Several years back, a new bankruptcy law became effective. This law made it significantly more difficult for the consumer to demonstrate that he or she should be permitted to wipe out their existing bills in the Chapter 7, or fresh start, form of bankruptcy. Anyone filing now has to pay significantly more substantial costs to bankruptcy lawyers, who all raised their prices by up to one hundred percent since the new laws went into effect. Consumers need to understand the changes that occurred as a result of the newer laws, which are explained in this article.
Chapter 7 filings were typically favored by consumers at a ratio of approximately seven out of every ten personal bankruptcies filed. The remainder were Chapter 13 bankruptcies. Consumers greatly preferred Chapter 7 statues since they generally wiped out most or all of an individual's debts in the process. The new law restricted the numbers of people who could qualify for the easier Chapter 7, forcing more of them to have to go with Chapter 13 instead. This was done so that individuals were not simply able to walk away from bills that they really could afford to pay back over time. Many argued that such changes were hand outs to the creditors, and especially the credit card companies.
The new provisions also insisted that consumers who wanted to file for bankruptcy had to first attend both money management and credit counseling before they applied for bankruptcy. The person now has to meet with an authorized credit counselor in his or her court district for a full ninety minute meeting in the six months in advance of even applying for a bankruptcy discharge. Before a discharge will be granted, the individual must also go to money management classes, for which he or she is required to pay.
A qualifying text was also introduced by the new law. Previously, the bankruptcy judge was allowed to determine if an individual's particular case was suitable for Chapter 7 bankruptcy protection. The new law mandated that the person's income had been measured in a two part test. On the one hand, it is now subjected to a specific formula which separates certain costs of living (such as food, rent, etc.) in order to ascertain if the person can really afford to pay twenty-five percent of his or her unsecured bills, like credit card debt. Next, the individual's income is contrasted against the median income of the state in which he or she resides.
Should such income prove to be higher than the state of residence's median, and the individual be capable of re-paying twenty-five percent of his or her unsecured bills, then the person will not be permitted to file under Chapter 7. Even if the person meets the measurements required by the test, the court may still insist on the person filing a Chapter 13 case rather than a Chapter 7 one. Also, the prior regulations gave the courts great powers of decision regarding extenuating personal circumstances. But the subsequent law changes this to say that only the proof of circumstances totally beyond the individual's ability to control qualifies as an extenuating circumstance.
How much an individual is capable of repaying is another change from the old law to the newer one. Previously, when an individual chose to file for Chapter 13, the court had the authority to decide what amount the debtor was capable of repaying, depending on what the person and the court itself decided was needed and reasonable costs of living. But the newer law stipulated that the court has to measure the person up against fixed national living standards determined by the IRS in order to ascertain what costs for food, rent, and additional expenses are considered to be reasonable, so that they are able to determine what remains to pay towards bills. These IRS rules were far more strict, and contesting them requires getting a special hearing from a judge.
Finally, harder homestead exemptions were pushed through under the newer law. Previously, when an individual went into a bankruptcy filing, the level of home equity which was safe guarded from the person's creditors was set by the state of filing. Some states like Florida exempted the entire value of the person's home. The newer law proved to be more rigorous. Only those filing who had resided in a given state for a full two years would be allowed to claim the state's exemption. On top of that, any home purchase completed in under forty months before he or she chose to file the case is subject to a maximum protection of $125,000, no matter what the state's exemption permits.
