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Tougher Bankruptcy Laws Take Effect October 2005
By James Dimmitt, Fri Dec 9th
In just a few short weeks, President Bush’s AbusePrevention and Consumer Protection Act will take effect. In anutshell, the new law, which goes into effect on October 17,2005, makes it more difficult to cancel your debts under Chapter7 protection. Instead, consumers will find themselveshaving to file for Chapter 13 protection and payingback their creditors over a five year period. Here’s a look into some of the major changes that will affectconsumers choosing to file for after the new law goesinto effect - Qualifying - Chapter 7 or Chapter 13?
To be able to qualify for protection under Chapter 7 bankruptcy,consumers will have to face a means test. The means testdetermines if your household falls above or below the medianincome in the state where you reside. Those whose total isgreater than the state median income will not qualify to canceldebts under Chapter 7 protection and will alternately have tofile under Chapter 13 and pay back your creditors. The major intent of reform is to require people, whocan afford to make some payments towards their debt, to makethese payments, while still affording them the right to have therest of their debt erased. The amount you have to pay back under Chapter 13 protection willbe greater because instead of a 3-year pay back period, thattime frame is now extended to five years - to ensure yourcreditors get paid. Credit Counseling Anyone filing for under the new law will be requiredto go through mandatory credit counseling. Be careful beforechoosing a credit counselor as this field is filled with peoplelooking to line their pockets while emptying yours. To find a trustworthy counselor, check
to see if there are anycomplaints against them or their organization filed with yourlocal Better Business Bureau. Secondly, find out if they arecertified by the National Foundation of Credit Counselors or theAssociation of Independent Consumer Credit Counseling Agencies.Finally, find out if they have not-for-profit status. PersonallyI recommend Consumer Credit Counseling Services as they meet allthree of the above criteria. They can be reached at1-800-888-2227 and can connect you with a local office. The Cost Factor Filing for Chapter 7 protection under the old laws normally costunder $1,000. You should expect to pay more under the new lawsas filing fees have been increased by $60. Additionally, yourattorney will be required to double check all your financialinformation which will take more of his or her time. Also thereis greater liability imposed on the lawyer which may cause theirliability insurance to increase, which gets passed on to theirclients in the form of higher fees. Under the new law, many areexpecting fees to increase between 25-50%. Why Were the Laws Changed? The bottom line is that major commercial creditors lobbied hardfor reform. Companies like CitiBank, MBNA, and other credit cardissuers actively contributed proposed amendments along withgenerous financial support to reforming the laws -and in their favor, according to many consumer protection groups. © 2005, http://www.yourfreecreditreportnow.com About the author:James is editor of "TO YOUR CREDIT", a free weekly newsletterwith tips to help you manage your personal finances. Subscribetoday and receive his ebook “IDENTITY THEFT- How To AvoidBecoming the Next Victim!” and other free bonuses by visiting http://www.yourfreecreditreportnow.com.
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