Bankruptcy Fix Up

The New Bankruptcy Law - What You Should Know Before Filing

October 25th, 2007 Subscribe To Our Feed

The new bankruptcy law is more stringent than the previous law that was established in 1978. In overview, it makes additional requirements for people wanting to file for bankruptcy and their legal representatives.

The Changes To The New Bankruptcy Law

Within the new bankruptcy law legislation there are several major changes.

Firstly there is more legislation against abusing the law. This means that people filing for bankruptcy have to submit to a “Means Test” on their income. The means test works out your monthly income minus expenses. If you come out above the “median income” you will have to file for Chapter 13 bankruptcy.

Secondly, the Internal Revenue Service (IRS) sets up strict guidelines for what qualify as allowable expenses. This covers things like living expenses, such that $200 per month would cover food and $800 per month for living accommodation. Other expenses like utility bills are also covered.

Third, under the new bankruptcy law there is now more paperwork that you will have to do so that you can prove that bankruptcy is necessary. Some of the things that you are going to have to provide the IRS with include: a list of all unsecured and secured creditors; proof that you have taken the credit counseling course; a detailed list of your expenses and your monthly income; liabilities and assets; your most recent tax return; your photo ID and pay stubs.

Fourth, there are now quite significant legal fees that must be paid courtesy of this new bankruptcy law. This is because you will have to have a bankruptcy attorney certify that your figures are accurate. Otherwise, both you and your lawyer may face sanctions. Much more responsibility has been shifted onto the attorney thus he/she will have to do more investigating and fact checking than ever before in order to ensure that your information is correct.

Another consideration is that there are federal and state bankruptcy laws. State bankruptcy laws will differ. Some may be more lenient and some stricter. You need to have resided in a state for at least two years before you are eligible to qualify for that states bankruptcy laws.

Another addition to the bankruptcy law is that people filing for bankruptcy must attend a credit counseling course within 3 months of the application being accepted. The course must be approved by the IRS and will cost anything from $75 - $100.

Interpreting The New Bankruptcy Law

While it is not essential to keep or retain an attorney throughout the process it is a prudent decision to do so. You want your application to be successful first time so it makes sense to employ an experienced person to handle the process and understand the new law well. This will save you time in the short term and money over the longer time period. For example, if you forget to submit an essential piece of documentation your application could well be rejected. This could leave you in continuing financial problems and delay getting your life back on track.