Recent amendments to bankruptcy laws have led to significant alterations in the process, and it is crucial for those considering bankruptcy to understand these changes. At James H. Wilson Law Firm, we want to ensure you have access to the most current information to guide your financial decisions. If you have questions or need assistance, reach out to us at 804.740.6464.
With the new legislation now in force, individuals looking to file for bankruptcy must first complete credit counseling from an agency recognized by the United States Trustee’s office. This step is mandated regardless of whether you file under Chapter 7 or Chapter 13. Visit www.usdoj.gov/ust and select “Credit Counseling and Debtor Education” to locate an approved agency.
The goal of this preliminary counseling is to determine if bankruptcy is necessary for you, or if a less formal repayment plan would suffice. Upon completion, you must present a certificate of counseling and any proposed repayment plan to the court when filing.
Additionally, post-bankruptcy, personal financial management counseling is required to gain debt discharge. Proof of this education must also be submitted to the court, and approved agencies can be found on the same Trustee’s website.
Chapter 7 bankruptcy may no longer be an option for those with higher incomes due to the new law. Evaluating eligibility now involves comparing your “current monthly income”—your average income over the past six months—against the median income for a similar-sized family in your state. Details, including median income tables, can be found on the United States Trustee’s website under “Means Testing Information.”
Should your income exceed the median, you’ll need to pass the “means test” to file for Chapter 7. Otherwise, these individuals may be directed towards Chapter 13 bankruptcy instead.
To conduct the means test, deduct specific allowed expenses set by the IRS, along with the monthly amounts for secured and priority debts, from your “current monthly income.” Disposable monthly income below a certain floor or above a certain ceiling dictates outcome—either qualifying you for Chapter 7 or disqualifying you, respectively. Those with disposable income between these figures must undergo further calculations related to nonpriority unsecured debts over five years.
Lawyers are subject to more stringent rules under the new law, specifically verifying the accuracy of information provided by clients. This increased diligence may lead to longer preparation times for bankruptcy cases.
For Chapter 13 filers, disposable income calculation now relies on IRS-approved expense amounts rather than actual living expenses, provided the filer’s income surpasses the median for their state. This could potentially result in Chapter 13 plans that demand higher payments than before, affecting their feasibility.
Property of Chapter 7 filers must now be valued at replacement cost in retail, considering the item’s age and condition, likely increasing the declared value and the chance of the property being sold by the trustee.
To claim a state’s bankruptcy exemptions, you must have lived there for two years before filing; otherwise, you must adhere to your prior state’s exemptions. Equity protection in homes now requires 40 months of residency, with significant impacts due to varying exemption levels among states.
Navigating the nuances of bankruptcy can be complex, but the James H. Wilson Law Firm is here to assist you through the updated legal landscape. For guidance tailored to your circumstances, call us at 804.740.6464.