The New Bankruptcy Law (Part 2)

The new bankruptcy law has added many new requirements for you and your attorney. These requirements are going to make filing more expensive and time consuming. This has resulted in a fee increase across the board. Filing fees, [etc, etc, etc] have all increased for all bankruptcy firms. The new law stipulates that attorneys must personally vouch for the accuracy of the information provided in your bankruptcy schedules. This will require an attorney to invest even more time personally reviewing your case. All of these factors mean that consumers will be paying more for their bankruptcies under the new law. Prior to the bankruptcy reform chapter 7 filers would value their property at garage sale or auction value. This allowed for used furniture, family heirlooms, old cars, and general household junk to be assigned a very low value. The low value of the property made it easy for the property to be exempted and therefore not subject to liquidation through your Trustee. Under the new law your property must be valued at the amount it would cost you to replace the property (in the same condition) from a retail outlet. This has resulted in asset values increases which allows for less property to be exempted and therefore more property for your Trustee to liquidate.The amount of assets you can exempt is first dependent upon which set of exemptions you wish to employ. Filers have the option to use state or federal exemptions. Both allow for varying dollar amounts for its asset categories to be exempted. For instance, if you have a substantial amount of equity in your home, then you might choose to use state exemptions in your case, since state exemptions generally have higher homestead exemptions than federal exemptions. The new law has changed the criteria for determining which state's exemption you are allowed to use. Prior to bankruptcy reform you simply had to live in the state whose exemptions you wished to use for the last six months. Under the new law you must have resided in the state whose exemptions you wish to use for 2 years. If you have not lived in that state for 2 years you are required to use the state's exemptions where you lived for the majority of the 180 days that preceded the 2 year window prior to filing. Exemptions can have a large impact on the amount property that you are not required to liquidate to pay your creditors. Chapter 13 filers could also find themselves with even less money under the new law. Prior to the law change a Chapter 13 filer was required to devote all of their disposable income (current income minus actual expenses) to their creditors. Under the reformed bankruptcy laws disposable income is now calculated using allowable expenses instead of actual expenses. Allowable expenses are predetermined amounts dictated by the IRS. If your expenses exceed these amounts set by the IRS, then you are defaulted to the IRS' amounts and could find yourself operating on an extremely tight budget. To further complicate the matter, the new law has also changed the income variable in the disposable income equation. Instead of using how much money you earned in the month prior to filing to determine chapter eligibility and a repayment scheme, the bankruptcy process now calls for a figure called current monthly income (CMI) to be used for such determinations. CMI is your average income for the six months prior to filing. They then subtract the IRS' set expenditure amounts and get your disposable income. The difficulty with this system is that bankruptcy is in most cases caused by sudden unforeseen events that in most cases decrease an individual's income (job loss, injury, divorce, etc.). Prior to this event the individual was, more than likely, financially sound. This leads to your CMI (average) being higher than what would accurately reflect your current income situation. In some cases filers can appear to have much more money than they actually do due to the averaging of their income. To be fair though, the opposite of this can be true as well. If you were to have a relatively low income for the six months prior to filing and then your income goes back up, you are still locked into the previous determinations (chapter eligibility and repayment scheme) already made at the time of filing and based on your lower income.Many of the issues spawned from the new bankruptcy law are technical and complicated, which is why it is so important to speak with an experienced bankruptcy attorney. Finding the right attorney can save you thousands of dollars, reduce your stress, and save you unnecessary heartache.

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