A summary of the bankruptcy law changes
In October 2005 Congress passed some new bankruptcy laws. What does this mean to you? Read on and find out the most common consumer applications.
If you are considering filing bankruptcy the first thing you need to know is that there are two basic types of personal bankruptcy actions, they are Chapter 7 and Chapter 13.
Chapter 7 bankruptcy has also been referred to as “no assetâ€? bankruptcy. Under Chapter 7, a debtor’s debts are discharged, or in layman’s terms, they are wiped out by the court and the debtor is not required to pay off those debts.
Under Chapter 13, a debtor works with a court appointed bankruptcy trustee to set up a payment plan. This plan has the debtor pay a percentage of his or her outstanding debts. The debtor pays the trustee a lump sum and the trustee then pays the creditors according to the agreed upon payment plan until the debts are paid. Once the debt is paid, the debtor is discharged from further obligation on the debts.
The new laws have made it tougher to file for Chapter 7. It is presumed that if a debtor can make payments, he or she must file for Chapter 13 and repay all or a part of the debts. So if you have an income, you will most likely be filing a Chapter 13 bankruptcy.
The major addition to the law is that debtors will be required to obtain a certificate from an approved debt/credit counseling agency prior to filing for bankruptcy. This new requirement is there to take into account that bankruptcy is filed because the debtor may not know how to manage finances. The idea being that debt counseling will also help them to better handle their finances in the future.
Prior to filing for bankruptcy, you will need to find an approved consumer counseling service and attend the required classes to get your certification.
Another requirement is the debtor must submit detailed income and expense statements, details of any debt repayment plans which they may have entered, tax returns, pay stubs and a statement of any anticipated increase in income. This increases the burden on the debtor to gather the documents necessary for filing bankruptcy, as well as increasing any attorneys’ fees associated with filing for bankruptcy. Additionally, if these documents are not filed within 45 days after filing the petition, the case will be automatically dismissed and the debtor will have to re-file.
A debtor still has the benefit of the “automatic stay”. This means that once a debtor files bankruptcy, creditors are “stayedâ€? (or stopped) from continuing to collect on any debts while the bankruptcy action is ongoing. The new laws now limit the length of time the stay is in effect for debtors who have previously filed a bankruptcy which was later dismissed prior to discharge. If a bankruptcy action is filed within one year of a previous dismissal, the stay automatically ends 30 days after the petition is filed unless the court approves an extension. If there are two previous dismissals, there is no automatic stay unless the court approves one. Therefore, if you have previously filed a bankruptcy, be sure to file the required papers with the court to have the automatic stay apply to you.
The amount of non-dischargeable debts incurred to purchase “luxury� goods is decreased by the new laws. This means if a debtor spends $500 or more on items that are deemed luxuries within ninety days (or $750 within seventy days) of filing for bankruptcy, those debts (if they are to a single debtor) are not dischargeable in bankruptcy and must be paid in full. This is to put an end to any spending spree prior to filing.
Another thing to keep in mind is that if you have run up your credit cards in the 2-3 months prior to filing for bankruptcy, it is likely you will have to pay those debts in full.
You may need extra cash to cover the expenses of debt counseling and lawyer fees. If this is the case, do a free money search. Simply put, you enter your name into the database and a search for unclaimed money and unclaimed property is done. Nine out of ten Americans have money unclaimed. The search will also give you information on how to claim your money.
