The impact the influx of bankruptcy petitions was beginning to have on the economy was another factor compelling the federal government to modify the bankruptcy law. Inevitably, lenders who were unable to recover debt passed on the cost to consumers in the form of higher prices for products and services.
In 2005, the law changed, making the guidelines and requirements for declaring bankruptcy more stringent. Those who chose to file for Chapter 13 bankruptcy after the bill's enactment on October 17, 2005 were subject to a """"means test"""" and evaluated to determine if they were eligible to file for Chapter 7 bankruptcy instead.
Among the primary distinctions between Chapter 7 and Chapter 13 bankruptcy are:
• Primarily for individuals who cannot pay their debts.
• Qualified assets exceeding a certain value are sold and the proceeds distributed to creditors.
• Any outstanding debts are canceled.
• If the debtor has no qualifying or redeemable assets, creditors receive nothing, and the debtor effectively receives a """"new start.""
• The debtor commits to a payment plan (usually lasting between three and five years) to repay at least a portion of their debt.
• Debts not included in the payment plan are exempt from payment. Upon completion of the payment plan, the filer is typically permitted to retain remaining property and assets. Additionally, balances on unsecured obligations are discharged.
The means test comprises primarily of two questions to determine whether a debtor is eligible for bankruptcy:
A formula that estimates the filer's ability to pay a percentage of their debt based on their current financial circumstances.
A comparison between the filer's income and the state's median income level. If the debtor's income is less than the state median, Chapter 7 bankruptcy may be an option. If the debtor's income is above the state median, they may be able to repay some or all of their debt through a payment plan, rendering them potentially eligible for Chapter 13 bankruptcy.
One of the goals of the revised bankruptcy code is to steer individuals who would have qualified for Chapter 7 prior to 2005 into Chapter 13 instead. This enables lenders to recover at least a portion of the debt owed by the consumer.
Within 180 days prior to filing, all bankruptcy applicants must now complete a concise credit counseling course from a government-approved organization. The Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) stipulates that bankruptcy attorneys cannot file for their clients until all of the prerequisites are satisfied.
Because the new laws have made it more difficult to file for bankruptcy, prospective filers should find an attorney who can provide them with step-by-step guidance in order to remain organized throughout this oftentimes perplexing process. Our attorneys at Mark Godbey & Associates are familiar with the new bankruptcy laws. We will guide you through the process of gathering all necessary documents and information, as well as assist you in properly completing all paperwork, so that your bankruptcy will be approved. We provide a FREE consultation to ascertain if you are eligible to file and if it is a Chapter 7 or Chapter 13 case. To schedule a meeting with us, please call 513-241-6650.""
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