Overview of the changes to the Law:
The Act has a number of provisions that will dramatically limit the right of many individuals to file for bankruptcy. The Act's most significant anti-debtor provisions include:
A strict financial means test that will prohibit many debtors from filing a liquidation bankruptcy under Chapter 7;
A requirement that all debtors must receive a briefing from an approved credit counseling agency at least six months before they can file their bankruptcy case;
A requirement that debtors take an approved class on debt management techniques before they receive their bankruptcy discharge;
A provision making it easier for a court to dismiss a bankruptcy case outright or to convert a Chapter 7 case to a Chapter 13 case; and
A provision permitting a court to impose sanctions on attorneys, or even on debtors, for filing a Chapter 7 case that is dismissed or converted to a Chapter 13 case.
The means test will exclude many debtors from the protections of Chapter 7
The centerpiece of the Act is the new "means test." Essentially, the means test provides that if your income is above a specified level, then you are not permitted to file your bankruptcy case under Chapter 7 and must instead use Chapter 13, which requires that you enter into a repayment plan rather than simply liquidating your debts.
The means test is extremely complicated, and simply calculating it will add a new layer of costs to the typical bankruptcy case. But even more ominous is the fact, under the means test, many consumers will no longer be permitted to get a fresh start under Chapter 7. Under the new test, the court will first determine whether, after the deduction of certain essential living expenses from your income, you can afford to pay 25 percent of your non-priority unsecured debt-such as credit cards. Next, your income will be compared to your state's median income. You won't be allowed to file for Chapter 7 if your income is above your state's median income and you can afford to pay 25 percent of your unsecured debt. Even if your median income is below the state's median, but you can pay 25 percent of your unsecured debt, the court can require you to file under Chapter 13 if it believes that you would abuse the system by filing for a Chapter 7.
This means test is even more anti-debtor than it first appears because, in determining your income and what you can afford to pay, the court does not look at your actual expenses, but instead will determine your expenses based on living standards established by the IRS. Thus, in many cases, the expenses that court will apply to your case may be much lower than your actual expenses, thus making you appear to be able to afford a Chapter 13 repayment plan, when in fact you cannot.
Under this means test, if the court determines that your income is sufficient to pay off your debts, then the court will presume that your Chapter 7 case is abusive, and it will then have the option to convert your case to a Chapter 13, or even to dismiss it outright.
The Act makes it much easier for the court to convert or dismiss a Chapter 7 case
Under the Act, it will be much easier to dismiss your bankruptcy case or to convert a Chapter 7 case to a Chapter 13 case. Under current law, a court may not convert a Chapter 7 case to a Chapter 13 case unless the debtor requests a conversion. Under the Act, the debtor no longer has to request a conversion; he or she can simply consent to a conversion. Furthermore, any party in interest (in other words, one of your creditors) can now move to dismiss a case. Under existing law, creditors are not permitted to seek a dismissal of your case.
The Act's education requirement imposes new hurdles on debtors
The Act has two new education requirements that debtors must pass before they are permitted to emerge from bankruptcy. First, the debtor is precluded from filing a bankruptcy case unless the debtor has received a "briefing" from an approved nonprofit budget and credit counseling service. Second, the Act conditions a Chapter 7 or Chapter 13 discharge upon the debtor's completion of an approved instructional course concerning personal financial management. Furthermore, the debtor is required to pay for this education.
Attorneys and even debtors may be liable for sanctions for a dismissed or converted bankruptcy case
Another chilling effect of the Act is its provisions for sanctions. Under the Act, the court may order the debtor's attorney and even the debtor to pay sanctions to the bankruptcy trustee to reimburse the trustee for all reasonable costs, including attorneys' fees, for the trustee's motion to convert or dismiss a Chapter 7 case if the court grants the motion. In other words, if you file a case under Chapter 7, and it is dismissed, not only will you not be eligible for bankruptcy, you or your attorneys may even have to pay a significant amount of expenses and attorneys' fees.
The changes go into effect Oct. 17! IMPORTANT NOTICE: The Law Office of Patricia Geringer will no longer accept new bankruptcy clients under the old regulations after October 13th
The act will go into effect on Oct. 17 and as a result, millions of consumers who would otherwise be eligible for a fresh start under Chapter 7 may be forced to file a Chapter 13, or even be totally dismissed out of court. At a minimum, the fees that most bankruptcy attorneys typically charge for cases will likely increase, as the cases will become more complicated and the possibility of sanctions will increase. Furthermore, the Act's education requirement will slow down the bankruptcy process for most consumers, increase the cost of bankruptcy, and put many consumers in the hands of the so-called non-profit debt counseling industry-an industry that doesn't necessarily have the best interests of debtors in mind.
As a result of this coming change in the law, individuals who are considering bankruptcy should strongly think about doing so immediately. If you are a resident of Omaha - or Eastern Nebraska, don't hesitate to call us immediately at 402-734-0635 toll free at 1 (866) 734-1911, or use our free online case evaluation form to schedule a no obligation consultation with one of our attorneys. Whatever you do, don't delay; time is of the essence.
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