Wald Law Firm - Changes In The Law

Changes In The Law

Means Test

There have been many changes in the law since October 17, 2006. Congress wanted to make sure that high income earners would attempt to pay back at least a portion of their debt through chapter 13, instead of entirely eliminating their debt through chapter 7. This follows the philosophy that bankruptcy should be a "fresh start" and not a "head start". In order to solve this perceived problem, Congress imposed a complex "means test" that uses IRS collection guidelines to determine who can afford to pay at least a portion of their debt through chapter 13. People who are under the median income for their state are exempt from the means test. Income figures are based on average income for the six calendar months prior to filing the bankruptcy.

Credit Counseling And Financial Management

The credit card companies set up credit counseling agencies to collect defaulted accounts for them. These companies attempt to put people into "debt management plans" to consolidate the credit card debts and lower the interest rates on the credit cards. The payments under these plans are often too high to solve financial problems. Of course, the credit card companies want to promote their debt management plans and so they lobbied Congress to require people to consult with a credit counseling agency before filing for bankruptcy protection. So, under the current law you must get a briefing from a credit counseling agency that has been approved by the bankruptcy court before your file for bankruptcy protection. The credit counseling agency may present you with a debt management plan, but you do not have to accept it. You must simply get the briefing. It can be done in person, by telephone, or on the internet.

After the bankruptcy is filed, you must complete a financial management course before your debts can be discharged. This can also be done in person, by telephone, or on the internet.

Longer Wait Times Between Bankruptcy Cases

It used to be that you could not file a chapter 7 case until six years after a previous chapter 7 case. Now, you must wait 8 years.

Few Bankruptcy Faqs

Q. Will I be able to keep all of my property?

A. Most people don't lose any of their property in bankruptcy. Within limits, you can keep your home, your household goods, your vehicle and your retirement funds. You are allowed to keep property in Chapter 7 if it is exempt. Exemption laws can be complicated, but a good bankruptcy lawyer can exempt all of most people's property. If an item is collateral on a loan, then you usually must either agree to pay for the item or surrender it to the creditor. Generally, you don't lose your property in Chapter 13, regardless of whether it is exempt.

Q. What does bankruptcy cost?

A. The court filing fee for Chapter 7 is $299.00 and for Chapter 13 it is $274.00. There is also an Attorney fee, which will depend on the complexity of the case and ability to pay. The fee can normally be quoted over the phone if you call our office. For Chapter 7 bankruptcy the court filing fee and attorney fee must be paid in full before the case is filed. For Chapter 13, most of the attorney fee can usually be consolidated with your other debts.

Q. What does bankruptcy do to my credit?

A. Bankruptcy stays on your credit record for ten years. However, most people are able to obtain creditor shortly after they complete their bankruptcy and sometimes even while they are in bankruptcy. Generally, it is possible to get a good rate on a home mortgage two years after you file Chapter 7 bankruptcy, assuming you qualify in all other respects. If your credit is already bad, bankruptcy may improve it.

Q. Do I have to file bankruptcy on all my debts?

A. You must list all of your debts in your bankruptcy papers. However, you can pay any debt you want after you file bankruptcy. You can do this informally or formally with a "reaffirmation agreement".

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