such as food, rent, etc., to
see if you can afford to pay 25 percent of your "non-priority unsecured debt"
(credit cards, medical bills and the like). Second, your income will be
compared to your state's median income.
If your income is above your state's median income, and if you can afford to
pay 25 percent of your unsecured debt, you will not be allowed to file for a
Chapter 7 Bankruptcy.
You may be able to file for a Chapter 7 Bankruptcy if your income falls below
your state's median income but you can pay 25 percent of your unsecured debt.
However, if the court believes you would be abusing the system by filing a
Chapter 7, you can be required to file for a Chapter 13 Bankruptcy, instead.
If you file a Chapter 7 Bankruptcy today, the court will determine what you can
afford to pay based on what you and the court determines are reasonable and
necessary living expenses.
Under the new law, the court is required to apply living standards that are
derived by the Internal Revenue Service to determine what is reasonable to pay
for rent, food, etc., and how much you should then have left over to pay your
debts. The IRS regulations are more stringent and if you want to contest them,
you will need to ask for a hearing in front of the bankruptcy judge. This can
easily mean more time and expense.
When you declare bankruptcy today, your state may allow you to keep all or much
of the equity you have in your home. However, the new law places tougher
restrictions on this exemption. So before you file, be sure to discuss this
with a knowledgeable bankruptcy attorney so that you will know exactly how much
of your home's equity you can expect to protect.
Here's another tough restriction. Under the new bankruptcy law, you must meet
with a credit counselor in the six months before you apply for bankruptcy. You
must also attend money management courses at your expense before your debts
are discharged.
Understand that it takes a couple of weeks to file for bankruptcy. This means
that if you want to take advantage of the current law, you should plan on
filing at least by the beginning of September of this year.
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