Major Changes to Filing Bankruptcy

NOTE:  The Bankruptcy Court after October of 2006 started auditing all Bankruptcy petitions for errors with Certified Public Accountants and laws now require documentation of expenses and incomes.

9 Changes that effect you Before you file

1. Income Testing for Chapter 7 Bankruptcy If you make over the average income for your size of family (this includes your spouse's income, even if they are not filing), then you may be  forced to file a Chapter 13 Bankruptcy.  The principle is that if you can afford to repay, you should.  You may deduct for secured and certain other expenses, such as medical, to still qualify for a Chapter 7.  Here are the tables for your state.   However documentation may be required for claimed expenses that are higher than normal.   Day care, private school, charitable, and 401k contributions must show a history of being spent. 
2. A Chapter 13 bankruptcy must be for 5 years if you earn over the average income   Prior to this, Chapter 13 bankruptcy cases were often for only 3 years. 
3. Mandatory Debtor Education   You cannot file any bankruptcy without first taking “credit counseling” classes approved by the Trustee’s office.  This is your ticket to file bankruptcy.   After you file bankruptcy you must also take a "Debtor Education" class in financial management to get a discharge. 
4. You can still file a Chapter 20.   Often a person could not afford a Chapter 13.  To delay a foreclosure or to lower Chapter 13 payments and make a plan affordable, he would first file a Chapter 7 bankruptcy to eliminate unsecured debts and then only pay secured debts in a Chapter 13.  Filing a Chapter 7 first allows the Debtor to cure a foreclosure or repay a priority.   This is a Chapter 20.   However do not get a second discharge. 
5. Chapter 7 discharge is limited to one every 8 years.  This used to be every 6. You cant get a second discharge in a Chapter 13 after a filing a Chapter 7 for 4 years. You can get a second Chapter 13 discharge after a filing a Chapter 13 for 2 years if your plan paid 70% or more, 6 years if it paid less than 70%.  If you file before the time limit, you may file to stop a foreclosure by curing the arrearage, but you don't get a second discharge.  
6. Exemptions increased Some states had their homestead exemptions reduced. However, Kentucky went to the Federal exemptions and had a huge increase in exemptions.  Real estate went from $5,000 to $19,450 in 2005 with annual cola increases. 
7. Student loans now require a showing of hardship even to non-government and for profit lenders  Before October 2005 you could bankrupt non-government student loans without showing a hardship.
8. Documents needed include: 
   1. Certificate of Credit Counseling;
   2. Proof of income for prior 6 months to prove income, including anticipated increases or decreases in income, and expenses.  This must be at least 6 months of pay stubs (for all employers); or a statement from work of your last seven months of income; or, if you are on Social Security, your letter of income;
   3. List of debts must include account numbers, and address of Creditor provided by mail to the Debtor.  Also, you must detail if the debts are joint or husbands or wife's and note any co-maker; 
   4. For the Bankruptcy Court hearing A photo id and proof of your social security number (card);
   5. Proof of expenses, if you don’t take the standard amounts;
   6. Two years of tax returns.  You cannot file if taxes are not filed for last  the last 4 years.  If the Debtor fails to provide within 7 days before the 341, the case must be dismissed.  Further, it must be provided to any creditor that requests it.  Also the US Trustee may ask for the return instead;  
   7. At least 6 months of bank statements, credit card statements, and loan statements may also be required;  
   8. An appraisal on your home and vehicles will be needed if you need to avoid a judicial lien.  PVA values and Kelly Blue Book values are ok for valuing (property tax values are ok);
   9. Copies of any child support or alimony orders;
9. Filing Fees and attorney fees increase due to added work and liability  Attorney and filing fees increased due to added paperwork but that is about it. 

7 Changes that effect you After you file

1. You can still strip liens on secured property.  Before October you could strip a lien and pay someone in a Chapter 13 what the secured property was worth as a secured claim and the balance would be paid as an unsecured claim.  After October 2005 you can still make this as an offer on a car but a car purchased within 910 days of filing for consumer purposes can refuse to take your offer.   In effect, you offer car loans a take it or leave it proposal if it was less than 910 days since you purchased your car through them.  If the second mortgage is completely unsecured you may be able to remove it.    
2. New Fraud rules  The old rule was that if you charged over $1,000 on a card within 60 days of filing that it was fraud and not dischargeable.  The new rule is that if you charge over $750.00 in 70 days or $500.00 of luxury goods in 90.
3. Homestead Exemptions   You must use the exemptions for the state you lived in for the last 730 days.  No forum shopping by skipping to another state.
4. Reaffirmations Reaffirmations require the Debtors attorney to certify that the Debtor will make the payments and can afford them.  The Debtor will have to go through a hearing to get reaffirmations approved by the Court.   Creditors can repossess and sue for a deficiency right after signing them.  As a result, attorneys and secured creditors will not as easily sign them.   If they are not signed within 45 days, after the 341 the stay terminates, the Creditor may pick up the property. More redemptions will probably be made where new banks pay off old banks for their property. 
5. Automatic Stay Terminations  The Stay automatically terminates in 30 days if:
   1. A case was filed within the prior year and dismissed by any cause other than the means test conversion.  This includes

i.    Dismissals for failure to file documents

ii.   Failure to complete a plan

iii.  Failure to provide adequate security or….

2. If the Debtor fails to file a Schedule of Intent within 30 days after the Petition or complete the reaffirmation within 45 days after the 341 meeting
3. If two or more cases have been filed during the prior year the stay does not go into effect at all until the Court orders it after a hearing and demonstration that it was filed in good faith.
5. Child Support becomes a first priority.  The stay does not apply to Domestic Support enforcement. Child Support is paid first in any Chapter 13 ahead of secured debts etc.  You may be able to repay child support to the government for a fraction in a Chapter 13. 
6. Super discharge reduced in a Chapter 13 Debts are treated almost equally in a Chapter 7 or 13.  No discharges for Student loans, debts due to fraud, drunk driving or malicious injury in a Chapter 13 when they wouldn't have qualified in a Chapter 7.    
7. Asset Protection Trusts can be avoided back 10 years.  Section 548 prevents trusts from protecting assets in any self settled trust.

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