New Bankruptcy Rules

Bankruptcy laws have been set in place to help individuals or businesses get a fresh start when living under overwhelming debt. The new bankruptcy rules are not eliminating the process, but are making it more difficult for some people to declare bankruptcy. Whether a person or corporation has had some kind of catastrophic event that has caused a financial crisis, or they have gotten in debt through inattention to their financial dealings, they have a way to start anew through filing for debt protection. Once the debtor has declared bankruptcy and asked the court's help to get out of his predicament, his creditors cannot harass him for the money they are owed.

The new bankruptcy rules governing who can file for bankruptcy are given under certain "Chapters." Personal bankruptcy is filed under either Chapter 7 or Chapter 13. In Chapter 7, the Trustee will liquidate all of the debtor's non-exempt property and then distribute the money to creditors. Exempt property includes a person's home, automobile, household furnishings, and any tools or equipment necessary to his livelihood (for example, a carpenter could keep his tools). The rules of exemption vary from state to state, so a debtor will have to check with local attorneys to learn about local practices. Bankruptcy laws state that once all those creditors have been paid something, the debts are discharged, and the debtor starts over with a clean slate. To start the procedure, the debtor files a petition with the court with a list of unsecured creditors and the amounts due them. Forms are available to handle the case personally, but it's usually wise to have an attorney handle the filing. The filer will be assessed fees for the petition with the court, plus attorney fees. The Trustee also receives a fee, but that comes out of the monies in the estate and not from the debtor directly. A Chapter 7 is usually discharged within six months.

Filing under Chapter 13 results in a reorganization, where the debtor presents to the court a plan for paying down his debts by making regular payments to the court over a three-to-five-year period. At the end of that time, all unsecured debt is discharged. This type is usually more satisfactory to creditors because they will receive a greater percentage of their bill. This won't change under the new bankruptcy laws. Both types result in freeing the debtor of unsecured debts, stopping foreclosures and repossessions and utility shut-offs. For their part, creditors must stop writing or calling the debtor about what is owed.

Current laws do not discriminate between people who earn a lot and those who earn a little. The new bankruptcy rules will change that provision. The court will require new guidelines to see if the debtor qualifies for bankruptcy. Under the new bankruptcy laws, anyone with income exceeding the cost of living index in their area will be required to pay monthly payments to creditors for up to five years to repay the debt. Bankruptcy will be more difficult to file, and because of the extra work involved, attorneys will charge more. The rules will hurt those who have a good income but have high payments on homes, rent, or car payments. Those existing payments will not be taken into consideration by the court when determining the amounts that must be paid to creditors each month. The court will apply the "means test." The end result may be that some debtors will sell their homes and/or cars and move to a less expensive area in order to afford the payments under the new bankruptcy rules.

Undoubtedly, more people will take advantage of Debt Settlement Programs to reduce debt for those who have good incomes but have trouble making monthly payments on credit cards, personal loans, medical bills, and other types of unsecured debt. Although the settlements on unsecured debts vary, a savings of 60 percent is common. Clients make payments to their own bank account while the debts are being negotiated. The fees for the program are taken out of the account each month until paid, but the funds to pay the creditors remains in the account until settlements have been negotiated. The new bankruptcy rules may have a hidden benefit. More people will opt for debt consolidation, home equity loans, and best of all, will learn how to be good stewards of their assets. Being a good steward of God's gifts is commanded in 1 Peter 4:10, "As every man hath received the gift, even so minister the same one to another, as good stewards of the manifold grace of God." As we follow God's command, we will learn to live abundantly without incurring lots of debt. This will make us a better witness to those around us and will give us financial freedom.

• Tweet
• Share
• Share
• Share
• Share