The New Bankruptcy

THE NEW BANKRUPTCY

In this time of economic uncertainty many homeowners are considering credit counseling or even filing for bankruptcy. In the past we have covered how your lender treats your account after a bankruptcy but we have not covered some of the changes in bankruptcy laws. It has gotten more costly, more time consuming, and more difficult to file for chapter 7 or chapter 13 bankruptcies.

If you are in a high income bracket you may find you cannot file for chapter 7 and instead will have to file for chapter 13 and repay back some of your creditors. In the eyes of your lender it is vitally important to make all your payments on time if you do go the route of a chapter 13. If you do so, you may be able to refinance out of the bankruptcy. You will have to get a bankruptcy rating and the impact of a late on your credit report is more severe than that of a mortgage late.

If you choose to file for bankruptcy now you will have to take part in credit counseling first. You are also required to attend further counseling in the field of budgeting and debt management. The additional counseling requirement is necessary if you want to discharge some of your debts.

In the past you were allowed to choose between chapter 7 and chapter 13, but if you are a high income person you will not be able to file chapter 7. If you would like to file chapter 7 you need to evaluate your monthly income against the average income for a same size family in your state. If you find your income is lower or equal to the average you may file for chapter 7. If you have a greater income than the average you must pass a “means test.”

The purpose of the means test is to see if you have enough expendable income after taking off certain allowed expenses and required debt payments, to make payments on a chapter 13 program.

Before you can file for either the 7 or 13 you have to undergo credit counseling with an agency approved by the United States Trustee’s office. The purpose of this one is to determine if you actually need to file for bankruptcy or if a casual repayment plan will help you gain financial stability. Even if it is obvious you cannot make the payments you still have to go through the program. You do not have to take part in their plan. You just need to show any program the agency provides and a certificate showing you have finished the program.

The new bankruptcy laws have added to the complexity of the programs and have also imposed more responsibility on the lawyers. One of the major changes in laws has to do with information given to the attorney from the client. It is the responsibility of the lawyer to verify the truth of every piece of information given to them.

There are additional changes that may impact you negatively so you need to do some research on the laws before starting the process.

Good luck and happy reorganizing of your life.