This 200-page law,
most of which will take effect in October 2005, radically
changes many aspects of personal bankruptcy filed under
both Chapter 7 and Chapter
13 relief rules.
However, under
the new bankruptcy laws, only consumers with an income
below their state’s median
income or who fall into this category after deducting allowable
expenses, will be permitted to file for Chapter
7 bankruptcy. Those who do not fit this description
will be forced to file under Chapter 13 relief rules.
In addition to
the new law’s financial
ramifications, each consumer who seeks bankruptcy relief
will be required to obtain credit counseling and budget
analysis from an approved, nonprofit credit counseling
agency—before filing their paperwork. Consumers who
plan to file for Chapter 13 Relief should take note of
the following New
Banlruptcy Laws that will take effect under
this new law:
- Currently,
Chapter 13 filers make payments on secured credit
items, such as automobiles, for only three years.
The amount the consumer still owes after the three-year
period is then discharged, in a process called “stripping down.” Under
the new rules, the strip down period has increased
to five years, thus forcing Chapter 13 filers to
pay a larger overall amount on these secured loans.
- In the past,
Chapter 13 filers were required to pay only what their
car was worth (“blue book” or
fair market value) on their car loans. Under the new
law, these consumers must pay the total loan amount,
regardless of the car’s condition.
- Loans for motor vehicles purchased within
910 days of a Chapter 13 filing must be paid in full.
- Under the new law, the entire remaining
balance on a secured loan is to be targeted for pay off,
whether or not the loan amount exceeds the value of the
collateral.
- According to
the new law, a bankruptcy attorney must certify their
Chapter 13 filer’s
financial statements to the court, which means that attorney
will be held financially responsible if their client’s
statements are false. As a result, some say that bankruptcy
attorneys will likely charge more to assist consumers
in filing for Chapter 13.
- Currently, under
what is called the “automatic
stay” ruling, consumers filing for Chapter 13 bankruptcy
immediately receive protection against creditors. However,
under the new law, the court judge will decide whether
or not a filer receives this protection depending on
each particular case. In other words, filers will not
be certain about the extent of protection they will receive
and from which creditors they will be sheltered.
- The new law
allows ex-spouses of Chapter 13 filers to more easily
enforce their former spouse’s
child support and alimony payments.
- All Chapter 13 filers must complete a
personal finance management course before any debts can
be discharged.
- No Chapter 13 filing will be accepted
if the debtor has filed Chapter
7, 11 or 12 within the previous four years.
- Debtors cannot file for Chapter 13 relief
until all tax returns have been filed.
- The new rules do not permit relief from
eviction proceedings commenced prior to the debtor filing
for bankruptcy.
Also - under the New
Banlruptcy Laws, when a consumer files
under Chapter 13, his or her monthly expenses will
be measured against the IRS National and Local Standard
Expense guidelines. This means there are now stringent
rules dictating how much a bankrupt consumer can claim
as living expenses. This gives the court power to force
Chapter 13 filers to eliminate or significantly trim
down their spending on certain unnecessary luxury items,
such as high-priced cars, expensive gifts, jewelry,
extra-curricular activities for children, elaborate
vacations and more.
With the onset of these rigorous new rules,
some experts say it will be much more difficult for U.S.
citizens to receive financial relief through bankruptcy.
However, many lawmakers believe these changes will diminish
the threat of consumers abusing bankruptcy practices while
helping our country to build a stronger, more efficient
system that will allow more Americans greater access to
credit.
The real solution for many consumers
may be a debt consolidation
loan. Debt consolidation loans often reduce a consumers
debt level by rolling multiple debts into one single payment.
Our network of debt
consolidation lenders will work with consumers with
low credit scores so you can get the consolidation loan
you need to avoid bankruptcy.
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