Personal Bankruptcy
If you have considered filing for bankruptcy, the new bankruptcy law will affect how your debts are handled. The following article outlines the major changes that occurred with this new bankruptcy reform act.
Tougher Bankruptcy Laws Take Effect October 2005
President Bush’s Bankruptcy Abuse Prevention and Consumer Protection Act went into effect on October 17, 2005. This new law makes it more difficult to cancel your debts under Chapter 7 Bankruptcy protection. Instead, consumers will find themselves having to file for Chapter 13 Bankruptcy protection and paying back their creditors over a five year period.
Here’s a look into some of the major changes that will affect consumers choosing to file for bankruptcy under the new law -
Qualifying – Chapter 7 or Chapter 13?
To be able to qualify for protection under Chapter 7 bankruptcy, consumers will have to face a means test. The means test determines if your household falls above or below the median income in the state where you reside. Those whose total is greater than the state median income will not qualify to cancel debts under Chapter 7 protection and will alternately have to file under Chapter 13 and pay back your creditors.
The major intent of the bankruptcy reform is to require people who can afford to make some payments towards their debt, to make these payments, while still affording them the right to have the rest of their debt erased.
The amount you have to pay back under Chapter 13 protection will be greater because instead of a 3-year payback period, that time frame is now extended to five years – to ensure your creditors get paid.
Credit Counseling
Anyone filing for bankruptcy under the new law will be required to go through mandatory credit counseling. Be careful before choosing a credit counselor as this field is filled with people looking to line their pockets while emptying yours.
To find a trustworthy counselor, check to see if there are any complaints against them or their organization filed with your local Better Business Bureau. Secondly, find out if they are certified by the National Foundation of Credit Counselors or the Association of Independent Consumer Credit Counseling Agencies. Finally, find out if they have not-for-profit status.
The Cost Factor
Filing for Chapter 7 protection under the old laws normally cost under $1,000. Under the new laws, filing fees have been increased by $60. Additionally, your attorney will be required to double check all your financial information which will take more of his or her time. Also there is greater liability imposed on the lawyer which may cause their liability insurance to increase, which gets passed on to their clients in the form of higher fees.
Why Were the Laws Changed?
The bottom line is that major commercial creditors lobbied hard for reform. Companies like Citibank, MBNA, and other credit card issuers actively contributed proposed amendments along with generous financial support to reforming the bankruptcy laws – and in their favor, according to many consumer protection groups.
The National Debt Relief Group can help you find the right solution with a free consultation. You can fill out our Short Application and one of our debt specialists will contact you within minutes, or you can call now – (888) 703-4948.