With a record number of bankruptcies in America on file, Congress has taken action to hold more people accountable for running up debts that they simply cannot pay. In general, the changes in the law may make it much harder for some people file bankruptcy, may make some people ineligible to file Chapter 7 bankruptcy at all, and may take more of your income to repay your debts in a Chapter 13 bankruptcy. Plus, you will now have to take some steps to address your debts before filing for bankruptcy, and you may have a harder time finding a bankruptcy lawyer to handle your case.
First, before anyone files for bankruptcy, he or she must now attend a credit counseling session with an agency approved by the bankruptcy trustee. Even if credit counseling clearly will not help you at this point, you are still required to go. The theory behind this change is that perhaps credit counseling can help a person handle his or her debts without having to resort to filing bankruptcy. Next, when your bankruptcy comes close to being complete, you will have to attend another credit counseling session, which is designed to educate you about handling money and debts, so that you will not have to file bankruptcy again in the future. The bottom line is that you are not allowed to finish your bankruptcy proceedings until proof is submitted to the court that you attended these credit counseling sessions as required.
Next, whereas you might have qualified to file Chapter 7 bankruptcy in the past, you may no longer be eligible for it, depending on your income. There is now a rather complex formula, based on your household income and expenses, which determines whether you are eligible to file Chapter 7 bankruptcy. If your household income is less than the median household income for a family of your size, in your state, then you can file Chapter 7 bankruptcy. However, if your household income is more than the median household income, then you will not be eligible to file Chapter 7 bankruptcy unless you pass the “means test”. This is an evaluation of whether you have the ability to pay back a portion or all of your debts, based on certain deductions and debt obligations. If you pass the “means test”, then you can file Chapter 7 bankruptcy.
The new laws also made some changes to Chapter 13 bankruptcy proceedings. In the past, the payment amounts required for a Chapter 13 repayment plan were based on your actual household expenses. Now, the IRS has set limitations on these expenses; therefore, you may end up paying more toward your debts than you would have under the former rules.
Finally, since the new income requirements and “means test” make filing a bankruptcy more complex, bankruptcies are more complicated and time-consuming for bankruptcy attorneys. The new laws also change the level of responsibility of a bankruptcy attorney for the bankruptcy filing; now, a bankruptcy attorney must personally verify that the information contained within the bankruptcy filing is correct. As a result of these changes, you may find it more difficult, and undoubtedly more expensive, to hire a bankruptcy attorney.
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