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The
New Bankruptcy Laws of 2005
New,
harsher bankruptcy laws went into effect on October
17, 2005. Here is Free Information on the new
2005 bankruptcy laws and bankruptcy legislation.
Overview of the 2005 Bankruptcy Reform
People with above-average income, as determined by a standard
"means test," will be barred from filing for Chapter 7
protection, where debts may be wiped out entirely. Instead,
they will have to file more restrictive Chapter 13 bankruptcies,
which require a five-year repayment plan.
Filers also will be required to get professional credit
counseling with 180 days of filing.
More on the 2005 Bankruptcy Reform:
The major intent of bankruptcy reform is to require people,
who can afford to make some payments towards their debt,
to make these payments, while still affording them the
right to have the rest of their debt erased. These people
must file Chapter 13.
Status of the Bills:
The Senate passed the Bill on March 11, 2005 and the Congress
on April 14, 2005.
When will this be Law:
The bill was signed into law by the president on April
20, 2005.
Sections 308, 322 and 330, all concerning the homestead
exemption, take effect immediately.
This is law now:
The exemption is limited to $125,000 if the property was
acquired within the previous 1215 day (3.3 years). The
cap is not applicable to any interest transferred from
a debtor's previous principal residence (which was acquired
prior to the beginning of such 1215-day period)
The rest of the provisions of the law will come into effect
180 days after the Bill is signed or on October 17, 2005.
Major Changes:
Means Test:
This will identify debtors who have the financial capacity
to pay some money to their creditors. The test will work
as follows:
TEST # 1: Is the family earning above
the average income for their state?
- 1997 US average for a family of one = $18,762;
- 1997 US average for a family of two = $39,343;
- 1997 US average for a family of three = $47,115;
- 1997 US average for a family of four = $53,165.
If the answer is "No" Chapter 7 can be filed!
TEST # 2: If the answer is "Yes" to TEST
# 1 , do you have excess monthly income of more than $166.66/month
to pay $10,000 of debt over 5 years?
If the answer is "No" you must answer another question,
if "Yes" Chapter 7 cannot be filed but Chapter 13 may
be filed!
TEST # 3: If the answer is "No" to TEST
# 2 do you have excess income of greater than $100/month
to pay over the next 60 months at least 25% of your unsecured
debt?
If the answer is "No" you can file Chapter 7, if "Yes"
chapter 7 cannot be filed but Chapter 13 may be filed!
Proof of Income:
Debtors filing Chapter 7 or Chapter 13 bankruptcy, must
provide to the trustee, at least seven days prior to the
341 meeting (A 341 meeting is a meeting of creditors at
which the debtor is questioned under oath by creditors,
a trustee, examiner, or the United States trustee about
his/her financial affairs), a copy of a tax return or
transcript of a tax return, for the period for which the
return was most recently due.
State Exemptions:
You cannot use the exemptions in your state of residence
unless you have lived there at least 2 years.
Homesteads:
This goes into effect as soon as the bill is signed by
the president! The exemption is limited to $125,000 if
the property was acquired within the previous 1215 day
(3.3 years). The cap is not applicable to any interest
transferred from a debtor's previous principal residence
(which was acquired prior to the beginning of such 1215-day
period)
Counseling (also known as financial counseling,
debtor classes, or fiscal management)
You must have finished counseling within the last 6 months
before you can file. If you are interested in financial
counseling call TOLL FREE at (800)
452-3135 or fill in our short
form and a financial counselor will contact
you.
Child Support and Alimony:
These debts would go from a priority of 7th to 1st.
Tithing:
Up to 15% of your income can be given to charity. This
is seen by some as a loophole allowing people who may
be just over the thresh hold of having to file Chapter
13 to drop down low enough to file Chapter 7.
Bankruptcy, according to legal experts, is a condition
in which a business or individual cannot meet its debt
obligations and legally petitions for either reorganization
of its debts or liquidation of its assets. In the action
the property of a debtor is taken over by a receiver or
trustee in bankruptcy either voluntary or involuntary
for the benefit of the creditors.
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