Copyright (c) 2010 Liz Roberts
Most people with debt problems consider bankruptcy as an easy way out. Taking this option can either partially or completely release a borrower from all kinds of financial obligations. In the past, consumers can easily file for bankruptcy. With Chapter 7 Bankruptcy, a person is allowed to be discharged from most of his/her credit accounts. No debt means a fresh new start.
But the scenario described above is no longer true today. The New Bankruptcy Act that took effect on October 17, 2005 imposed changes which surely affected a lot of consumers. These days, borrowers often think twice before they file for either Chapter 7 or Chapter 13 Bankruptcy. Why are some consumers now hesitant to file for bankruptcy?
To be able to get the answer to this question, below are some key changes with the New Bankruptcy Law.
Key Changes in the New Bankruptcy Law
1. Adjustments in the provisions of Chapter 7 Bankruptcy. Most consumers used to associate Chapter 7 Bankruptcy to the promise of a fresh start. They used to believe that by filing this type of bankruptcy they can immediately be allowed to discharge their credit accounts and free themselves from all kinds of debt worries. But is this still true today?
Unfortunately, the answer is no. The Bankruptcy Act of 2005 imposed more stringent requirements and guidelines on who can be allowed to discharge their credit accounts under Chapter 7 Bankruptcy. At present, bankruptcy courts are requiring filers to take the Means Test for them to easily tell if the filer can be allowed to pursue Chapter 7 Bankruptcy or take Chapter 13 Bankruptcy. Through this provision, bankruptcy courts are able to uphold the interest of creditors, who were once abused by the lax stipulations in the old bankruptcy law. Now how does this change affect you?
These adjustments in the provisions of Chapter 7 Bankruptcy has made it more difficult for consumers to free themselves from debts. After all, you have to undergo grueling screening processes just to prove that you are eligible to discharge all your credit obligations. So, consumers are often reminded to consider other credit-busting methods that they can use other than filing for Chapter 7 Bankruptcy.
2. Enrollment and Attendance in Credit Counseling Programs. filers are required by the New Bankruptcy Law to attend two separate counseling sessions. The first will be scheduled six months before you intend to file for bankruptcy, while the other is scheduled after your credit balances have been discharged. What is the purpose of these credit counseling programs?
First and foremost, such programs are aimed to help you see whether or not bankruptcy is the right option that you should take to attain freedom from debt. Through credit counseling, you can determine if filing for bankruptcy will suit your needs as well as the current state of your finances. Not only that. Credit counseling sessions will also provide you valuable suggestions and tips that you can use not only in managing your finances responsibly but also in avoiding debt traps that you might encounter after your credit obligations have been wiped out.
3. Changes in Chapter 13 Bankruptcy. As far as the old bankruptcy act is concerned, consumer are required to specify their reasons and actual expenses monthly. They themselves determine the disposable incomes that they can use to pay for their existing credit accounts.
However in the Bankruptcy Act of 2005, the IRS is authorized to dictate the reasonable and necessary expenses of bankruptcy filers. This agency will impose the reasonable spending on food, rent, transportation and other expenses of consumers who have filed Chapter 13 Bankruptcy. This may mean that those who have filed for this type of bankruptcy have to live on smaller portions of their monthly earnings, especially if the dictated amounts of the IRS are relatively smaller compared to their actual monthly expenses.
We hope that this short discussion regarding the key changes in the provisions of the New Bankruptcy Law helped you see how such adjustments will influence your life as well as the lives of other consumers who may opt to file for Chapter 13 Bankruptcy.
Liz Roberts is a loan consultant with NHBSInc. They specialize in providing sub prime financing. Please visit our site for free tips on improving your credit. Also, check our site for a current list of good credit cards offers.