Tougher Bankruptcy Laws Take Effect October 2005
Below is a MRR and PLR article in category Finance -> subcategory Personal Finance.
Tougher Bankruptcy Laws Effective October 2005
Overview
Significant changes to bankruptcy laws are set to take effect on October 17, 2005, under President Bush's Bankruptcy Abuse Prevention and Consumer Protection Act. These changes will make it harder to erase debts through Chapter 7 Bankruptcy, steering many towards Chapter 13 Bankruptcy instead, requiring repayment over five years.
Key Changes
Chapter 7 vs. Chapter 13
The new law introduces a "means test" to determine eligibility for Chapter 7 Bankruptcy. This test compares a household’s income to the state median. If your income exceeds the median, you'll need to file for Chapter 13 Bankruptcy, which involves repaying debts over time.
The reform aims to ensure that those who can afford to pay part of their debt do so, while still allowing for some debt relief. The repayment period under Chapter 13 has been extended to five years from the previous three.
Mandatory Credit Counseling
All individuals filing for bankruptcy must now undergo credit counseling. It's crucial to choose a reputable counselor, as the industry can be fraught with scams. Verify their credibility with the Better Business Bureau and ensure they are certified by the National Foundation for Credit Counseling or the Association of Independent Consumer Credit Counseling Agencies. Non-profit status is also a good indicator of reliability. Consumer Credit Counseling Services is recommended, reachable at 1-800-888-2227.
Increased Costs
Under the new laws, filing costs for Chapter 7 are expected to rise. Filing fees have increased by $60, and attorneys must spend additional time verifying financial information, leading to higher fees due to increased liability and insurance costs. Overall, legal fees may increase by 25-50%.
Why the Changes?
Major creditors like Citibank and MBNA lobbied for these reforms, contributing both amendments and financial support. Many consumer protection groups view these changes as heavily favoring large credit companies.
These updates represent a significant shift in bankruptcy proceedings, impacting consumers' ability to manage debt. As these laws take effect, understanding your options and obligations is more crucial than ever.
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