Filing for bankruptcy is often considered the best way to achieve freedom from debt. There was once a time when everyone can easily get this option. People usually resort to this program when financial obligations become more difficult to shoulder. After all, by just filing Chapter 7 bankruptcy, you can be given a fresh start from all your debts.
But this is no longer true. The new bankruptcy law, which took effect October 17, 2005, has changed the general view of people regarding bankruptcy. The changes and provisions of this new law made many a filer think twice before finally taking this option. Why the sudden apprehension to file for bankruptcy?
The answer to this question and other information will be discussed in the remainder of this article. This discussion below will also help you see how key changes in the new bankruptcy law affect you and the other consumers.
Key Changes in the New Bankruptcy Law
1. Changes in Chapter 7 Bankruptcy.
Chapter 7 Bankruptcy is often associated with the term “fresh start”. This made people instantly apply for this type of bankruptcy. Because of minimal requirements, a lot of people filed for Chapter 7 bankruptcy and had most of their debts discharged. Since a lot of Chapter 7 filers do not usually have assets that qualify for liquidation, creditors often get nothing.
But the new bankruptcy law completely changed the scenario above. The new law imposed stricter guidelines on who can be eligible for Chapter 7 Bankruptcy. Those who do not qualify are encouraged to become Chapter 13 filers. This way, the new law is able to protect the interest of creditors. Lenders now have the assurance that debtors cannot abuse the bankruptcy law. This is because the law will only let those who cannot really pay off their debts file for Chapter 7 bankruptcy. How does this affect you?
This means that you will find it more difficult to attain a fresh start from debt. If you can really afford to repay your debts, then you should not consider filing for Chapter 7 Bankruptcy. Instead, look for other debt repayment programs that will suit your income and that will allow you to pay off your credit.
2. Attendance in Credit Counseling and Money Management.
The new law requires bankruptcy filers to attend a 90 minute session on credit counseling. This must be set six months before an application for bankruptcy. What is the purpose of this session? Credit counseling will help you see whether bankruptcy is the right option for you to take. It will also provide you a repayment plan that details how you can retire your debts.
After your bankruptcy proceedings, you will also be required to take money management classes. This will be the final requirement before your debts will be completely wiped out. How do these sessions affect you?
Actually these classes will be very helpful to you. They will make you see the importance of managing your finances properly. This way you can prevent yourself from falling into new debt traps and applying again for bankruptcy.
3. Alterations in Chapter 13 Bankruptcy.
Under the old law, you are empowered to inform the court what your reasonable and necessary expenses are. Then the court will determine if the amount you have mentioned is just or not. Once it reaches a final decision, the court will give you a certain amount that will serve as your monthly installment in a Chapter 13 Bankruptcy plan.
In the new law, the IRS determines what should be your reasonable and necessary expenses. The IRS will dictate what should be the reasonable cost for your food, rent and other expenses. This ensures that you will have a bigger disposable income for you to repay your debts. How does this affect you?
This change in Chapter 13 Bankruptcy may mean that you have to live on a smaller portion of your earnings. This will be the case if dictated amounts of the IRS are relatively smaller than your actual expenses.
These are just three of the key changes included in the new bankruptcy law. I hope that through this short discussion, you have seen how this new law influences you and the other consumers who may decide on filing for bankruptcy.