The New Bankruptcy Laws Make it More Difficult to File Chapter 7 Bankruptcy
The most recent changes to bankruptcy laws might cause it to be more difficult for you to file bankruptcy. If you’re in a higher income bracket you’ll no longer be allowed to use Chapter 7 bankruptcy. Instead, you’ll be required to file under Chapter 13 bankruptcy and pay back at least a few of your debts. If you would like to file bankruptcy, you must take part in credit guidance before you’ll be able to file. You’re also required to attend further counseling in the field of budgeting and debt management. The supplementary counseling is a requirement to obtain a discharge of your debts. And, since the law imposes new requirements on lawyers, you might have a harder time obtaining a attorney to accept your bankruptcy case.
Modified Eligibility for Chapter 7 Bankruptcy
Under the previous bankruptcy laws, you were allowed to choose the type of bankruptcy that appeared best for you. In virtually all cases that would be a Chapter 7 bankruptcy liquidation rather than a Chapter 13 bankruptcy repayment. But, if you’re in a high income bracket, the new bankruptcy laws won’t permit you to use Chapter 7 bankruptcy.
To see out whether you’re able to file Chapter 7 bankruptcy under the new bankruptcy laws, you must first assess your “current monthly income” against the median income for a family of your size in your state. If your income is lower than or equivalent to the median, you’ll be able to file for Chapter 7 bankruptcy. If it’s more than the average, however, you must pass a new test to file for Chapter 7 bankruptcy. The other test is known as “the means test.”
The purpose of the means test is to discover whether you have sufficient available income, after deducting certain allowed expenses and required debt payments, to make payments on a Chapter 13 program. To find out whether you pass the means test, you subtract particular permitted expenses and debt payments from your current monthly income. If the money that’s left after these calculations is under a specific amount of money, you’ll be able to file for Chapter 7.
Counseling Prerequisites
Before filing for bankruptcy under either Chapter 7 or Chapter 13, you must complete credit counseling with an agency sanctioned by the United States Trustee’s office. The reason for this counseling requirement is that it assists you in discovering whether you really want to file for bankruptcy or whether an informal repayment program will help you reclaim your financial stability.
Counseling is essential even if it’s clear that a repayment program isn’t doable for you. You’re expected only to participate in the counseling. You don’t have to go along with any repayment program the agency proposes. Even so, before you’ll be able to file bankruptcy, you’ll have to introduce any repayment program the agency offers along with a certificate attesting that you finished the counseling.
Toward the conclusion of your bankruptcy case, you’ll have to attend a different counseling session. This counseling session is designed to teach you personal financial management skills. You can’t get the discharge that cancels out your debts until you show proof to the court that you fulfilled this requirement.
Lawyers Might Be Tougher to Hire — and a Lot More Expensive
The new bankruptcy laws do add many complex demands to bankruptcy cases. Some of these brand-new demands impose more duties on lawyers resulting in bankruptcy cases being more time intensive. Among the major new requirements on lawyers is that they must now personally guarantee the accuracy of all the info their clients give them. That additional requirement means that attorneys must spend significant amounts of time on every bankruptcy case. Therefore, they’ll charge more to take each bankruptcy suit.  The new bankruptcy law demands have in reality pushed a few bankruptcy attorneys out of the field entirely.
Many Chapter 13 Filers Will Need to Live on Less
When you filed Chapter 13 bankruptcy under the previous bankruptcy laws, you had to give all of your available income to your repayment plan. The previous bankruptcy laws defined disposable income as that which you had left after paying your actual living expenses. The new bankruptcy laws have adjusted this calculation. While you still must fork over all of your available income, if your income is greater than the average in your state, you don’t get to calculate your usable income based on your real expenses. Rather, you have to calculate your disposable income applying allowed expense amounts prepared by the IRS. And these permitted expense sums must be deducted from your median income during the six months prior to filing bankruptcy, not from your earnings every month.
Additional Changes
There are additional changes that can impact you negatively if you’re filing or looking at filing bankruptcy. For plain-English guidance in the new bankruptcy laws, get a copy of The New Bankruptcy: Will It Work for You?