New bankruptcy law takes effect
Bankruptcy is the legal process where a person under debts declares his inability to pay debts. It provides solutions to the problems of a person who is under heavy debts and is unable to cover them. It legally impairs a creditor to take actions against his debtor who fails to re-pay him. However, it does allow the creditor to restore a segment of the total amount he credited. There are different ways of filing for bankruptcy namely voluntary and involuntary bankruptcy. These petitions can be filed in the bankruptcy court by yourself or with the help of a bankruptcy lawyer. The decision lies totally on the person who files for bankruptcy.
Bankruptcy laws
The common forms of bankruptcy can be discussed under Chapter 7 and Chapter 13. Bankruptcy in Chapter 7 is of the liquidation type, if the property you own is not exempted under your state laws, it can be taken back and sold or liquidated for the payment of some of the debts you are under. On the other hand the bankruptcy of Chapter 13 is a very common type of bankruptcy also known as Reorganization Bankruptcy. Under this type of bankruptcy the debtor is allowed to keep whole of his property but he is supposed to make payments monthly or for four to five years with the view to repay some or all of the creditors debt.
The new bankruptcy law and its effects
With the introduction of the new bankruptcy laws the whole scenario has changed for people who are planning bankruptcy. Some of the petition filers who have high income wont be given the benefits of Chapter 7; instead they will have to repay some of their debts under Chapter 13. It would be mandatory for all debtors filing bankruptcy to get counseling on credit before the filing of a bankruptcy case, an additional counseling is also important on budgeting and management of debts before the wiping out of their debts. The new bankruptcy laws have not only affected the creditors and the debtors but the lawyers too, as it imposes new restrictions on lawyers.
Important changes
New restrictions have been imposed on Chapter 7. Before the old rules allowed most of the petitioners to choose the form of bankruptcy which most suited them and people mostly opted for Liquidation (Chapter 7) instead of Repayment (Chapter 13). The use of Chapter 7 by petitioners with high incomes would be prohibited under the new law.
The new rule lays great importance on the income i.e. how high it is. The first action to take whether a petition can be filed under Chapter 7 is to determine the monthly income against the average income of the household of the petitioner. If the income of the petitioner is less or almost equal to the average income, he can file for bankruptcy under Chapter 7. But if the income of the person filing the petition is more than the average income i.e. after passing the means test (introduced by the new law), he cannot file a petition for bankruptcy under chapter 7.
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