Specified Eligibility for Chapter 7 Bankruptcy

Under the former bankruptcy laws, you were permitted to choose the type of bankruptcy that seemed best for you.  In nearly all cases that would be a Chapter 7 bankruptcy settlement instead of a Chapter 13 bankruptcy repayment. But, if you’re in a high income bracket, the new bankruptcy laws won’t permit you to use Chapter 7 bankruptcy.

To check out whether you’re able to file Chapter 7 bankruptcy under the new bankruptcy laws, you must first measure your “current monthly income” against the average income for a family of your size in your state. If your income is lower than or equal to the median, you’ll be able to file for Chapter 7 bankruptcy. If it’s greater than the median, however, you must pass a new test to file for Chapter 7 bankruptcy.  The new test is called “the means test.”

The intention of the means test is to ascertain whether you have enough available income, after subtracting certain permitted expenses and required debt payments, to make payments on a Chapter 13 program. To determine whether you pass the means test, you subtract certain allowed expenses and debt payments from your current monthly income. If the money that’s remaining after these calculations is less than a specific sum, you’ll be able to file for Chapter 7.

Counseling Requirements

Before filing for bankruptcy under either Chapter 7 or Chapter 13, you must complete credit counseling with an agency authorized by the United States Trustee’s office. The reason for this counseling requirement is that it helps you in finding out whether you actually need to file for bankruptcy or whether an informal repayment plan will help you regain your financial stability.

Counseling is mandatory even if it’s obvious that a repayment plan isn’t feasible for you.  You’re expected just to participate in the counseling.  You don’t have to agree with any repayment plan the agency provides. Even so, before you’ll be able to file bankruptcy, you’ll have to introduce any repayment plan the agency provides along with a certificate evidencing that you finished the counseling.

Toward the conclusion of your bankruptcy case, you’ll have to go to a different counseling session.  This counseling session is designed to teach you personal financial management skills. You can’t receive the discharge that wipes out your debts until you show proof to the court that you completed this requirement.

Attorneys Might Be Tougher to Retain — and Lots More Expensive

The new bankruptcy laws do add numerous complex requirements to bankruptcy cases. Some of these new requirements impose more responsibilities on attorneys leading to bankruptcy cases being more time intensive. Among the major new requirements on attorneys is that they must now personally ensure the truth of all the info their clients give them.  That extra demand means that lawyers must spend a great deal of time on each bankruptcy case.  Therefore, they’ll bill more to handle every bankruptcy case.   The new bankruptcy law requirements have in reality pushed a few bankruptcy lawyers out of the field altogether.

Some Chapter 13 Filers Will Have to Exist on Less

When you filed Chapter 13 bankruptcy under the previous bankruptcy laws,  you had to contribute all of your usable income to your repayment plan.  The old bankruptcy laws defined available income as that which you had remaining after paying your real living expenses. The new bankruptcy laws have changed this computation.  While you still must hand over all of your usable income, if your income is larger than the median in your state, you don’t get to figure your spendable income based on your real expenses.  Instead, you have to work out your usable income utilizing allowed expense totals established by the IRS. And these allowed expense totals must be subtracted from your average income during the six months before filing bankruptcy, not from your earnings every month.

Additional Changes

There are additional changes that can impact you negatively if you’re filing or looking at filing bankruptcy.  For plain-English guidance in the new bankruptcy laws, get a copy of The New Bankruptcy: Will It Work for You?