| If you a lot of debt and find you can't get your head | | | | debtors propose a repayment plan where they will |
| above water, you may have thought about filing for | | | | make monthly payments, or installments, over three or |
| bankruptcy. If this is the case, you will need to take | | | | five years. If the debtor's current monthly income is |
| note that the bankruptcy laws have changed. There | | | | less than the state median, the plan will be for three |
| are new laws in place that may affect how your | | | | years, unless there is just cause for the plan to be |
| debts are handled. | | | | extended. |
| Here are the major changes that occurred as a result | | | | If the debtor's currently monthly income is higher than |
| of the new rules and changes: | | | | the state median, the plan will be for five years. Once |
| 1. Tougher Bankruptcy Laws | | | | the plan has been initialized, no creditor is allowed by |
| As of October 17, 2005, President Bush's Bankruptcy | | | | law to proceed with collection efforts. |
| Abuse Prevention and Consumer Protection Act went | | | | To qualify for Chapter 13, the individual, whether |
| into effect. This new law was put in place to help | | | | self-employed or not, must have unsecured debts that |
| make it more difficult for anyone to cancel their debts | | | | are less than $360, 475 and secured debts are less |
| under Chapter 7. Instead, most consumers have found | | | | than $1,081,400. A corporation or partnership cannot file |
| themselves filing Chapter 13, which involves paying | | | | Chapter 13. |
| back creditors over a five year period. | | | | The bad part of bankruptcy is it stays on the debtor's |
| The laws were created as a result of banks and | | | | credit report for 7 to 10 years. |
| lending institutions lobbying in Congress that bankruptcy | | | | 2. Credit Counseling |
| was hurting them. | | | | Based on the new laws, when anyone files |
| Here are the various chapters and how you need to | | | | bankruptcy, they must go through mandatory credit |
| qualify to file. | | | | counseling. Based on the ruling, debtors have to |
| Chapter 7 | | | | undergo an individual or group briefing from a nonprofit |
| There are two forms of Chapter 7 bankruptcy. One is | | | | budget and credit counseling agency that has been |
| for business and the other is for individuals. | | | | approved by the United States trustee or bankruptcy |
| Business | | | | administrator, within 180 days before filing. |
| If a business is involved, filing a Chapter 7 will mean | | | | In most cases these credit counseling centers are on |
| dissolving the business, unless the Chapter 7 Trustee | | | | the up-and-up, but there are those who have people |
| allows it to continue. If the Trustee does take over the | | | | looking to line their pockets while emptying yours. So |
| business, he will sell all the assets and distribute the | | | | be careful and weigh them carefully. If you do find |
| proceeds to creditors. | | | | such a situation, report the counseling service to your |
| NOTE: No company is discharged from Chapter 7. | | | | bankruptcy trustee. |
| Only individuals are discharged. | | | | If you decide to find a counselor on your own, check |
| Individual | | | | to see if there are any complaints against the |
| Any individual of the United States of America can file | | | | organization with your local Better Business Bureau. |
| for Chapter 7. The only exception to this is if the | | | | Make sure they are certified by the National |
| individual filing, already filed in the previous 180 days. | | | | Foundation of Credit Counselors or the Association of |
| With Chapter 7, individuals are allowed to keep certain | | | | Independent Consumer Credit Counseling Agencies. |
| exempt property. Any other assets are sold by the | | | | Also, check to see if they have a not-for-profit status. |
| interim trustee to repay creditors. There are many | | | | 3. The Cost Factor |
| types of unsecured debt that are discharged by | | | | Under the old bankruptcy law, filing Chapter 7 usually |
| Chapter 7 bankruptcy, just as there are various types | | | | would cost about or under $1,000. But under the new |
| of debt that are not discharged including child support, | | | | law, it will cost an additional $60 more. Plus, your |
| income taxes that are less than three years old, | | | | attorney will be required to double-check all your |
| property taxes, student loans, fines, and restitution | | | | financial information. This will take more time. And, there |
| imposed by a court for any crimes the debtor | | | | is a greater liability on your lawyer. Because of this |
| committed. | | | | increase in liability, his liability insurance may increase, |
| Filing Chapter 7 is not as easy to do as it once was. | | | | which, of course, gets passed on to you. So you end |
| Now individuals filing Chapter 7 are forced to undergo | | | | up paying higher lawyer fees. |
| a means test. Basically, it tests the income level of the | | | | Why Were the Laws Changed? |
| filer, as provided by the Code. If the debtor's income is | | | | What this new law does is prevent wealthy individuals |
| higher than the median income of the state they live in, | | | | from filing Chapter 7, when in fact they can pay their |
| they cannot file Chapter 7. But if the debtor's income is | | | | debts. Such companies like Citibank, MBNA, and other |
| lower than the median income, they can file. | | | | credit card issuers actively contributed proposed |
| Chapter 13 | | | | amendments along with generous financial support to |
| If you decide to file Chapter 13, you are under what is | | | | reforming the bankruptcy laws. They did it in an effort |
| called a wage earner's plan. It helps debtors, who have | | | | to have the bankruptcy laws favor them. They were |
| a regular income, pay their creditors. Under the plan, | | | | losing money because of bad debts. |