Financial Resource

In 2005, after nearly 25 years of neglect, broad changes were made to the US Bankruptcy Code in order to answer allegations by creditor organizations that the bankruptcy system was being abused and creating large losses in profit. As a result, new reforms were developed and passed that made filing for bankruptcy much harder, exempted some debts from discharge and demanded that filers be educated on credit management, among other changes. The changes affected attorneys as well, increasing the amount of time attorneys had to put into preparing bankruptcy petitions and thereby raising the cost to the already cash strapped consumer.

Before proceeding with a decision to file a bankruptcy petition with a Fort Wayne bankruptcy lawyer, educate yourself on these new changes and how they affect you:

Mandatory credit counseling – As part of the reforms, bankruptcy applicants, before filing, must undergo mandatory credit counseling with a government approved counseling service before they are allowed to file bankruptcy. A list of approved services can be obtained from the US Trustee Program or from any Fort Wayne bankruptcy lawyer’s office.

The “Means Test” – Bankruptcy applicants, who wish to file for Chapter 7, or absolute bankruptcy, have to pass a “means test” first. If the applicant’s net yearly income falls below the median income for their state, then they are eligible to file for Chapter 7 relief. However, if their monthly income is above the state median and they are able to pay 0 per months to their debtors, then they are entitled to file Chapter 13, or the “wage earner’s plan”, in which a portion or all of their debts are to be repaid to their creditors over time. This ability to pay 0 per month is calculated based on a formula that includes monthly income, monthly expenses and amount of debt.

Proof of income and tax returns required – Under the new laws, bankruptcy filers must now provide proof of income by providing their tax return for the past year. If the filers have unpaid taxes, they must first pay these taxes before they can file for bankruptcy.

Mandatory financial management education – After a bankruptcy has been approved, but before any debt can be discharged, the filer must complete training in financial management education from a government- approved financial management educator or program. A list of these programs is available from the US Trustee Program or from any Fort Wayne bankruptcy lawyer’s office.

Greater priority for child supports and alimony – Bankruptcy filings group a filer’s creditors in specific order to receive any funds collected. Under the new laws, people who are owned child support or alimony receive higher priority on that list.

Tougher on the lawyers – and more expensive – Part of the new reforms require Fort Wayne bankruptcy attorneys to personally voucher for the validity of all information submitted for their clients. This requires the attorneys to spend more time and effort of each case and consequentially, makes the fees for such services higher. Unfortunately, in some cases, this also makes it harder to find an attorney willing to handle bankruptcies.

Less “automatic stays” – Historically, filing bankruptcy gave the filer certain immediate protections from creditors and other actions such as debt collections and lawsuits. Termed “stays” in legal terms, these advantages have changed under the new laws. Immediate protection from evictions, driver’s license revocations, legal measures for child support and divorce no longer apply.

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