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Changes Brought About By
The New U.S. Bankruptcy Law:
1. Credit counseling and
debt reduction assistance:
Everyone who wishes to file
for Chapter 13 (reorganization) or Chapter 7 (liquidation) bankruptcy
will now have to go through debt counseling. The debt reduction
assistance should come from an agency that has been approved to do so by
the U.S. Trustee Office. After such counseling, the agency may or may
not set up a debt repayment plan for you. If such a plan is set up, you
need not follow it but have to inform the court that you have been given
a repayment plan.
You have to again undergo debt
reduction counseling after your bankruptcy case is over. Only after the
court has proof that you have done so, will your bankruptcy plea be
accepted and your debts written off.
2. Chapter 7 (liquidation)
restrictions:
People with higher incomes
(more than the median income in their area) will not be allowed to
freely file for Chapter 7 as they previously could. They may be
restricted to Chapter 13 bankruptcy, which is more complex than Chapter
7 and requires paying off creditors over 3 to 5 years.
3. Restrictions on lawyers
too:
As per the new U.S. bankruptcy
law, attorneys are now required to personally vouch that all the
information furnished by their clients is accurate. Lawyers will thus
spend many more hours working on bankruptcy cases, not just because of
this requirement but because bankruptcy procedures in general have
become much more complex. This translates into much higher legal fees
(as if they weren’t high enough already) that the person filing the
bankruptcy has to bear.
4. Chapter 13
(reorganization) gets tougher:
Those who file for Chapter 13
bankruptcy will not be allowed to keep aside money for their expenses as
before. The IRS has dictated what expenses can be deducted before
declaring your disposable income (which goes towards paying your
creditors) and which cannot. The expenses dictated by the IRS are
typically much less than what a real person would need. Effectively
speaking, it will probably be very difficult to live on the money that
the IRS will let you keep.
5. New valuation for
property:
The value of your property
will now be equal to the amount it would take to replace everything if
bought from a store. This means that stuff that was considered
worthless before (furniture, family heirlooms, old cars, old appliances
etc) will have some value. This will increase the property value, thus
making it all the more likely that your home may be auctioned off to pay
your creditors.
6. Unavailability of state
exemptions:
According to the new U.S.
bankruptcy law, a person has to be living for a minimum of two years in
a state before s/he can take advantage of the exemptions allowed in that
state. This period was only 3 months before the new law.
All in all, it has become
considerably more difficult to file for bankruptcy, not to mention a lot
more expensive. Thus, the only way to save yourself from life after
bankruptcy is to get debt help and take advantage of debt reduction
assistance and techniques.
Another reason that you need
to look for other avenues to pay off your debts instead of declaring
bankruptcy is that a bankruptcy can stay for 10 long years on your
credit file. This lowers your credit score considerably, thus making it
that much more difficult to get new credit at good rates. This
unfortunately pushes you into the debt hole again. Consider debt
reduction assistance and other alternatives carefully before filing for
bankruptcy.
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