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How the new bankruptcy laws affect
my chances of filing bankruptcy and saving my house from foreclosure
Few things have affected what people can do
to avoid foreclosure as much as the new bankruptcy laws that
were implemented in 2005. There are several changes that anyone
considering filing bankruptcy should know about because they
affect both the eligibility for filing bankruptcy and what
will be required in order to make it happen.
The first big change is that anyone filing for
bankruptcy must go through a credit counseling course that
is pre-approved by the government within six months of filing.
Also, proof of income is now required in order
to file bankruptcy. If the individual wanting to file bankruptcy
has not filed tax returns for the previous year, this has
to be dealt with before being able to file bankruptcy.
Another big change is one affecting eligibility.
Many people will no longer be able to file Chapter 7 bankruptcy
because a means test has to passed before becoming eligible
to file.
If the person or couple filing has a lower income
than the median for the state in which they are filing, Chapter
7 is allowable.
However, if income is higher than the median,
there is one other test available in order to try and qualify
for a Chapter 7.
Disposable income is measured by taking the
total monthly income and subtracting expenses and monthly
payments that would need to be made towards debt. If what
is left over is less than $100, then Chapter 7 bankruptcy
is an option.
The trouble with expenses is that they have
to be measured by what Internal Revenue Service allows and
not necessarily what actual expenses are. Because of this,
many people may not be eligible for Chapter 7 even if actual
monthly expenses leave them with less than the $100 of allowed
disposable income.
If an individual is not eligible for Chapter
7, then Chapter 13 is basically the only choice left when
trying to file bankruptcy. Even so, Chapter 13 laws are also
stricter.
In the past, the court would determine what
expenses were reasonable for the person filing to pay, but
with the new laws in effect, the Internal Revenue Service
derives the standards for what expenses are reasonable. This
means higher payments for most people. While this can be challenged
in court, it will likely cost a lot more in attorney fees
and time.
If these things seem like too much, there is
one more downside to the new laws. Attorneys have more liability
and may have a more difficult time helping their clients file.
Because of these issues, attorneys are charging a lot more
to help individuals considering bankruptcy with filing.
Regardless of what the new laws require, it
may still be a better decision than foreclosure for many people
and is still a feasible option even if laws are more stringent.
But remember that nothing can take the place of good advice.
So if you are looking to file bankruptcy, make sure to seek
the advice of a good attorney before taking action on your
own.
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