Bankruptcy Law Provisions
Regardless of what chapter you decide to file, there are a number of new provisions of bankruptcy law:
- There is now an income verification means test attached to Chapter 7 Bankruptcy which must be passed before it is available for use. This test was meant to keep Chapter 7 from being abused by high income families. If your income is greater than the average for your state, you will have to file Chapter 13. There is also a test of your disposable income after certain allowed expense and required debts. If you have the ability to repay debt under this test, you will be required to file Chapter 13 rather than Chapter 7. Finally, there is a total debt limit beyond which you will not be allowed to file Chapter 7. This prevents people with very high debt levels from avoiding responsibility to pay.
- If you purchased a car within 2½ years of filing, you cannot have the lien discharged. That is, you must repay the full amount of the car loan.
- Filers are no longer able to shield their homes from bankruptcy filings by moving to a state that has a homestead provision, such as the state of Florida. If you have moved in last 730 days prior to filing, you must follow the homestead provisions of the state you lived in previously, not the state of your current residency. Further, you may only shield up to $125,000 of equity (with some exceptions) on a home you purchased within 1,215 days of filing, regardless of where you live.
- Filers are now required to take a financial management course 180 days before they can file.
- Any charges to credit cards within 3 months of filing must be paid.
- Any debts for 'luxury goods' (anything worth over $500 paid to a single creditor) within 3 months of filing must be paid.
- Qualified retirement vehicles, such as pensions, profit-sharing plans, and 401(k), 403(b), and 457 plans will be shielded from creditors regardless of amount. The maximum allowable amount is limited to $1 million for IRA's and Roth IRA's however.
Invoking bankruptcy protections can shield you from many types of debts, at the expense of ruining your public credit report for many years. However, there are types of debts that will still be due even if bankruptcy is declared. These debts include student loans, taxes, and child support payments. These debts cannot be discharged under any type of bankruptcy.
The above information provides just the briefest overview of bankruptcy law. Be sure to consult with an attorney and/or an accountant if you are considering your bankruptcy options.