Email this page to a friendRecent Changes in Bankruptcy Laws (And How They Affect You)
Many people are aware that there are new bankruptcy laws, but are unsure of how they affect them and their ability to file for bankruptcy now. Actually, the bankruptcy laws have not recently changed, but changed in October 2005. When the laws changed, there were several significant changes that may affect an individual’s ability to file bankruptcy.
The most significant change with the new laws is that Congress tried to create an objective test called a “means test” that measures whether or not a person has an ability to pay debts back. Part of the “means test” is to measure the debtor’s income against a states’ median income. If the debtor’s income is greater than the median income for a similar household size in his state, then there must be a means test analysis where Congress provides defined “deductions” from “income” to determine objectively whether or not it would be an “abuse” for a debtor to file chapter 7 because the debtor ought to be able to afford some sort of payment to creditors.
Thus, income is now one of the most significant determining factors as far as to whether you can file Chapter 7 liquidation or a Chapter 13 consolidation plan. The median income level is determined by the federal government and varies dependent on your state and family size. When filing a bankruptcy the court will look at your income versus the median for your location and family size. If you make more than what is considered reasonable, then you have to go through the means test. The means test is essentially a reasonableness test, where we apply what is considered reasonable for your expenses based on your family size and location. At this point, if your budget is negative, you will be able to file Chapter 7 liquidation. If you have a positive budget, then a Chapter 13 consolidation plan will most likely be the option available to you. To determine how your income will affect your ability to file a bankruptcy, you should discuss your situation with an attorney.
Another significant change is the amount of documentation that must be provided to the court upon the filing of a bankruptcy case. The documents that must be provided to the court include, but are not limited to, paystubs, retirement plan statements, car statements, tax transcripts, mortgage statements, appraisals on real estate and vehicles, and insurance statements. The failure to provide these documents to the court could ead to the dismissal of the bankruptcy case. It is imperative that you deal with an attorney who is aware of the required documents needed for your case based on your assets.
When filing a bankruptcy you receive a bankruptcy “stay” immediately upon filing. The bankruptcy stay is the tool that provides protection to individuals upon the filing of your case. The bankruptcy stay stops garnishments, foreclosures, repossessions and restores licenses. In the past, you would receive this stay whenever you filed a case. So, if you had to file multiple Chapter 13 cases it would apply in every instance. The new laws still provide this protection during your first case. In each subsequent Chapter 13 filing, however, you do not automatically receive the bankruptcy stay if the previous case was dismissed within a year of the new case being filed. Under the 2005 bankruptcy changes, your attorney now must petition the court to have the stay put into place. In order to successfully argue for the stay there must be a change in circumstances that will make this case successful when the previous case filed. This change typically results from a change in income, change in expenses, or a onetime expense. This is a significant change because it can prevent multiple filings to accomplish the same goal. It also makes it imperative to do everything you can to file a successful first case because you may not get a second chance to stop a repossession or foreclosure.
Finally, when filing a bankruptcy you must attend a pre-filing credit counseling session and a post-filing course of financial management when attempting to file either form of bankruptcy. These classes are intended to educate bankruptcy filers about budgeting and credit. Legal Helpers arranges for these classes for all of our clients.
The new bankruptcy laws do make it significantly more difficult to file either a Chapter 7 or Chapter 13 bankruptcy. The requirements can lead to the dismissal of your case before you even get started for insufficient documentation. It makes it imperative that you deal with an attorney who is well versed in the new laws and requirements. Legal Helpers has attorneys who have hundreds to thousands of cases successfully under the new bankruptcy laws. To determine what options you have available to you, please contact Legal Helpers at 888-743-5787.
