Changes in Chapter 7 and Chapter 13
Bankruptcy Law Attorneys
Washington, DC • Virginia • Maryland
On October 17, 2005, major changes in federal bankruptcy law took effect. Most of the impact will be felt by consumers seeking debt protection under Chapter 7 and Chapter 13. At Ammerman & Goldberg we continue to provide experienced legal guidance to Washington area debtors. Call our DC bankruptcy law firm to discuss your situation.
Here is a discussion of some of the changes in Chapter 7 and Chapter 13 bankruptcy law.
FEWER PEOPLE ELIGIBLE FOR CHAPTER 7 BANKRUPTCY
LOSERS: Those who want to file for Chapter 7 bankruptcy but have an above-average income and could afford to pay a little each month, according to the IRS.
Traditionally, bankruptcy's fresh start has been available to almost everybody. The new law, however, prohibits some people from filing for Chapter 7 bankruptcy altogether-those whose incomes are above the state median (quite low in some states) and who can pay as little as $100 per month to creditors. Whether or not a debtor can afford to pay $100 or more a month will be determined not by the person's actual income and expenses, but by IRS rules that state what "reasonable" expenses are.
People denied a Chapter 7 bankruptcy either has to file for Chapter 13 bankruptcy and come up with a three- to five-year repayment plan or keep slipping further behind on their debts.
This restriction is one reason many women's groups oppose the bankruptcy law. People who can't file for Chapter 7 bankruptcy and wipe out their credit card balances, they fear, will have less money available to pay other debts-child support, for example.
FEWER PEOPLE ABLE TO STICK TO CHAPTER 13 REPAYMENT PLANS
LOSERS: Those who want to file for Chapter 13 bankruptcy but reside where the cost of living is high.
Debtors forced into Chapter 13 bankruptcy because Chapter 7 is no longer available to them will find that the proposed law makes Chapter 13 bankruptcy more difficult. In Chapter 13 bankruptcy, debtors must put together a repayment plan, basing their payments on their income and expenses. Under the new law, actual expenses for many things don't matter-debtors are allowed to claim only allowed expense amounts set each year by the IRS collections department. Thus, for certain expenses-housing, for example-even if the actual cost is high, you will only be able to keep enough income to pay the allowed amount for housing. Some people, especially those living in areas where the cost of living is high, will be unable to follow through with a repayment plan.
LESS PROTECTION FROM CREDITORS' COLLECTION EFFORTS
LOSERS: People in the throes of an eviction, a state license suspension proceeding, or a family law proceeding.
One of the most powerful aspects of current bankruptcy law is called the "automatic stay". This jargon refers to rules that immediately halt almost all collection actions and lawsuits against someone who files for bankruptcy. The new law places limits on the automatic stay. Among other things, the automatic stay no longer stops or postpones:
- Evictions
- Actions to withhold, suspend, or restrict a driver's license
- Actions to withhold, suspend, or restrict a professional or occupational license
- Lawsuits to establish paternity, child custody, or child support
- Divorce proceedings
- Lawsuits related to domestic violence.
FEWER DEBTS WIPED OUT
LOSERS: People who recently bought luxury goods or received cash advances, as well as those who owe child support or those who incurred debts through fraud.
Some types of debts can never be wiped out in bankruptcy, and the proposed law expands this list.
INCREASED COSTS AND DELAYS IN FILING
The new law requires most people to get credit counseling from a nonprofit agency before filing for bankruptcy. In addition, debtors have to complete a course on personal financial management before completing either Chapter 7 or Chapter 13 bankruptcy.
Another roadblock delays people who had not yet filed a tax return for a recent year. Anyone filing for Chapter 7 bankruptcy has to provide a federal tax return for the most recent tax year; those filing for Chapter 13 have to be current on tax returns for the previous four years.
And for those who seek an attorney's help, it will be harder to find a qualified professional. An attorney who represents debtors will have increased paperwork and new punitive laws that require attorneys to "investigate" the debtor's claims and make the debtor's attorney financially responsible for court costs and creditor's attorneys' fees if the debtor's statement about their property and finances turn out to be false or incomplete. Some practicing bankruptcy attorneys are expected to discontinue their practice rather than face the increased financial risk.
HARDER TO KEEP AUTOMOBILES
Changes in Chapter 13 law require debtors who wish to keep their car to pay the full loan amount on car loans, rather than just the current value of the car, as is currently done in Chapter 13 plans. The new rule applies to all car loans less than two and a half years old as of the date you file. Similar new rules apply to all other property purchased within the last year prior to filing.
If you have questions regarding consumer bankruptcy protection or changes in Chapter 7 and Chapter 13 debt relief laws, call Ammerman & Goldberg. Contact a Washington area debt relief law firm.
