A new bankruptcy law went into effect on October 17, 2005, making it harder
for consumers to prove that they should be allowed to clear their debts in
what's known as a "fresh start" -- or Chapter 7 -- bankruptcy.
"And those who file will be paying much higher fees to
bankruptcy attorneys, who are expected to raise their
rates by as much as 100 percent."
That's to account for the increased liability the new law imposes on them,
which will mean more time verifying and filing client documents.
Key changes
Under the new law, fewer people will be allowed to file under Chapter 7; more
will be forced to file under Chapter 13.
Lawmakers who favor the new law argue that it will prevent consumers from
abusing the bankruptcy laws – using them to clear debts that they can afford
to pay.
But consumer advocates argue that the new law is a gift to creditors –
particularly the credit card industry, which may receive $1 billion or more from
repayment plans due to the expected increase in Chapter 13 filings,
according to Robert McKinley, CEO of CardWeb.com.
Credit counseling and money management:
Under provisions of the new law you must meet with an approved credit
counselor in your judicial district for a 90-minute session in the six months
prior to applying for bankruptcy.
And before your debts are discharged, you must attend money management
classes at your expense.
A qualifying test:
Under the old law, the judge could determine if your case qualifies for
Chapter 7 bankruptcy.
Under the new law, your income will be subject to a two-part means test.
First, it will be subject to a formula that exempts certain expenses (rent, food,
etc.) to determine whether you can afford to pay 25 percent of your
"nonpriority unsecured debt" such as your credit card bills.
Second, your income will be compared to your state's median income.
"You won't be allowed to file for Chapter 7 if your
income is above your state's median and you can afford
to pay 25 percent of your unsecured debt"
You may be allowed to file for Chapter 13.
If your income is below the state's median but you can pay 25 percent of your
unsecured debt, you may be able to file Chapter 7, but the court can still
require you to file Chapter 13 instead if it believes that you would be abusing
the system by filing for Chapter 7.
Under the old law, the court had greater latitude in deciding whether debtors
may file for Chapter 7 in consideration of extenuating personal circumstances.
The new law lets debtors try to make the case that theirs are "special
circumstances" in which a crisis beyond their control forced the bankruptcy
filing. If the court agrees, they are more likely to be allowed to file for Chapter
7, even if they don't technically qualify for it as a result of the means test.
Determining what you can afford to pay:
Under the old law, if you filed for Chapter 13, the court determined what you
can afford to pay based on what you and the court deem to be reasonable
and necessary expenses.
Under the new law, the court will apply living standards derived by the IRS to
determine what is reasonable to pay for rent, food and other expenses to
figure out how much you have available to pay your debts.
"The IRS regulations are more stringent, and to contest
them means asking for a hearing from a judge, which
can mean more time and expense."
Tougher homestead exemptions:
Under the old law, when you declared bankruptcy, the amount of your home
equity that was protected from creditors was determined by the state where
you filed. In Florida, for instance, your home would have been entirely
exempt, even if you bought it soon before filing.
The new law, however, is more stringent about the homestead exemption. For
instance, if filers haven't lived in a state for at least two years, they may only
take the state exemption of the state where they lived for the majority of the
time for the 180 days before the two-year period. And if their home was
acquired less than 40 months before filing or if the filer has violated securities
laws or been found guilty of certain criminal conduct, filers may only exempt
up to $125,000, regardless of a state's exemption allowance.
Lawyer liability:
Under the new law, if information about a client's case is found to be
inaccurate, the bankruptcy attorney may be subject to various fees and fines.
What that means for consumers is it will be harder to find a bankruptcy
attorney willing to file because of the liability and the additional work required
to verify a client's information.
Attorneys will be charging considerably more. Under the old law, a consumer
might have paid between $1,500 and $3,500 to file for bankruptcy, but under
the new law, attorneys said they may increase their fees by between 75
percent and 100 percent.
Filing for bankruptcy should always be a last resort, since it can damage your
credit for many years. To help get a better handle on your debt contact me
now!
Don't even think about filing bankruptcy until we talk. Over the years my advice has
save many individuals from filing bankruptcy or losing their home to foreclosure.
Call me now and I can arrange a mortgage planning session.
So call me now at (888) 956-7060
Talk to you soon, Paul
|
Call to find out,
"HOW YOU CAN FINALLY STOP DEBT FOREVER!"
1 (888) 956-7060 ext. 222
|
Got a question? Call me at (888) 956-7060
or contact me NOW!
|
The Local Home Loan Specialist
|