Chapter 7 bankruptcy may be harder to file under the new law.
Recent changes to the bankruptcy laws are making it more difficult for consumers to file bankruptcy. There are far fewer consumers eligible for Chapter 7 bankruptcy resolution; instead they are being forced into a chapter 13 bankruptcy repayment solution. With changes and restrictions in the new laws, attorneys are becoming more difficult to find willing to represent consumers in bankruptcy cases, and the fees are more expensive. These changes in bankruptcy laws are making debt settlement a much more attractive alternative to filing for bankruptcy.
Listed below are some of the most relevant changes to the bankruptcy laws.
Chapter 7 Bankruptcy Restrictions for Filing
Under previous laws the filer had the choice of which form of bankruptcy law they wished to file, the chapter 7 liquidation resolutions, or the chapter 13 repayment resolution. The new laws prohibit consumers with average wages to file for liquidation or Chapter 7, they force the consumer to repay debt and dissolve assets with a court appointed repayment plan.
Do you make the average salary?
Under the new chapter 7 bankruptcy law consumers that make a dollar over the average income for the state in which they reside do not qualify for a chapter 7 filing they are forced to file under chapter 13. In order to determine whether one qualifies for a chapter 7 filing they must pass the “means test”!
The Means Test
The means test is a method of calculating income to determine whether one has disposable income; therefore, disqualifying a consumer for chapter 7 filing. The calculation for determining if one passes the means test is; net monthly income is subtracted by certain authorized deduction such as housing cost, permissible transportation allowances, basic allowances for food and necessities. Items that may not be deducted from ones monthly income are those items that may be determined by the court to be that of luxury; such as, cable, internet access, exorbitant transportation cost (get rid of the nice car), allowance for eating out, or vacationing. Anything the court deems not a necessity may be disallowed in the deduction. After the deductions are made if you have a surplus of income “defined by the court” you are not eligible for chapter 7 and therefore must file under chapter 13.
Once again the new restrictions are making debt settlement the much more attractive option.
Counseling Requirements
Another requirement to file for either bankruptcy chapter is credit counseling with an United States Trustee’s office approved credit counselor. To find an approved counselor in your area got to www.usdoj.gov/ust, and click “Credit Counseling and Debtor Education”.
The purpose for the counseling is to determine if you need to file for bankruptcy or if an informal resolution with your creditors would be more advised. The requirement is not waived even if it is obvious that you do not have an alternative. If the counselor comes up with a payment plan they feel is reasonable you must provide this plan to the court prior to filing for bankruptcy.
At the end of the bankruptcy proceedings an individual will again be required to see a credit counselor. This time the counseling will be geared toward money management and financial planning. Only after the proven completion of this counseling will the debt is discharged through the courts.
Lawyers May Be Harder to Find — and More Expensive
As you can see, the new law adds some complicated requirements to the field of bankruptcy. This makes it more expensive — and time-consuming — for lawyers to represent clients in bankruptcy cases, which means attorney fees have gone up.
The new law also imposes some additional requirements on lawyers, chief among them that the lawyer must personally vouch for the accuracy of all of the information their clients provide them. This means attorneys have to spend more time on bankruptcy cases, and charge their clients accordingly. This combination of new requirements have driven some bankruptcy lawyers out of the field altogether.
Some Chapter 13 Filers Will Have to Live on Less
Under the old rules, people who filed under Chapter 13 had to devote all of their disposable income — what they had left after paying their actual living expenses — to their repayment plan. The new law added a wrinkle to this equation: Although Chapter 13 filers still have to hand over all of their disposable income, they have to calculate their disposable income using allowed expense amounts dictated by the IRS — not their actual expenses — if their income is higher than the median in their state. And these allowed expense amounts must be subtracted not from the filer’s actual earnings each month, but from the filer’s average income during the six months before filing.
Why more consumers are choosing Debt Settlement as an alternative to bankruptcy.
As you one can easily see with the much changed bankruptcy laws it is not only more difficult to file for bankruptcy, it is more difficult to get representation, it is more costly, and one can expect lesser results. This is the main reason why more and more consumers are choosing debt settlement to that of bankruptcy. Debt settlement provides a solution to wipe out debt as low as 30 cents on the dollar for far less cost with out the 10 year hit on ones credit.
Tags: alternative to bankruptcy, Bankruptcy, debt settlement