At one point, filing bankruptcy was extremely easy, and generally hassles free. To begin with, the bankruptcy law was established to offer a new beginning to those who had financial difficulties. In April 2005, Congress made extensive changes in U.S. bankruptcy law with effect from October 17, 2005. Called the “Bankruptcy Abuse Prevention and Consumer Protection Act of 2005,” it spells trouble for Americans struggling with debt problems.
This new bankruptcy law and thanks to those who abused the privilege, new bankruptcy laws are stricter and have more requirements than ever before.
Some Facts on Bankruptcy
1. Between 1995 and 2004, bankruptcy filings doubled, while in that same period, credit card industry profits tripled.
2. For people 60 or older, 85% of bankruptcies are caused by medical bills or loss of job.
3. A divorced woman is 250% more likely to file bankruptcy than a married woman.
4. Approximately half of all bankruptcies are filed because of medical expenses due to lack of health insurance and inadequate coverage.
5. The median income of bankruptcy filers is $27,000.
Here is a look at some of the changes within the new bankruptcy law and how these changes may affect your decision to file bankruptcy.
Bankruptcy Law – Credit Counseling
Now, with the new bankruptcy laws, no matter rather you decide to file for Chapter 7 bankruptcy or Chapter 13 bankruptcy, you are now required to attend credit counseling. This must be done before you go to file for the bankruptcy, by a court approved credit counseling center.
You need to obtain a certificate and in some cases, a repayment plan. You will then have to submit all of this to the courts, as proof you have met the requirements under the new bankruptcy law.
After filing bankruptcy, you will then be required to submit a certificate showing that you have attended credit counseling, yet again, learning to manage your personal finances.
New Bankruptcy Law – Chapter 7 Filings
The requirements for filing a Chapter 7 bankruptcy have also changed. Now, thanks to the changes in the laws, you have to prove your income. If you have a higher income than stated by the median income within your state, you will likely have to file a Chapter 13 bankruptcy instead of a Chapter 7.
You will also be required to take what is called a means test. This is used to determine rather you are capable of making repayments under a Chapter 13 repayment plan bankruptcy.
Bankruptcy Law – Chapter 13
Now, with the new bankruptcy law, you may find, if you have to file for Chapter 13 bankruptcy, that you are paying more than you can comfortably live with. There are specific guidelines to calculating how much you have in disposable income and assets. This will depend on your income for the last six months before you filed bankruptcy and not your current income.
What is more, property value will be regarded with its real value, what a store might be able to get for that property. What this means, with the new bankruptcy law, is that depreciation is taken into consideration, which will include the condition and age of the property being sold.
New Bankruptcy Law – Residency
The new changes in law require certain residency stipulations that were not required before or are stricter. You see, states have homestead exemption, meaning that certain laws apply to residence of that state. However, now with the new law, the residency requirements increase from three months to two years, before these laws can apply to filers.
The worst aspect of the new bill is the use of IRS “allowable” expense schedules for determining your monthly budget. In short, people attempting to file bankruptcy are in for an extremely rude shock. No more cell phones, cable TV, high-speed Internet access, movies, meals out with the family, and anything else beyond the minimum allowable expenses as determined by the IRS and the courts.
Hundreds of thousands of Americans are going to discover the reality of this tough new bankruptcy law, and they are going to forgo the court system of filing bankruptcy in exchange of out of court settlement. Banks are also eager to settle with consumers for 50 cents on the dollar or less as it is beneficial for them because of following reasons:
a. Lump-sum of 30-50% today is far better than the same amount collected over 3 to 5 years.
b. Under Chapter 13, it will take the creditors 3 to 5 years to recover that 30-50%.
It is important to understand the new bankruptcy laws and how they apply to you before you file bankruptcy in any state. Make sure you do your homework and know what is best for you before you file.
<input id=”gwProxy” type=”hidden” /><input id=”jsProxy”>
If you are on the verge of filing bankruptcy it would be wise to look into a debt settlement program. Debt settlement allows consumers to avoid bankruptcy and still eliminate 50% of their unsecured debt. While your credit score will take a hit it will not be nearly as bad as bankruptcy. To locate legitimate debt settlement companies in your area for a free debt consultation check out the following link: Or Call – 877-853-6466