After the recent unfortunate recession in the U.S., people are experiencing massive unemployment and wage reduction, due to which they are incurring overwhelming debt. As a result, in order to unburden themselves from the exiting debt they are incessantly enrolling for debt relief program, or declaring bankruptcy. But it is to be noted in this regard, the changes to bankruptcy in 2005 may be making it little harder for some people to file bankruptcy.
However, let us have a look at some of the important bankruptcy law changes.
Changes to bankruptcy under chapter 7:
The old rules of bankruptcy allowed most filers to choose between chapter 7 and chapter 13, and most chose chapter 7 bankruptcy (liquidation) over chapter 13 (repayment). The new laws passed on October 17, 2005 prohibit filers with higher incomes from filing under chapter 7.
In order to file bankruptcy under chapter 7 you need to first measure your current monthly income against the state median income. If your income is found to be lesser than or equal to your state median income then you will be eligible to file chapter 7 bankruptcy. But if your income is above the state median income then you will not be qualified for it. Also it has been added to the existing law, if you can afford to contribute more than $100 per month towards the debt, then you cannot opt for this bankruptcy. Now, bankruptcy is an option for people with decent income, and not for them with good enough salaries.
Changes to bankruptcy under chapter 13:
Under old rules, people who would file bankruptcy under chapter 13 had to devote all of their disposable income that would be left after paying living expenses, towards their bankruptcy repayment plan. But after new laws been into effect, disposable income contributed towards bankruptcy repayment plan has to be calculated by subtracting the allowed expense amounts from the current monthly income. And the allowed expense amounts will be decided by the IRS.
Credit counseling becomes mandatory:
With the changes to bankruptcy laws, it becomes mandatory for the debtors to take a credit counseling session prior filing bankruptcy. Also, the credit counseling agency has to be approved by the government. Through this change government want to impart financial education to the debtors, and also want to provide help to them with budgeting and personal finances. However, this development is a good learning process for the debtors, and helps them understand whether bankruptcy is a right solution for them.
Other changes:
- The new changes in bankruptcy laws ensure that your family gets priority before the creditors while preparing the repayment plan. So money should be allotted for your family first, before anyone else. Child support and alimony are also now important.
- Certain pension plans are exempt from filing bankruptcy.
- The bankruptcy attorneys require guarantee of the information provided by the clients.
In conclusion, this new development in bankruptcy laws help people determines whether bankruptcy is a right solution for them or not. This also raises awareness among the debtors about their finances, and extends support to a debtor’s family.