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The New Bankruptcy Law
Here are some of the major changes you should know about.
Now that the new bankruptcy law is in effect, the landscape has changed for those who are considering bankruptcy. Some filers with higher incomes won't be allowed to use Chapter 7, but will instead have to repay at least some of their debt under Chapter 13. All debtors will have to get credit counseling before they can file a bankruptcy case -- and additional counseling on budgeting and debt management before their debts can be wiped out. And, because the law imposes new requirements on lawyers, it may be tougher to find an attorney to represent you in a bankruptcy case.
Here are some of the most important changes.
Restricted Eligibility for Chapter 7
Under the old rules, most filers could choose the type of bankruptcy that seemed best for them -- and most chose Chapter 7 (liquidation) over Chapter 13 (repayment). The new law will prohibit some filers with higher incomes from using Chapter 7.
How High is Your Income?
Under the new rules, the first step in figuring out whether you can file for Chapter 7 is to measure your "current monthly income" against the median income for a household of your size in your state. If your income is less than or equal to the median, you can file for Chapter 7. If it is more than the median, however, you must pass "the means test" -- another requirement of the new law -- in order to file for Chapter 7.
The Means Test
The purpose of the means test is to figure out whether you have enough disposable income, after subtracting certain allowed expenses and required debt payments, to make payments on a Chapter 13 plan. To find out whether you pass the means test, you subtract certain allowed expenses and debt payments from your current monthly income. If the income that's left over after these calculations is below a certain amount, you can file for Chapter 7.
For more detailed information on these calculations and an online calculator that will do the math for you, see www.legalconsumer.com, created by Albin Renauer, author of Nolo's book
FAQs
- What is credit counseling?
- What is Chapter 7 Bankruptcy?
- What is the process of filing for bankruptcy?
- What exactly is bankruptcy?
- What is Chapter 13 bankruptcy?
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