New Bankruptcy Rules
Bankruptcy laws have been set in place to help individuals or businesses get a fresh start when living under overwhelming debt. The new bankruptcy rules are not eliminating the process, but are making it more difficult for some people to declare bankruptcy. Whether a person or corporation has had some kind of catastrophic event that has caused a financial crisis, or they have gotten in debt through inattention to their financial dealings, they have a way to start anew through filing for debt protection. Once the debtor has declared bankruptcy and asked the court's help to get out of his predicament, his creditors cannot harass him for the money they are owed.
The new bankruptcy rules governing who can file for bankruptcy are given under certain "Chapters." Personal bankruptcy is filed under either Chapter 7 or Chapter 13. In Chapter 7, the Trustee will liquidate all of the debtor's non-exempt property and then distribute the money to creditors. Exempt property includes a person's home, automobile, household furnishings, and any tools or equipment necessary to his livelihood (for example, a carpenter could keep his tools). The rules of exemption vary from state to state, so a debtor will have to check with local attorneys to learn about local practices. Bankruptcy laws state that once all those creditors have been paid something, the debts are discharged, and the debtor starts over with a clean slate. To start the procedure, the debtor files a petition with the court with a list of unsecured creditors and the amounts due them. Forms are available to handle the case personally, but it's usually wise to have an attorney handle the filing. The filer will be assessed fees for the petition with the court, plus attorney fees. The Trustee also receives a fee, but that comes out of the monies in the estate and not from the debtor directly. A Chapter 7 is usually discharged within six months.
Filing under Chapter 13 results in a reorganization, where the debtor presents to the court a plan for paying down his debts by making regular payments to the court over a three-to-five-year period. At the end of that time, all unsecured debt is discharged. This type is usually more satisfactory to creditors because they will receive a greater percentage of their bill. This won't change under the new bankruptcy laws. Both types result in freeing the debtor of unsecured debts, stopping foreclosures and repossessions and utility shut-offs. For their part, creditors must stop writing or calling the debtor about what is owed.
Current laws do not discriminate between people who earn a lot and those who earn a little. The new bankruptcy rules will change that provision. The court will require new guidelines to see if the debtor qualifies for bankruptcy. Under the new bankruptcy laws, anyone with income exceeding the cost of living index in their area will be required to pay monthly payments to creditors for up to five years to repay the debt. Bankruptcy will be more difficult to file, and because of the extra work involved, attorneys will charge more. The rules will hurt those who have a good income but have high payments on homes, rent, or car payments. Those existing payments will not be taken into consideration by the court when determining the amounts that must be paid to creditors each month. The court will apply the "means test." The end result may be that some debtors will sell their homes and/or cars and move to a less expensive area in order to afford the payments under the new bankruptcy rules.
Undoubtedly, more people will take advantage of Debt Settlement Programs to reduce debt for those who have good incomes but have trouble making monthly payments on credit cards, personal loans, medical bills, and other types of unsecured debt. Although the settlements on unsecured debts vary, a savings of 60 percent is common. Clients make payments to their own bank account while the debts are being negotiated. The fees for the program are taken out of the account each month until paid, but the funds to pay the creditors remains in the account until settlements have been negotiated. The new bankruptcy rules may have a hidden benefit. More people will opt for debt consolidation, home equity loans, and best of all, will learn how to be good stewards of their assets. Being a good steward of God's gifts is commanded in 1 Peter 4:10, "As every man hath received the gift, even so minister the same one to another, as good stewards of the manifold grace of God." As we follow God's command, we will learn to live abundantly without incurring lots of debt. This will make us a better witness to those around us and will give us financial freedom.
Bankruptcy LawBankruptcy law used to be more lenient. As a result, people began to abuse the system, filing when they really didn't need to file and making huge purchases on credit before filing. For these reasons and more, changes had to take effect. When The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 took effect, they now make it much harder for people to be able to file and eliminate their debts. The new bankruptcy law has new requirements and restrictions, some of which are beneficial. It will be important to look over the bankruptcy law changes to determine if they will affect any attempts to file. Consider other options you have if you actually can no longer qualify for bankruptcy under the new rules.
Eliminating or pay off debt under the protection of the government is one program to look into. Under Chapter 7, debt is forgiven while under Chapter 13, it is expected that a person follow a debt payback plan. The old bankruptcy laws allowed filers to basically choose which chapter they preferred to file under. Also, Chapter 7 filers could value their property at the auction price under the old bankruptcy law. The new law puts the retail price on personal property, increasing the value and the chance of the property being repossessed. Under the old law, debtors were allowed to keep an amount of personal property regulated by the filers state of residence. The new law requires at least two years of residence in the state before using their exemption laws. When the old law was enacted, housing and food allowances were determined by the actual cost.
Under the law changes, there are fewer leniencies for housing and food allowances. The IRS sets these allowances around $200 for food per month and less than $800 for housing and utilities. Income has to be below the state's median income for your size family. A repayment plan will also need to be enforced under Chapter 13 if the court determines owing is $100 or more of disposable income. Child support becomes a high priority debt. Also, if you file now, credit-counseling courses within 180 days of filing are also required. The new bankruptcy law changes also limit home exemptions to $125,000 nationally if the home was purchased less than three year and four months before filing for bankruptcy.
These changes not only affect those filing, but everyone involved. The new bankruptcy law affects credit card companies. They now have to include on the bill how long it would take to pay off the current balance at the minimum payment rate. Lawyers are expected to raise their fees for these services because of the liability issues the new rules imposes. The lawyers will have to spend more time crossing their T's and dotting their I's to make sure not to break any laws and meet all requirements when filing client documents and processing files. Thus, this type for debt elimination is becoming more expensive for those filing. With the new bankruptcy law changes, came a flood of last minute filings under the old law. Thus, the sudden number of filings affected the courts. Overall, the new laws force those who would otherwise qualify for Chapter 7 to file under Chapter 13.
As you look into filing, you will want to seriously consider other options. Filing for bankruptcy can eliminate a large portion of your debts, but it is a black mark on your credit for ten years. After reading up on this course of action, consider talking with a free credit or financial counselor. Finding these companies on the Internet or even through various Christian ministries. They will be able to look at the debt situation and help to determine other methods of paying off the debt. Working on a budget and managing spending should be in the overall plan as well. Cutting up credit cards is a good start. Another option is taking out a consolidation loan for all debts. Be careful about this, though. Watch out for hidden charges, high interest and pay-off penalties. A counselor can help review all of these options in detail so take the time to talk to one before calling a lawyer for bankruptcy.
Finding out more information about bankruptcy law and bankruptcy law changes by searching the Internet or through an attorney who handles this sort of case. Be sure that to understand the whole process as well as the consequences. Responsibilities to debts and finances will still be a reality. Remember vows made when signing for loans and credit cards. "The wicked borroweth, and payeth not again: but the righteous sheweth mercy, and giveth." (Psalm 37:21) Understanding how God desires money to be used is a great step toward freedom from debt and a more positive financial future.