Big Changes in Bankruptcy Laws

Several years back, a new bankruptcy law became effective. This law made it drastically more difficult for the consumer to demonstrate that he or she should be allowed to wipe out their existing bills in the Chapter 7, or new start, form of bankruptcy. Anyone filing now has to pay significantly more substantial costs to bankruptcy attorneys, who all hoisted their costs by up to 100 percent since the new laws went into effect. Citizens need to comprehend 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 10 private bankruptcies filed. The rest were Chapter 13 bankruptcies. Citizens greatly preferred Chapter 7 statues since they generally wiped out most or all of an individual's debts in the procedure. The new law restricted the numbers of individuals 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 lenders, 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 whole ninety minute meeting in the six months in advance of even applying for a bankruptcy discharge. Before a discharge will be granted, the individual should also go to money management courses, 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 situation was suitable for Chapter 7 bankruptcy protection. The new law mandated that the person's salary had been measured in a two part examination. On the one hand, tis now subjected to an exact formula which separates certain costs of living (such as food, rent, etc.) in order to ascertain if the person could 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 salary of the state in which he or she resides. Should such salary show 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 won't be permitted to file under Chapter 7. Even if the person meets the measurements required by the examination, the court may still insist on the person filing a Chapter 13 case instead of a Chapter 7 one. Also, the prior regulations gave the courts great powers of choice concerning extenuating private circumstances. But the subsequent law changes this to say that only the proof of situation completely 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. Before, when an individual chose to file for Chapter 13, the court had the authority to determine what amount the debtor was capable of repaying, depending on what the person and the court itself decided was needed and agreeable costs of living. But the newer law stipulated that the court has to size up the person up against repaired national living standards determined by the IRS in order to ascertain what costs for food, rent, and additional costs are considered to be reasonable, so that they're able to determine what remains to pay towards bills. These IRS guidelines were far more strict, and contesting them needs getting a special hearing from a judge. Finally, harder homestead exemptions were pushed through under the newer law. Before, when an individual went into a bankruptcy filing, the level of house equity which was safe guarded from the person's lenders was set by the state of filing. Some states like Florida exempted the entire value of the person's house. 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 permitted to claim the state's exemption. On top of that, any house purchase finished in under forty months before he or she chose to file the situation is subject to a maximum protection of $125,000 no matter what the state's exemption permits.