| June 2008 |
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What Do the Changes In the Bankruptcy Laws Really Mean?  Signed into law in April, the Bankruptcy Abuse Prevention and Consumer Protection Act, going into effect this fall, will simply make an unpleasant process a little more unpleasant. Critics have characterized this law as an assault on people with debt, while defenders have said it will only affect a few abusers of the bankruptcy system. Not surprisingly, the reality is somewhere in between. Here is the not-so-frightening fallout from this new law: A few won't be able to file Chapter 7 Primarily there are two kinds of personal bankruptcy, Chapter 7 and Chapter 13. Generally speaking, Chapter 7, after the seizure of some assets, erases your debts while Chapter 13 is a debt repayment plan. A bankruptcy judge determines which protection an applicant receives. The media keep saying the new law makes it "more difficult" to file Chapter 7. But it would be more accurate to say that a few people won't be able to file Chapter 7. For the vast majority of applicants, Chapter 7 protection is just as obtainable. The new law sets up a test to be applied by a bankruptcy judge that limits Chapter 7 to those whose incomes are below their state's median. Very few people with above-median incomes file for bankruptcy. Filing may cost a few hundred dollars more Experts think filing for bankruptcy will become more expensive because the new laws require some more paperwork. It's hard to say how much more it will cost. A Chapter 7 filing typically costs $500 to $1,500. Some say the new costs could be 50% more. A few others Those are the two biggies. There are other significant rules such as mandatory financial counseling and, under a Chapter 13 filing, car payments will now be calculated on the loan amount, not the value of the car. But the biggest changes are the higher costs and the median income test. Nonetheless, the name of the game is avoiding bankruptcy. Indeed, sometimes it is the only option, but it is a desperate measure. Bankruptcy stays on your credit report for eight years and is not the "fresh start" people make it out to be. In fact, filing bankruptcy makes one more vulnerable than ever. It can put a person in the unenviable position of being unable to obtain credit and without a safety net. |
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