The following changes are not intended to be inclusive but to describe some of the more significant changes consumers should understand before considering bankruptcy under the new law.
1. Means Test
If the debtor’s income, less allowable living expense amounts determined by the IRS, is greater than indicated on the means test for his or her state, the debtor will be required to fulfill a five-year Chapter 13 repayment plan instead of being able to file for Chapter 7. This can only be overruled if the individual can show “special circumstances that justify additional expenses or adjustments of current monthly income.”
2. Duration
If the Chapter 13 debtor’s income is greater than the means test for his or her state, the repayment plan must be for five years. On the anniversary date of the repayment plan, the debtor must file a new statement of income and expenses.
3. Mandatory Credit Counseling
Individuals cannot qualify for bankruptcy unless, within 180 days of filing, they receive credit counseling from a nonprofit, approved agency. This counseling must include a budget analysis. The individual must then file a certificate from the credit counseling agency certifying the services have been provided and showing any debt repayment plan that was developed.
4. Mandatory Financial Education
The debtor must complete approved personal financial management education before any debts can be discharged. If the debtor fails to get this education, discharge of the debts can be denied.
5. Automobiles
Chapter 13 plans allow a secured creditor to retain the lien on an automobile until the entire debt is paid if the vehicle was purchased within 910 days of filing.
6. Debts to be Discharged
Debts totaling more than $500 owed to a single creditor for luxury items that were acquired within 90 days of filing are presumed nondischargeable; cash advances of $750 or more taken within 70 days of filing are also presumed nondischargeable.
7. Time between Chapter 7 Filings
Chapter 7 debtors cannot receive a second discharge of debts if a prior discharge of debts was given within eight years or less of the new filing. (Previously, this was six years.)
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8. Filing of Required Documents
The new law requires an individual to submit a number of documents to verify qualification for the bankruptcy filing. If these documents are not submitted within the given time frame, the filing will be dismissed. The documents to be filed include:
• List of creditors
• Schedules of assets and liabilities
• Declaration of income and expenses
• Certificate of credit counseling
• Evidence of all paid employment for 60 days before filing
• Evidence of monthly net income and any anticipated income increase
• Tax returns for the most recent tax year and previous years as required
• Photo ID
9. Attorney Inquiry
Attorneys hired by debtors must make their own inquiry to verify that the information provided by the debtor is correct. The attorney’s signature on the petition indicates this inquiry has been made.
10. Student Loans
The nondischargeability of student loans is now extended to include for-profit and nongovernmental lenders.
For more information about the new bankruptcy law, visit www.ftc.gov or meet with your FFEF credit counselor. Call toll free (877) 789-4174, or visit www.ffef.org.