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New Bankruptcy Law is misunderstood
The law makes it harder, but not impossible, to file
Many people misunderstand the new bankruptcy law passed in April, 2005 by Congress. It makes things more difficult, to be sure, but not impossible. We’ll explain some misconceptions about the new law.
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New bankruptcy law is tougher than the old one, but filing will still be possible.
The Bankruptcy Abuse and Consumer Protection Act was passed into law by Congress in the spring of 2005. President Bush signed it into law, proclaiming that it would make things better for consumers when it takes effect in October, 2005.. It doesn’t; consumers are far worse off under the new law than they were under the old one. In fact, the only real beneficiaries of the new law are banks, credit card companies and other lending institutions. Still, it doesn’t prevent people who are genuinely destitute from filing. It just makes it harder. We’ll talk about the new bankruptcy law and some things about it that people frequently misunderstand.
- Myth: After the law takes effect, consumers will no longer be able to file for bankruptcy.
- Fact: Consumers will still be able to file. The law does require a “means test”, which will compare the filer’s income to that of other people in his or her state. If the salary is above the median, the debtor will still be able to file, but only under Chapter 13, and not under Chapter 7. Chapter 7 effectively wipes out all debts; Chapter 13 requires a partial repayment schedule of 3-5 years in duration. Studies so far show that up to 85% of people who could currently file under Chapter 7 will still be able to do so once the new law takes effect. Mostly effected are the upper middle class and wealthier individuals.
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- Myth: In some states, your home will be protected from creditors.
- Fact: Not true anymore. Under the previous law, some states, such as Florida and Texas, had generous homestead exemptions. Residents of these states could not have their homes seized to pay debts. This resulted in some wealthy people who were in financial trouble moving to those states and purchasing large homes in order to shield their cash from creditors. This will no longer be possible, as the new law provides a maximum of $125,000 as a homestead exemption if the home has been owned for less than 40 months. Longer residents may be protected, but the days of buying a house in Florida to save your cash are over.
This is not a myth You will need an attorney. The changes run nearly 600 pages and are far more complicated than the old rules. Attorneys who specialize in debt cases are already very busy, so if you need one, call now. Be aware that most attorneys have raised their rates, as demand is high and they will now be held responsible for any incorrect information provided by their clients. They’re at risk now, so they’ll charge more to represent you.
The new law is tough, but not impossible, to work through. Many genuinely poor people will not be affected, so don’t let the new law scare you if you really need to file. If in doubt, see an attorney.
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