Has The New Bankruptcy Law For Consumers Kicked In Yet???
Q: I just finished paying all my bills for July and it will be difficult to have enough for food this month, unless I hit the lottery. LOL! I don't want to file bankruptcy, but it may be my only choice- as I am on disability retirement. Does anyone know when the new bill is scheduled to become law? Trying to hold on--as long as possible!
A: Who Files for Bankruptcy? The bankruptcy legislation was packaged and promoted as much-needed "reform." But it will be devastating to many people who find themselves out of work, ill or injured, and over their head in debt. The vast majority of bankruptcy filers are not wealthy individuals trying to cheat the system. The average person filing for bankruptcy earns just $22,000 per year (according to a 1999 study by federal bankruptcy judges). Most have suffered a significant period of unemployment before filing. According to Consumers Union, among elderly debtors, 85% cite medical or job problems as the reason for bankruptcy. Consumers Union also says that single moms trying to make ends meet make up a large portion of bankruptcy filers - divorced women raising children are 500% more likely to end up in bankruptcy than married or single women without children. You May Want to File Now. If you are contemplating bankruptcy within the next few years, the coming restrictions on bankruptcy may drastically affect your options. It may make sense to file soon, before the rules change. Fewer People Eligible for Chapter 7 Bankruptcy Losers: Those who want to file for Chapter 7 bankruptcy but have an above-average income and could, according to the IRS, pay a little each month. Traditionally, bankruptcy's fresh start has been available to almost everybody. The new law, however, will prohibit some people from filing for Chapter 7 bankruptcy altogether -- those whose incomes are above the state median (quite low in some states) and who can pay as little as $100 per month to creditors. Whether or not a debtor can afford to pay $100 or more a month is determined not by the person's actual income and expenses, but by IRS rules that state what "reasonable" expenses are. For more about these restrictions, see Bankruptcy's Fresh Start No Longer an Option for Many. People denied a Chapter 7 bankruptcy would either have to file for Chapter 13 bankruptcy and come up with a three- to five-year repayment plan, or keep slipping further behind on their debts. This restriction is one reason many women's groups opposed the bankruptcy legislation. People who can't file for Chapter 7 bankruptcy and wipe out their credit card balances, they fear, will have less money available to pay other debts -- child support, for example. Fewer People Able to Stick to Chapter 13 Repayment Plans Losers: Those who want to file for Chapter 13 bankruptcy but reside where the cost of living is high. Debtors pushed into Chapter 13 bankruptcy because Chapter 7 is no longer available to them will find that the new law has also made Chapter 13 bankruptcy more difficult. In Chapter 13 bankruptcy, debtors must put together a repayment plan, basing their payments on their income and expenses. Under the new law, actual expenses won't matter -- debtors will be allowed to claim only certain amounts for certain expenses (housing, for example), even if the actual cost is much higher. Some people, especially those living in areas where the cost of living is high, will be unable to follow through with a repayment plan. For a more thorough discussion, see New Laws Make Chapter 13 Bankruptcy Tougher. Delays in Filing The new law would require most people to get credit counseling from a nonprofit agency within six months before they could file for bankruptcy. (In addition, debtors would have to complete a course on personal financial management before completing either Chapter 7 or Chapter 13 bankruptcy.) Another roadblock will delay people who have not yet filed a tax return for a recent year. Anyone filing for Chapter 7 bankruptcy must provide a tax return for the most recent taxable year; those filing for Chapter 13 must be current on tax returns for the previous four years. Although for many, filing late returns (and paying stiff penalties