The new bankruptcy law took effect on October 17, 2005. These are some of the questions clients have asked us along with our responses:
Will the new bankruptcy law prevent people from filing bankruptcy?
No. For 90 to 95% of our clients, they will still be able to file Chapter 7 and eliminate their debts, or if they want, they will be able to file a Chapter 13 Plan and pay a little bit back. The new law — The Bankruptcy Abuse Prevention and Consumer Protection Act will be less efficient and more complicated than the prior law, but most people will not be impacted by the majority of the provisions.
I make $25,000 per year, and we have $20,000 in credit card debt. I cannot get caught up, and my wages are being garnished. Will bankruptcy help me?
You qualify for a Chapter 7 or a Chapter 13. Either Chapter will help you deal with your creditors.
My wife has a pile of medical bills – will bankruptcy help?
Chapter 7 or Chapter 13 will wipe out medical bills. We would need to review your income and the value of your assets to determine what the best option for your family might be.
I only earn $28,000 per year, and I have $32,000 in credit card debt. What should I do?
Your income is under the New York State median income. You probably could file either a Chapter 7 or 13. We would need to review the value of your assets and then give you advice.
I heard that if I earn over the median income, I may have to file a Chapter 13. Is this correct?
If you earn over the median income, that does not mean that you must automatically file a Chapter 13. For clients who earn over the median income, we must work through a budget with some pre-determined allowances, deduct secured debt payments and some actual expenses, and see if we have over $166 per month or whether the surplus allows a 25% dividend to unsecured creditors. The majority of people who are over the median income may still be able to file Chapter 7 if they choose to do so.
What is the median income in New York State?
In NYS, the median income for one person is $46,523; for two people, it is $57,000, three $67,991, four $83,006, and $89,906 for five people.
I heard that I must use current monthly income (CMI) when working up my budget for bankruptcy. What is CMI?
CMI will be based on your income over the past 6 months. We will look to see what the past 6 months earnings have been and divide by 6. Your current actual income may be different than the CMI as certain income, such as Social Security is excluded from CMI.
How does Credit Counseling work?
In order to file bankruptcy, you must attend a credit briefing from an agency such as Consumer Credit Counseling. This briefing must take place within 180 days before you file bankruptcy.
Then after you file there is a short credit class that you must also attend. The two credit counseling components of the law are a requirement to file and get a discharge.
What changes have been made with respect to the forgiveness of credit card debt?
If you have purchased a luxury item valued at $500 within 90 days of filing, or have taken a cash advance of $750 or more within 70 days of filing, those debts are presumed not to be discharged.
I filed a Chapter 7 ten years ago. Can I file again?
Yes, you can file now. Debtors will not be able to file Chapter 7 for 8 years after filing Chapter 7. If they file a Chapter 13, they can’t file for Chapter 7 and get a discharge for 4 years. After filing a Chapter 13, they can’t file and get another Chapter 13 discharge for 2 years. All the time periods run from filing date to filing date.
How have the rules in Chapter 13 changed regarding payment to car loan creditors?
Chapter 13 clients will not be able to cram down on car loans as easily as in the past. If the debtor took out the car loan less than two and one half years ago, he/she cannot cram down on the car. That means that under Chapter 13, he/she would have to pay the full loan amount back in monthly payments.
If the loan was over 2.5 years old, then the debtor could cram down the loan and pay the Fair Market Value, which is often much less than the loan balance.
I am behind on my mortgage. What can I do?
You can take all the payments you have missed and file a Chapter 13. Chapter 13 will help clients who have delinquent mortgage payments to keep their homes.
What are the most important things you want someone to know about this new law?
Most people will not be affected by the changes. The results we will be able to obtain will be the same as what we have been able to attain in the past. In other words, we should be able to eliminate a great deal of debt. Each case we analyze will depend on the facts presented. Clients will also have to attend Credit Counseling classes.