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The New Bankruptcy Law: What You Need To Know
By Larry Holmes
The new bankruptcy law went into effect on Monday, October 17, 2005.
And the events of the previous weekend were object lessons in human
behavior as it applies to financial matters.
There were reports
throughout the country that people were standing in lines for blocks
waiting to get into courthouses to file Chapter 7 bankruptcy, which
means they can wipe out their debts and start over. Now most people will
have to file Chapter 13, which means they will have to pay their debts
over time.
The demand to file Chapter 7 before the deadline was so great
that the courts had to hand out bakery numbers and vacant rooms were
opened to accommodate debtors. There was a report that one man bought
a first-class airline ticket to meet with his advisor to file Chapter
7 bankruptcy. Is there any doubt that the ticket was bought with a credit
card?
Here are the key changes that come with the new bankruptcy law...
There is something called a "Means Test." The means test calculates your
monthly income less certain allowable expenses like food and housing. If your
resulting income is less than the median income for your state, you may be able
to file Chapter 7. If not, you will have to file Chapter 13.
There are expense allowances that are set by the IRS.
They're pretty tough. The IRS allows a food allowance of about $200 a month
and a housing allowance of about $800 a month. If your actual expenses for
food and housing are more than that, too bad.
Some states -- like Texas -- have an unlimited homestead exemption,
which allows you to protect your home from creditors. The new law prevents
you from filing in a state that is more favorable to debtors unless you've
lived there for at least two years.
Filers must go through mandatory credit counseling within six months
of filing a bankruptcy petition.
There is more paperwork involved, so you it will cost you more to file.
Under the old law, a consumer might have paid between $1,500 and $3,500 to file.
Because of the increased paperwork, the new fees will probably be considerably more.
If you purchased luxury items or received a cash advance of more than $500
within 60 days of filing, you will not be able to include them in your bankruptcy
filing. They will have to be repaid.
So under the new bankruptcy law there will be a lot fewer Chapter 7 and a
lot more Chapter 13 filings. With a Chapter 13 bankruptcy, you're put on a
repayment plan. Under Chapter 13, you get to keep most of what you own and
you will be under a plan to repay your creditors over three to five years.
Your bankruptcy isn't complete until you pay off all of your creditors according to your plan.
Your best bet? Get out of debt and stay debt-free. When you're in debt you
have money working against you instead of for you. And that's exactly the opposite
of what you want if you want to achieve financial freedom.
About the Author
Larry Holmes invites you to visit http://www.Money-Management-Wisdom.com/. You will learn how to become debt-free, save and invest money, cut taxes, manage risk, and achieve financial freedom in a much shorter time than you dreamed possible.
Article Source: http://EzineArticles.com/?expert=Larry_Holmes
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