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Debt Free Associates is a member of (TASC) The Association of Settlement Companies. This trade association has developed a standardized industry disclosure for consumers.

The Help You Need — The Answers You Need to Bankruptcy Questions

At Debt Free Associates, our debt settlement services help our clients through direct negotiation with creditors. If you are struggling with debt, bankruptcy is not your only option. If you have questions about your financial future, the financial professionals at Debt Free Associates have the knowledge, experience, and dedication required to help you.

To have all your bankruptcy questions answered, and to learn how we can help, contact Debt Free Associates today.

• The New Bankruptcy Law
  • Property Must Be Valued at Replacement Cost
  • Restricted Eligibility for Chapter 7
  • How High Is Your Income?
  • The Means Test
  • Requirements Eased for Hurricane Victims
• Bankruptcy Lawyers May Be Harder to Find — And More Expensive
• State Exemptions are Not Available to Recent State Residents

The New Bankruptcy Law

The old bankruptcy rules required those who filed under Chapter 13 to devote the entirety of their disposable income — that is all funds remaining after paying their living expenses — into their bankruptcy repayment plan. The new law still requires that all disposable income be paid into a plan. However, disposable income now must be calculated using allowed expense amounts that are dictated by the IRS, instead of actual expenses. If a person's income is greater than the median income in their state, their actual cost of living could be higher than that which is calculated as part of their bankruptcy. This can compound the financial difficulties of those already facing bankruptcy. Under the old rules, many of these individuals chose to file bankruptcy under Chapter 7. However, the new law includes restrictions on Chapter 7 eligibility (below).

Chapter 13 filers also must calculate living expenses not from actual earnings, but from their average income in the six months prior to filing for bankruptcy. If income levels during that period differ from current levels, the filer can be put under significant financial distress. Unfortunately, these issues mean that more Chapter 13 plans can fail. This is why our staff works to help clients through debt negotiation with creditors. If you have any questions about this new bankruptcy law, we will be happy to help.

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Property Must Be Valued at Replacement Cost

It used to be that Chapter 7 bankruptcy filers could calculate the value of their home should it be sold in a "fire sale" (that is, extremely discounted), or at auction. This meant that many of the personal items a bankruptcy filer might want to keep — items that could include used furniture, cars, heirlooms, and hobby items, to name a few — are assumed to have little value. Because these items were not considered to be of any significant value under the old law, they could be added under the "exempt property" category that is offered by most states. If property is exempt, it cannot be collected by creditors.

Unfortunately, bankruptcy filers must now value this formerly exempt property at the cost it would be to replace through a retail vendor, with age and condition of the property taken into account. Because this is sure to raise the property value, more of those who file for bankruptcy stand to have their property sold by the trustee.

Restricted Eligibility for Chapter 7

Old bankruptcy rules allowed most filers to choose the type of bankruptcy that suited them best. Many found Chapter 7 bankruptcy to be more advantageous than Chapter 13. The new law, unfortunately, prohibits many filers with higher incomes from filing bankruptcy under Chapter 7.

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How High Is Your Income?

The new bankruptcy law requires filers to calculate their current monthly income in order to determine eligibility for Chapter 7 bankruptcy, as opposed to Chapter 13. This aspect of the new bankruptcy law has raised a number of serious questions and concerns among filers, however. Many times, this current monthly amount is calculated at a rate much higher than an individual's actual monthly income. Monthly income levels are now calculated by averaging monthly income amounts during the six month period prior to filing for bankruptcy. For those who have recently lost a job, or who are now making less money than they did just prior to filing, this can be devastating.

Once you've calculated your current income, compare it to the median income for your state. If your average income is less than or equal to the median for your state, you can file for Chapter 7 bankruptcy. However, if your income is greater than the median income for your state, the new law requires that the "means test" be taken. This test is used to determine if a filer can be expected to have enough available funds to make minimum payments to creditors as part of Chapter 13 bankruptcy. If this determination is made, an individual will be unable to file bankruptcy under Chapter 7.

If you are facing bankruptcy, have questions about how this new law may affect you, and would like to explore alternatives to help you, contact Debt Free Associates today for a free consultation.

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The Means Test

The means test is used to determine if a bankruptcy filer has enough disposable income to make Chapter 13 bankruptcy payments, after subtracting for allowed expenses and debt payments. If the filer does not meet the means test, they are allowed to file for Chapter 7 bankruptcy.

For the means test to determine if you would file for Chapter 13 bankruptcy instead of Chapter 7 you would first take your average monthly income over the past six months and subtract the following items:

• Allowed expenses in amounts set by the IRS. Unfortunately, many bankruptcy filers are unable to subtract the amount that is actually spent on these allowed expenses, which includes transportation, food, clothing, and other necessary items. Instead, limits are imposed by the IRS that may be lower than actual cost of living expenses, causing further financial hardship.

• Monthly payment made toward secured and priority debts. A secured debt allows the lender to seize property if payment is not received. This is frequently the case with mortgage and car loans. Priority debts can include child support, alimony, tax debts, and wages that are owed to employees. The government places a higher priority on these obligations than it does others.

If your total monthly disposable income is less than $100 after subtracting these items, you can file for Chapter 7 bankruptcy. If your monthly disposable income is found to be above $166.66, you are prohibited from filing for Chapter 7 bankruptcy. If your disposable income falls in the middle of these two figures, further calculations are needed. In this case, it must be determined if the disposable income amount is enough to pay 25 percent of  unsecured, non priority debts — which includes credit card bills, medical bills, and student loans, among others — over a five year period. If 25 percent of these debts can be paid, Chapter 7 bankruptcy will not be available. If 25 percent of these debts cannot be paid, Chapter 7 remains an option. Regardless of your circumstances, speaking with a professional at Debt Free Associates will help you determine if there are other options available to you. If you are potentially facing bankruptcy, and have questions about alternatives, you have come to the right place.

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Requirements Eased for Hurricane Victims

The United States Trustee's office has announced special enforcement guidelines for those affected by natural disasters. These guidelines where originally set up to help those whose lives had been affected by hurricanes Katrina and Rita. Subsequently, the impact of the new bankruptcy law has been lessened for filers who have been affected by these, and other, disasters. Many individuals affected by natural disasters have not only been displaced from their homes, but may not be able to obtain personal financial papers that are important in a bankruptcy filing.

The following changes have been implemented by the Trustee's office for natural disaster victims:

• Credit Counseling will not be required
• Those who cannot provide documents because of natural disasters will not face enforcement actions
• Trustees are to consider a natural disaster as a "special circumstance" which may allow an individual who does not pass the means test to nevertheless qualify for Chapter 7 bankruptcy
• Alternative means for debtors to attend creditors' meetings will be provided, if necessary

If you have been affected by a natural disaster, are potentially facing bankruptcy, and have questions you would like to ask a financial professional, simply contact Debt Free Associates today. We focus on helping our clients. Our debt settlement services help negotiate debts and develop a repayment plan.

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Bankruptcy Lawyers May Be Harder to Find — and More Expensive

Obviously, these new laws add some complicated requirements to the field of bankruptcy. This, unfortunately, makes it more expensive and time consuming for lawyers to represent bankruptcy clients. This, in turn, results in increased attorney fees.

Additionally, the new law requires that lawyers personally vouch for the accuracy of information clients provide them. Attorneys, therefore, will spend even more time researching cases to be sure this information is accurate. Of course, their clients will be charged accordingly. 

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State Exemptions Are Not Available to Recent State Residents

The old bankruptcy laws allowed those who filed Chapter 7 bankruptcy to keep property that was exempt under state law if they lived in that state for three months or more. The new law, however, requires a person to live in a state for at least two years in order to take advantage of that state's exception laws. If a person has lived in a state for less than two years, they must use the exemption laws in the state where they previously lived. Similar rules apply to homestead laws, which determine how much equity can be kept in a home when filing for Chapter 7 bankruptcy. To use a state's homestead exemption law, a person must live there for 40 months.

These exemption amounts vary widely from state-to-state and, in certain circumstances, can result in considerable frustration for those filing Chapter 7 bankruptcy. For example, a person who moves from California to Nevada within this two year period who has a valuable car might want to wait to file under Chapter 7. This is because a person who has lived in Nevada for at least two years can claim a $15,000 exemption for the motor vehicle, allowing them to keep this equity. Under California law, the exemption would be only $2,300.

Regardless of your circumstances, however, there are many times alternatives to bankruptcy; alternatives that should be fully explored before filing. If you are considering bankruptcy, and have questions about alternatives, we can help. At Debt Free Associates, we negotiate our clients' debts to help them live a more fulfilling life.

Get Answers to Your Bankruptcy Questions and Receive Help

If you would like to learn more, or have questions about the new bankruptcy law, we can help. Using our debt settlement services, we can help clients through the establishment of a reasonable payment plan and negotiation with creditors. For a consultation with no commitment required, contact Debt Free Associates today. Our financial professionals will be happy to assist you.

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