New Laws Affecting Chapter 7 Bankruptcy

One part of the law, the homestead exemption clause, took effect immediately. This clause requires debtors to have been residents of their current state for at least two years. Additionally, if you bought your home within 1,215 days (about three years and three months) prior to filing bankruptcy, you may only take a homestead of $125,000, regardless of how much you paid for your home.

The new laws have stringent income tests for Chapter 7 bankruptcy. Each state will have a median income valued assigned by the IRS. People whose income is above the median will no longer be eligible to file Chapter 7 bankruptcy. They will have to file Chapter 13 if they can afford to pay $100 per month for five years after expenses are subtracted. People with incomes below the median may or may not be allowed to file for Chapter 7.

A new list of allowable expenses has been created, and those numbers are not flexible. For instance, a child's educational expenses at a private educational institute will only be deducted up to $1,500 per child. Prior to the new laws you could take off all the educational expenses for your children.

Additionally, people who wish to file for bankruptcy under the new Chapter 7 laws will be required to take classes in financial management and meet with a credit counselor from a credit counseling agency in the non-profit sector. These requirements must be completed in the six months before the bankruptcy papers are filed. The agency representative will perform an analysis of your budget.

If you cannot afford to pay the bill for this service, it will be free. And, you must pay for both these services if you can afford it.

Here are some other highlights of the new law:

1. Unfortunately, even if you owe thousands of dollars in medical expenses, but you fail the income test for Chapter 7 bankruptcy, you will have to repay those bills.
2. Also, under the new laws if you want to keep your car and it is not paid for, you will have to pay it off completely or the financing company will repossess it. This will happen even if the value of your car is less than what you owe on it.
3. If you rent your home and cannot pay your rent, the new laws makes it easier for property owners to evict you, even if you think you could catch up with your rent payments in a couple of months.
4. If you are thinking about taking a vacation or buying an expensive piece of jewelry before you lose your credit cards, you will have to pay back the creditor for any service or item that costs more than $500 if you spent that money within 60 days of filing your bankruptcy paperwork for the first time. Cash advances are also not exempt if you took them within 70 days before filing.
5. If you file your paperwork for bankruptcy late, the creditors can arbitrarily change the payback provisions of their agreement with you.
6. There are a few provisions in the new bankruptcy laws that help consumers. One of these is that a credit card company cannot cancel your credit card after you repay your debt to them.
7. Another stipulation allows you exempt your retirement IRA up to $1 million. The new law also requires that credit card companies be examined more thoroughly to make sure that people unable to pay the debt are not issued new credit cards, thereby hopefully keeping more people out of the easy money via credit card trap.
8. Still thinking about trying to file Chapter 7 bankruptcy? If so, see a credit counselor NOW to determine if there is a way that you can avoid filing bankruptcy. Make sure that you visit a reputable company, as there are many fraudulent companies calling themselves "credit repair" companies.
9. Pay off as many debts as you possibly can and sell whatever assets you can to do so. If you are forced into Chapter 13 bankruptcy, it will be a minimum of five years before you can buy a house or get new credit again.

Whatever you do, do not add purchases of any kind to your credit cards and cut them up. Your job now is to get out of debt with the help of our network of debt consolidation loan lenders.