New federal bankruptcy law
Bankruptcy is a legal process, which is taken help of when there is no other way in which a person can pay off his or her debts. This process is supervised by, a bankruptcy court to help businesses and consumers to pay off their debts . Bankruptcy is also at times called as reorganization or liquidation. Types of bankruptcy Bankruptcy is mainly of two types either Chapter 7 or Chapter 13. Chapter 7 bankruptcy is called as liquidation because in this the assets of the person are liquidated and the creditors are paid off. However, not all assets can be liquidated. In chapter 13 bankruptcy the court gives the consumer a payback plan where he court would tell you how to repay your creditors . This plan is made according to your income and financial status so that you can easily pay back the amount without compromising on the basic necessities . Chapter 7 bankruptcy is the easiest way to come out of debt and for this reason people had started abusing it. Because of this fact in 2005 The Bankruptcy Abuse Prevention and Consumer Protection Act was established that reformed the bankruptcy laws. Some of the factors that have resulted in this reform include:
- Increase in the bankruptcy filings
- Losses linked to bankruptcy filings
- Bankruptcy abuse
The new federal bankruptcy law After the imposition of the new bankruptcy laws the scenario has changed for people who were considering filing bankruptcy . It is now mandatory for all the debtors to get counseling before they file for bankruptcy. Besides this they would also get counseling for debt management and budgeting. Moreover with the new laws it has even become tough for the lawyers to represent people in bankruptcy cases. Eligibility for Chapter 7 under new laws Earlier people were free to choose any type of bankruptcy that they thought would suit their financial condition. Most of the people would go in for Chapter 7 instead of Chapter 13. But with new rules there are many people with higher incomes that are now prohibited from filing under Chapter 7. As per the new laws the first step in deciding whether a person is eligible for Chapter 7 is to assess the monthly income of the person in comparison to the median income of a house of the size of your family in the state where you live. If your income is equal to or less than the median income then you can file under Chapter 7. However, if it is more than Chapter 7 then you are required to pass the means test. Means test is another inclusion in the Chapter 7 bankruptcy filing eligibility. The aim of this test is to assess whether you have enough disposable income remaining after all the expenses and the debt payments have been subtracted. If the amount that is left after subtracting is less than a defined limit then you can file under Chapter 7 bankruptcy. Chapter 13 changes
As per the old rules people who wished to file under Chapter 13 were required to contribute all the disposable income left after the living expenses towards paying off the debts according to a repayment plan. However the new law has included certain regulations. Similar to the old laws the debtors are required to handover all the disposable income towards payment of the debts. But now the disposable income is calculated using the expense amount as per the IRS and not their actual expenses if their income is more than the median income in their state The allowed expenses are required to be subtracted not from the debtor s actual income but for the average income during six months before filing new federal bankruptcy law .
The Counseling Requirements Irrespective of the fact whether you are filing bankruptcy under Chapter 7 or Chapter 13 you are required to undergo credit counseling by an agency that has been approved by the United States Trustee s office. You can find about the approved agencies from www.usdoj.gov/ust and check the Credit Counseling and Debtor Education. The main aim of including this counseling is to educate you on whether you need to file bankruptcy or not. Besides the agency would also suggest you on an informal payment plan that can put you back on track. The counseling is important even if it is not possible for you to pay back the debt or if you find the debts unfair and dont wish to pay them back. You are just required to attend the counseling and it is not necessary that you follow the repayment plan that the agency suggests. But in case the agency gives you a repayment plan then you are required to submit it to the court with a certificate stating that you have completed the course. At the end of the bankruptcy case you are again required to attend a counseling on debt management and budgeting. Once, that you submit this certificate only then can you get the bankruptcy discharge. Changes for bankruptcy lawyers As per the new laws as stated above the lawyers might find it difficult to handle bankruptcy cases, as it has become more expensive and time consuming for the lawyers to represent their clients and moreover the attorney fees have gone up. The new bankruptcy laws have also imposed rules on the lawyers like they are required to certify that all the information that is provided is accurate. This has lead the lawyers to spend more time on the case and study the details.
Other alterations The manner in which the property was valued has also changed . Now replacement cost is considered and not the auction value. This means that the properties are more likely to be sold off by the trustees. Besides these there are some other minor changes also that have been included. It is better advised that you consult an attorney and then file for bankruptcy if there is no other alternative. Things-You-Need-to-KnowBefore-Filing-Bankruptcy/ Things You Need to Know Before Filing Bankruptcy What is creditor harassment How to avoid bankruptcy with debt consolidation of Bouncing Back From Bankruptcy
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