New Bankruptcy Law "is an attempt to" Explained in Plain English

With the new bankruptcy law is valid from October 17, 2005, there are a lot of confusion, according to a new "means test" requirement. This test is used to the courts to determine eligibility for Chapter 7 or Chapter 13 bankruptcy. This article aims to explain in simple language how this test works, so that users can better understand how they will be affected by new rules. When most people think of bankruptcy, they think according to Chapter 7, where unsecured debt is usually discharged in full. Bankruptcy of any variety is a difficult challenge at best, but at least with a Chapter 7 debtor could destroy their debts in full and get a fresh start. Chapter 13, however, is another story, because the borrower has to repay a large part of the debt within 3-5 years with 5 years under the new law standard. Before the advent of "bankruptcy abuse prevention and Consumer Protection Act of 2005," The most common reason for someone to file Chapter 13 was intended to avoid the capital of his home or other property loss. And while the property continues to be a big reason for people to choose Chapter 13 over Chapter 7, the new rules will force many people file Chapter 13 even if they do not own. That's because the test will be taken into account in the debtor's income level. To take measures in the test, courts look to the debtor's average income for the six months prior to filing and compare it with the average income in that country. For example, the average annual income per wage earner in California is $ 42.012. If income is below the middle, then Chapter 7 remains open as an option. If income exceeds the median, the remaining parts of this test comes into play. This is where it gets a little complicated. The next step in the calculation takes income less living expenses (except for payments of debts included in bankruptcy), and multiplies that number 60 times. That means income for 5 years to repay the debt liabilities. If the income is debt repayment over that 5 year period is $ 10,000 or more, then Chapter 13 will be required. In other words, who earn above the state median, but not less than $ 166.67 per month in revenue, will automatically be denied Chapter 7. For example, if the court finds that you have a monthly income of $ 200 above the cost of living, $ 200 times 60 is $ 12,000. Since $ 12,000 is above $ 10,000, you are stuck with Chapter 13. What happens if you are above average income, but not at $ 166.67 per month to pay towards your debts? Then the final part of this test is applied. If the available income is less than $ 100 a month, then Chapter 7 again becomes a choice. If the available income is between $ 100 and $ 166.66, then it is measured against a percentage of the debt, while 25% is standard. In other words, let's say your income is above the median, your debt is $ 50,000, and you only have available a monthly income of $ 125. We take $ 125 times 60 months (5 years), which is equal to $ 7,500 in total. From $ 7,500 is less than 25% of its $ 50,000 debt, Chapter 7 is still possible option for you. If your debt was only $ 25,000, then your $ 7,500 of available income exceeds 25% of your debt and you will be required to file Section 13. In summary, first find out whether you are above or below the median income for their state - the average income data are available.Be sure your spouse's income if you are a two income family. Continue to deduct your average monthly living expenses from your monthly income and multiply by the 60th If the result is greater than $ 10,000, you are stuck with Chapter 13. If the score is below $ 6,000, you may still be able to file Section 7. If the score is between $ 6,000 and $ 10,000, compared to 25% of your debt. More than 25%, see Chapter 13 for sure. Now, these examples, I will ignore a very important aspect of the new bankruptcy law. As indicated above, the monthly income available to the repayment amount is determined by deducting living expenses from their income. However, these figures are used for living expenses of the court, not your actual documented living expenses, and the graphics used in the IRS tax collection. A big problem here is that the majority of consumers that their household budgets will not reflect the harsh reality of the IRS approved numbers. So, even if you think you are "safe" and can file the Chapter 7, because you do not have $ 100 a month to spare, the court may decide otherwise and still force you into Chapter 13. Some of your actual costs may be excluded. What remains to be seen how the courts handle cases where a mortgage or home rental prices are inflated well above the government schedules. Whether the debtor is expected to move into cheaper housing to meet the required schedule of court costs of living? Nobody has any answers to these questions yet. It will be up to the courts interpret the new law in practice, as the case of a system.