The New Bankruptcy Law

On October 17, 2005 the new bankruptcy law went into effect. The purpose of this article is to briefly explain the bankruptcy procedure as it now exists. This article only highlights the more important changes.

The good news is that Bankruptcy still remains a powerful tool for those with financial problems and can provide a fresh financial start. Also, due to a change in New York State law that took effect on August 31, 2005, if you live in New York, you can now protect up to $50,000 in equity, or for a married couple up to $100,000 in equity for a house, condo or coop that you reside in. However, with the new law, bankruptcy is now much more complicated and fewer people will benefit by it.

Chapter 7 is the type of bankruptcy which eliminates most of your debts, however there are additional things that you must do to comply with the new law. Also, under the new law, if you earn more that a certain amount of money, you will not be able to file under Chapter 7 and instead need to consider filing under Chapter 13, which is a repayment plan of some or all of your debt over a 3 to 5 year period.

Currently, all persons filing for bankruptcy must complete both mandatory credit counseling and an education course. The credit counseling and educational course can only be given by a court approved organization. The credit counseling must be taken no more than 180 days prior to the filing of the bankruptcy petition. Click here to find an approved agency that provides credit counseling.

In order to qualify for a Chapter 7 Bankruptcy you must pass the “Means Test”, that is your income must not be above a certain level. To take this test, first you add your income from the 6 pass complete months.

Once you have determined the six month period, you take all sources of income, not only for yourself, but also for other members of your household and add them together. Certain types of income, such as social security, unemployment compensation or welfare, are not to be included in your calculation. You then take your total income and divide it by 6. Finally, you take your monthly amount and multiply it by 12 to obtain the yearly amount.

Once you have your yearly income as described above you compare that to the median income for your state. These figures will be updated at the beginning of every year. For the year 2008 the amounts in New York are as follows: A family of 1 is $43,352, family of 2 is $52,891, family of 3 is $63,882, and a family of 4 is $75,513. For households larger than four $6,900 is added for each additional family member. Click here to learn the current median income for your state. Click here to learn the current median income for your state.

If your income is above the allowed limits you may still be able to file a Chapter 7 Bankruptcy. To quality for a Chapter 7 Bankruptcy you would need to show that you are able to pay the lesser of the following: $10,000 over a 60 month period, $100 per month, or 25 percent of your debt-which must be at least $6,000.

In calculating whether you can pay the above mentioned amounts, your actual expenses are not used. Instead, expenses mandated by the law in your county are used. For example instead of using your actual rent and utilities paid, the allowed amount in Brooklyn would be as follows: One or two person household is $492, three person household is $579 and four person household is $665.
Click here to find out the allowed rental or mortgage payment and utility for your county in New York.
Click here to find out the allowed living expenses (other than housing).

If you don’t qualify for Chapter 7 Bankruptcy you may still be able to file a Chapter 13 Bankruptcy. In a Chapter 13 Bankruptcy a repayment plan would be made for you to pay back some or all of your debt over a period of up to 5 years. In order to qualify for a Chapter 13 Bankruptcy you must have enough steady income to finance such a plan.

Some people will not qualify for either a Chapter 7 or 13 Bankruptcy. In such cases there may or may not be non-bankruptcy alternatives.

If you are considering the option of filing bankruptcy be sure to save all correspondence from your creditors. These correspondences will contain essential information for you to successfully prepare your bankruptcy petition. Also, be sure to save all proofs of income, including pay-stubs over the last 6 months or more.

Now, more than ever, you need an experienced lawyer to guide you through this complicated area of law. Over the last 20 years we, at the Law Firm of Jeffrey B. Peltz, P.C., have helped over 5,000 people get a fresh start by filing bankruptcy. We are here to guide you. We offer free consultations. If you have financial problems, don’t delay; allow us to inform you of your options.