Nathan Horowitz, Esq

 

CHANGES IN THE LAW

Major changes affecting an individual's rights and choices under the Bankruptcy Code became effective on October 17, 2005. These changes create various obstacles, and increases the cost to file either a Chapter 7 or Chapter 13 bankruptcy. The impact on Chapter 7 is more significant than on Chapter 13. Before being able to file any bankruptcy, a person with mostly consumer debt must obtain a certificate from a not for profit credit counseling agency that they had received a briefing on credit counseling options. The credit counseling agency may also do a budget analysis to see if you can propose a meaningful payment plan to creditors. After the case is filed, and before it is completed, an individual must also take a course in financial management and obtain a certificate of satisfactory completion. 

More importantly, an individual must pass a "means test" in order to qualify for Chapter 7 relief. Income is averaged over 6 months, and if greater than a State-wide median, certain deductions are allowed for expenses as set forth in the law; and if the net income left, after these deductions, reaches a minimum set forth in the law, a Chapter 7 can NOT be filed. in such a case, unless you could prove a good reason for allowance of other expenses, the only option would be a Chapter 13 payment plan. The time necessary to do this financial analysis and investigate whether additional expenses would be allowable, will take much more legal time and legal fees will have to go up accordingly. It may very well make more sense, economically and emotionally, to simply file a Chapter 13 and pay a small part of the debt back over the 5-year payment period.

The good news is that studies since 2005 show that most people are passing the means test and qualifying for Chapter 7.