The New Bankruptcy Laws and You!

The new bankruptcy laws are really not so new anymore since they were passed in 2005. But they are called the “new” laws to differentiate the current law from the bankruptcy law that was in effect prior to October 2005. Anyone who filed bankruptcy prior to 2005 is under the old law and the old law requirements. Since it takes years for some bankruptcies to be completed, such as a chapter 13 repayment plan, there are plenty of people still being monitored according to the old rules.

The new bankruptcy laws did make some important changes though. Many people feel the new laws primarily benefit creditors such as the credit card companies, because of the creation of the “means test”. The means test is used to measure your capability to pay something back to your creditors.

Under the old law, if you had no assets to be liquidated many creditors received nothing in the way of repayment. Under the new law, if your income meets certain tests then you might be forced to file a chapter 13 bankruptcy. A chapter 13 bankruptcy requires a repayment plan be put into place that is then monitored by the courts through an appointed trustee. The means test compares your income to your state of residency median income and also figures the amount of disposable income you have for debt repayment after basic living expenses. If you have enough net income and exceed the median income, you will most likely have to file a chapter 13.

But the means test is not the only change in the new bankruptcy laws. Others include required debt counseling and an increase in the number of repayment years from 3 to 5 under a chapter 13 filing. But one of the most complicated changes to understand is the changes in the homestead exemption. Under the old law, the exemption had no limit. Under the new law it is limited to $125,000 and can only be taken in a state in which you have lived for at least 3.3 years. This law change can have a big impact on whether you get to keep your house or will be forced to sell it.

Even bankruptcy attorneys were impacted by the new bankruptcy laws. The new law says that an attorney can be held liable for wrong information reported to the court even if the attorney thought his or her client was telling the truth. There is a now a schedule of fees and fines that can be charged to the attorney. The ironic net result is that attorneys must now charge clients more for bankruptcy filing fees in order to cover the increased liability.

There are other new sections in the laws that may or may not affect you. For example, there is a tithing section which says you can tithe 15% of your income to a charity of choice. Also, there is a section that deals with how a car loan is to be handled with a net impact that debtors will have to pay more on their cars in order to keep them.

The new bankruptcy laws have forced many people to file a chapter 13 rather than a chapter 7. But it is important to remember that either way you will get needed debt relief.