If you are seriously contemplating filing for
bankruptcy, you should do it soon. Congress is
considering legislation that could make bankruptcy quite
a bit less attractive for many people. The proposed laws
would make it harder to file for Chapter 7 Bankruptcy and
would increase the amount of payments to creditors in
both a Chapter 7 Bankruptcy and Chapter 13 Bankruptcy.
Because the House and Senate are considering different
bills, the specific changes are not yet clear. If both
bills pass (the House bill already has), a Congressional
committee will try to work out a compromise and send it
to the President sometime in the next few months. If the
President signs it, it would take effect immediately.
Limits on Who
Could File
Both the House and Senate bills would
institute what is called "needs-based"
bankruptcy. The senate bill would give a Bankruptcy Judge
the authority to dismiss a Chapter 7 case or convert it
to a Chapter 13 if, based on your current income, you
could pay 20% or more of your unsecured debt (such as
credit card debt or medical bills) over a five year
period of time.
The House bill is more detailed. If your
income is more than the federal poverty level ($9,260 for
one person and $12,480 for a family of two), you could
file for Chapter 7 bankruptcy relief only if you met a
means test. The test would take into consideration your
monthly income, monthly payments on secured debts (such
as mortgages and car loans) and priority debts (such as
support payments and most income taxes), and living
expenses for you and your family. Those expense levels
are set by the IRS, and are far lower than the actual
cost of living for most people.
If, after subtracting your expenses from your
income, you are left with $50.00 per month or less, you
would be allowed to file a Chapter 7 Bankruptcy. If the
amount left is more than $50.00, you would not be
permitted to file unless you could show that you would
not be able to pay your creditors at least 20% of your
unsecured debts over a five year period of time. You
would be required to file a Chapter 13 Bankruptcy or deal
with your debts outside of Bankruptcy.
Attachment of
Tax Returns
Under both bills, you would be required to
give the Bankruptcy court copies of your Federal Tax
Returns for the last three year, and pay stubs or other
evidence of pay from your employer for the previous two
months. If you had not filed Tax Returns for the years in
question, you would have to do so before filing a Chapter
13 Bankruptcy case. Chapter 7 would still be available.
Forced Credit
Counseling
Both the House and Senate bills include
provisions that would require you to show the Bankruptcy
Court a certificate from a nonprofit credit counseling
agency, stating that you had tried in good faith to repay
your debts through credit counseling.
Longer
Repayment Periods In Chapter 13 Bankruptcies
Currently, most Chapter 13 Bankruptcy are
based on a three year repayment plan. Under both bills,
most plans would last five years, and in some cases as
many as seven year. A three year repayment plan might
still be available to Low-income debtors.
Extended Time
Between Filings
At this time you cannot file a Chapter 7
Bankruptcy if you have received a Chapter 7 Discharge
within the previous six years. There is no similar limit
for filing a Chapter 13 case. Under the House bill, you
could not file a Chapter 7 case if you had received a
Chapter 7 discharge within ten years. You would be barred
from filing a Chapter 13 Bankruptcy if you had received
either a Chapter 7 or Chapter 13 discharge within five
years.
Summary
In short, if the bills currently before the
House and Senate pass, filing for Bankruptcy will become
much more complicated, tougher to qualify for and more
expensive. The bottom line is, there is no better
time to file for a Chapter 7 or a Chapter 13 Bankruptcy
than now. If you have been thinking about making
an appointment with an Attorney to discuss Bankruptcy,
don't wait, call Mark L. Miller or Michael G. Doan. Either attorney will be happy to
go over your individual financial situation, answer your
questions, and help you determine if Bankruptcy can wipe
out your debt and give you a fresh start.
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