How New Chapter 7 Bankruptcy Laws Affect My Debt Releif Options

Chapter 7 bankruptcy laws, which also affect those filing chapter 13 makes it harder to eliminate their unsecured debts without repaying creditors the money their owned. Before the Bankruptcy Abs Prevention and Consumer Protection Act of 2005, people could choose between the two bankruptcy options (chapter 7 and 13) provided by the U.S. Bankruptcy Court. In others words, if people wants to file chapter 7 they could. However, the chapter bankruptcy laws changed which altered people’s debt relief options.

Chapter 7 Expunges Debts

The chapter 7 bankruptcy laws have changed the benefits of filing chapter 7 bankruptcy. Thus, individuals are still allowed to discharge or get rid of their unsecured debts. These debts include judgments from lawsuits, personal or payday loans, medical bills and credit card debt. Also, creditors are prohibited from pursuing wage garnishments and lawsuits while the bankruptcy cases are going on.

People Who Have Enough Money to Repay Creditors Can’t Choose Chapter 7

One of the new bankruptcy rules restricts individuals from choosing the type of bankruptcy which was best for them. Instead the U.S. Bankruptcy Court makes people to undergo a means test. This means test simply requires people to look at their household size and their income—after all their monthly bills are paid—then compare their income to their state’s median income (according to household size). When people’s income falls below their state’s median income they qualify and can file chapter 7. However, if their income is above the state’s median income they have to choose and pursue chapter 13—even if they don’t want to.

Chapter 13 Repays Debts over Time

Unlike chapter 7 which takes approximately six months to complete chapter 13 takes longer. Under a repayment plan approved by the U.S. Bankruptcy Court, individuals must provide monthly payments to the bankruptcy trustee. The trustee gives the money to creditors. Individuals are usually required to make consecutive monthly payments for 36 to 60 months. The amount of the monthly payments depends on how much debt they have to repay.

Consult a Bankruptcy Lawyer about the New Bankruptcy Laws

There many changes to the bankruptcy laws which involve when people can file bankruptcy and what they must do. Thus, a bankruptcy lawyer will explain the changes such as obtaining credit counseling and make sure everything is complete before filing for chapter 7 or 13.