Bankruptcy Laws Tips

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What Is Bankruptcy Law Reform and How Does It Affect Me?

How Bankruptcy Law Reform Might Affect You

Bankruptcy law reform took effect in October 2005, and may or may not affect you. If your income is less than or more than the “median income” in your state of residence, your bankruptcy filing options may be affected. If your regular, verifiable income is more than your state's median, you may be allowed to file Chapter 13 (wage earner plan) only. However, if your regular monthly income is less than your state's median income, you will still be permitted to file either Chapter 7 or Chapter 13 petitions. Your bankruptcy lawyers will help you compute the necessary information to substantiate your situation. You will, however, in either instance, have to take a credit counseling course, prior to your bankruptcy filing. While some have criticized this new requirement, you might receive some good information about credit management after one of these courses. You need to show evidence you have completed one of these sessions to file a successful bankruptcy petition.

What Are the Recent Bankruptcy Law Changes I’ve Heard About?

Recent Bankruptcy Law Changes

For the first time in over 25 years, U.S. bankruptcy law reform was passed by Congress in 2005. The changes may affect you just a bit or in a major way depending on your personal financial situation. While there are a number of procedural changes, the most important involve credit counseling and a “means test”, which determines whether you can file either Chapter 7 or Chapter 13 actions, or whether you might be allowed to file Chapter 13 only. You are also now required to complete a credit counseling course within six months of filing bankruptcy, which is intended to help you understand how credit works with the hope that you won't find yourself in this situation in the future. The bankruptcy law changes could affect you, so work closely with your attorney to decide how to proceed.

What Are the Basic Personal Bankruptcy Laws?

Personal Bankruptcy Law Primer

Federal bankruptcy rules are in Title 11 of the U.S. Code. There are various types of bankruptcy filings and each have their own specific requirements. For individuals, there are two primary types of bankruptcy filings that apply for personal debt. New laws instituted by the federal government include the necessity to obtain credit counseling if you are filing bankruptcy. Before you file, you need to understand the requirements of each chapter to enable you to make a decision as to the best option for your individual needs.

Chapter 7 Bankruptcy - Before filing for protection under Chapter 7 of the bankruptcy laws, individuals must pass a means test. The changes in the law were implemented in 2005 to prevent those with high earnings to file Chapter 7 which erases all bad consumer debt. Consumers who have a sufficient income level are unable to file Chapter 7 and must instead use Chapter 13. A consumer who does not have sufficient disposable income may still be eligible for Chapter 7 filing. Those who are eligible can basically wipe their slate clean excluding certain debts such as personal injury settlements, student loans, back child support and back taxes.

Chapter 13 Bankruptcy - Chapter 13 filings allow a consumer to restructure their debt over a period of time. Depending on specific circumstances, the filers disposable income (calculated by the Internal Revenue Service) must be paid towards past due debts. Chapter 13 repayment plans may be structured to make payments on past-due debts over a period of three or five years.

Most people do not want to file bankruptcy to avoid paying lawful debts. However, job loss, the threat of foreclosure, illness and divorce may force a consumer to consider a bankruptcy filing. Consumers should always speak with an attorney who is familiar with bankruptcy law before filing.

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William Pirraglia
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