The point behind the new bankruptcy laws is to make it hard to file for convenience bankruptcy. Credit card companies and other creditors that have been pushing for it, claim that most cases of consumer bankruptcy involved careless people that have spent their money irresponsibly and are now looking for an easy way out.
New bankruptcy laws should make it more difficult for people with debt problem to file for bankruptcy, legislators claim that this way much more bills will be paid, the creditors will save huge amounts of money, and that will in turn cause interest rates to drop.
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So how to explain new 2005 bankruptcy laws? Below you will find some of the mayor changes:
1st - The most important change, no more easy Chapter 7. Until the 2005 bankruptcy laws most filers have been allowed to file for Chapter 7. Chapter 7 essentially makes it possible to have all your debts cleared away.
But here is the catch, under the new bankruptcy laws you are required to take a means test. So what is a means test? It is actually a test consisting of two parts, first will use a formula to exempt expenses.
That means that your basic living expenses like food and rent are compared to determine if you will be able to return at least 25% of your debt. The bad news here is that an IRS formula is used here, and if IRS calculates that your expenses for something should be lower, you are stuck with it.
The second one will test if your income is larger then median income of the state you live in, if it is you will have to file for more restrictive Chapter 13, and that means that you will have to pay back some of your debt in the next 5 years.
2nd - You will now have to hire a lawyer. Chapter 13 is just too complicated for regular people to file for by them selves. And with Chapter 7 being now more restrictive a lot of people will have to file Chapter 13.
3rd - Bankruptcy lawyers are now more expensive because under new bankruptcy laws they are legally held accountable for their clients, or to be more precise information filed on behalf of the clients.
Because of that many lawyers providing pro bono services have stopped with that practice.
4th - Credit counseling is now a must, you are required to go through the credit counseling in the next six months following your filing for bankruptcy.
5th - Some bills will have to be paid. For example taxes (surprise, surprise) or college loans must now be completely paid back. There is much more debts on the no forgiveness list, check with your lawyer if some of those apply to you.
6th - Under the new bankruptcy laws very little room have been left for debt problems caused by job sickness, losing a job or any other unforeseeable problem.
So what all of that means to a regular person? It will be very difficult to file for bankruptcy now. It will take more of your time and money then before. However if you do decide to go through with it I hope that this article has been able to explain new bankruptcy laws and difficulties, and that it will help you with your decision.
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