The New Bankruptcy Law: Information you Need to Know Before you File

The new bankruptcy law is in effect, and the climate has drastically
changed for people who are considering bankruptcy. In this article we
will touch on some of the details of the new law, and explain exactly how
these new changes will affect you.

First, let's touch on the new counseling requirements. According to
the new law, you must complete credit counseling with an agency approved
by the United States Trustee's office before you can file for
bankruptcy under either Chapter 13 or Chapter 7. Because this counseling is to
decide whether you need to file for bankruptcy, or if an informal
payment plan would be a better alternative for your situation. The counseling
is mandatory for everyone, even for people who know for certain that a
repayment plan is not what they want.

However, you are required only to join in the counseling; you do not
have to go with any repayment plans the agency recommends. But if you are
given a plan, you will have to present the plan to the court with a
certificate showing that you attended the counseling before you can file
for bankruptcy. Once your bankruptcy case is over, you will have to
attend another counseling session focused on learning personal financial
management skills to complete your bankruptcy and erase your debts.

Another major change that comes with the new law effects many people
who want to file chapter 7 bankruptcy. Under the old law, most people
filing could choose between Chapter 7 and Chapter 13,and most people
chose Chapter 7. Because of the new law, many filers with higher incomes
will be prohibited from using Chapter 7.

The first step in determining whether or not you can file for Chapter 7
is to compare your current monthly income to the median income for a
family of your size in the state you live in. In the context of the new
law, your current monthly income is not your income at the time you
file, but your average income over the last six months before you file.

Once you have determined your income, measure it against the median
income in your state. If your income is equal to or less than the median,
you can file for Chapter 7. If it is more than the median, you must
pass a requirement of the new law called the means test. The means test
requires you to determine your amount of "disposable income" by
subtracting different variables from your current monthly income.

If your current monthly income after subtracting these amounts is
under $100, you pass the means test, and will be able to file for Chapter
7. If you income is more than $166.66, you will be prohibited from
using Chapter 7. Those in the middle of these incomes will be able to file
for chapter 7, but will be required to still pay a percentage of their
debt.

Yet another important change caused by the new law is that lawyers may
be harder to find, and possibly more expensive. The new law has added
many complex requirements to the process of filing for bankruptcy that
will make it more time consuming for lawyers to represent their clients
in bankruptcy cases. The end result being that attorney fees for
representation will increase. Also, the amount of time that lawyers must put
into the new regulations has increased and it is likely that it may be
harder to find a lawyer that solely specialized in bankruptcy in the
future. Many experts are predicting that the stress of these new
requirements may drive some bankruptcy lawyers out of the field completely.

Now that you know many of the changes the new bankruptcy laws hold for
your situation, be aware and file with care.