Here are some of the changes that will be reflected under the news laws of bankruptcy:
credit counseling program
Before filing bankruptcy, it is necessary to go through a complete credit counseling program with any agency approved by the United States Trustee's office. This will determine whether bankruptcy is really required at your situation or an easy repayment plan can solve the problem.
There might be some debts that you don't owe or have troubles in paying it. The stress is given on the participation program rather than accepting the payment plan laid down by the agency. You have to submit the repayment plan to the court along with the certificate of counseling taken from the agency.
Once the paper is submitted, you will have to take another counseling of personal financial management. After you have submitted the papers of this counseling taken, the court will grant you a bankruptcy discharge and the debts will be wiped off.
Chapter 7 bankruptcy can't be filed by the people who have higher incomes.
Your income
Since bankruptcy was filed by a large number of people due to loss of recent jobs, there is a change shown under the new laws. Your "current monthly income" will be calculated against the median income for a family of your size in your state. They will determine your income over the last six months before you have filed for it. Now, it will be proved that your income before the loss of job is much lower when compared to the last six months.
Your income will be calculated and compared to the median income in your state by the United States Trustee. If your income is higher than the median income, you are not eligible to file for chapter 7 unless you have passed the ‘Means test' for qualifying in it.
Means test
This will figure out if you have any disposable income left after paying all the expenses and other debts. This will figure out whether you will be able to pay on a chapter 13 plan.
Calculate your total monthly income
Subtract the following:- The expenses allowed by IRS. Transportation, food and clothing cannot be put into it.
- Deduct the monthly bills that you will have to pay on secured and priority debts. Secured debts are those debts that have property attached to the loan with your creditors. Priority debts include child support, alimony, tax debts, and wages owed to employees.
After deducting the two items from your total monthly income, if your monthly disposable income is less than $100, you have qualified for the means test and you will be granted to file chapter 7. It is possible till $166.66, but if it goes beyond that amount, chapter 7 is impossible.
There is one more calculation for those who are in between $100 to till $166.66. With this monthly disposable monthly income, if you are able to pay 25% of your unsecured debts like the credit card bills, student loans, medical bills, and so on within the next 5 year period, you won't be granted chapter 7 here too.
It will be tough to find lawyers after the introduction of the news bankruptcy laws.
As the new laws are stressing on some complicated calculations, lawyers will have to give more time to it. This means that it will be time consuming and thus the fees of attorneys will go higher.
The lawyers will also be having a tough time under the new laws. They need to ensure that the information provided by the client is accurate and flawless. It is predicted that some bankruptcy lawyers will go out of this field.
Chapter 13 filers will also have a tough time
Under the old laws, the debtors arranged the repayment plan after paying the actual living expenses from their disposable income. New laws state that disposable income will be calculated as per the allowed expenses dictated by the IRS. If that disposable income passes the means test as per median in your state, then only chapter 13 is possible.
The worse is yet to come: the allowed expense amounts have to be subtracted from the filer's average income during the six months before filing. Under the old laws, the subtraction was done from the actual income of that month and the previous six months income was not compared. This means that the overall disposable income will grow higher and as a result chapter 13 will also be tough to file.
Valuation of the property
Under the news laws, the value of the property has to be calculated as per the actual cost depending upon the wear and tear and its age. This will jack up the price of the property and as a result it will be taken or sold by the trustee.
Bankruptcy laws will effect the state exemptions
Under the old laws, you can file for chapter 7 bankruptcies in your state and use those state laws if you are living there for at least 3 months. Now, the new laws require that you have to stay in a particular state for at least 2 years before filing bankruptcy and use the state exemptions laws. If you have not lived in that state for the required period, previous state laws where you lived will be put into effect.
Similar rules have been put for those using homestead exemptions. It determines how much equity can be kept on your home when filing for bankruptcy. The new law states that you have to live in a state for at least 3 years and 4 months to qualify for the homestead exemptions.
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