New Bankruptcy Laws – Can I still file?
New Bankruptcy Laws - Can I still file?
For many, there is a common assumption that bankruptcy under the new laws is making it more difficult to file Chapter 7. There are more hoops to jump through under the new laws, resulting in some people having to file for Chapter 13 bankruptcy instead of the more common, Chapter 7. However, for the majority of bankruptcy filers, the option of Chapter 7 is still available.
Some filers with higher incomes are no longer allowed the option of chapter 7. Instead, they will have to use Chapter 13 to repay some of their debt. All debtors must get credit counseling before they can file a bankruptcy case and additional counseling on budgeting and debt management before their debts can be wiped clean. The new laws also impose new requirements on lawyers, making it more difficult for debtors to find an attorney to represent them in their bankruptcy case. There are also more precautionary measures making it more difficult and time-consuming to get rid of debts. The laws are trying to prevent the growth of repeated offenders, while also trying to make it the last possible option for all debtors.
There are a few important changes under the new laws:
In the past, most filers could choose the type of bankruptcy that seemed best for them. This resulted in a majority choosing Chapter 7 (liquidation) over Chapter 13 (repayment). Now, a person's income, result of the means test, and credit counseling are taken into consideration.
Income
Measuring a filer's current monthly income against the median income for a household of their size in their state, is the first step in figuring out if they can file for Chapter 7 bankruptcy. Those who qualify have an income that is less than or equal to the median income. If it is more than the median, the filer must pass "the means test."
The Means Test
The means test figures out whether a filer has a sufficient amount of disposable income, after subtracting certain 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 left over from the calculations is below a certain amount, you are eligible to file for Chapter 7.
Counseling
Even if a repayment plan is not feasible or you do not want to pay unfair debts, you are required to go to credit counseling. You are only required to participate and do not have to go through with the proposed repayment plans. After the session, the debtor submits the certificate of completion and presents the repayment plan to the court, before filing for bankruptcy. Towards the end of the case, another counseling session is required in order to learn about personal financial management. After this session, you will be able to wipe out your debts.