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Patrick Moscatello |
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IntroductionDuring the 2001 Congress, sweeping changes to the bankruptcy law were pending. As a result of the tragedy on September 11, 2001 and the general weakening of the economy, the Bankruptcy bill was not enacted into law in during 2001. It remains to be seen if congress will introduce similar legislation in 2002. Should bankruptcy changes be proposed during the current year, it is expected that many, if not all, of the changes proposed in 2001 would also be proposed this year. Monitor this site for updates on the introduction and status of any legislation that changes the bankruptcy laws.The following information relates to the law as proposed during 2001. Questions and AnswersWhat happens when the Bankruptcy bill is signed into law? The new Bankruptcy law will dramatically change the right of many people to get rid of all of their debts through a Chapter 7 Bankruptcy. It will also make it more difficult for many people who are behind on their mortgage or in foreclosure to save their homes and pay back overdue amounts (known as arrearages) through a Chapter 13 Bankruptcy. What kinds of changes will the new Bankruptcy law make? The new bill contains dozens of changes to the Bankruptcy law. The most important changes that effect Chapter 7 and Chapter 13 consumer bankruptcies are as follows: Under the current system, most debtors can file a Chapter 7 Bankruptcy to wipe out their debt entirely. While some debts, such as child support, alimony and student loans cannot be discharged, other unsecured debts, such as credit cards and personal loans can be discharged completely for debtors without sufficient income to pay their debts. The new Bankruptcy law is fundamentally different. Essentially, the new law imposes an income or "means" test on people who need to file Bankruptcy. Simply stated, if you make over a minimum income, you will not be able to discharge your debts in a Chapter 7 Bankruptcy EVEN IF YOU DO NOT HAVE ENOUGH MONEY TO PAY YOUR DEBTS. Instead, the new Bankruptcy law will require many debtors who can now discharge their debts to pay their creditors 25% of their total unsecured debt or $10,000.00, whichever is GREATER. In addition, the new law requires these debtors to remain in Bankruptcy for a period of 36 to 60 months to pay back their creditors. As a practical matter, many people will find that their income is too high for them to qualify for a Chapter 7 Bankruptcy AND that they don't have enough money to pay the amount required in a Chapter 13 Bankruptcy. The result can be that Bankruptcy relief - now available under the current law - will be unavailable under the new law. In short, under the new law you may be stuck with all or part of your debts. In addition, there are numerous new requirements that will have to be met to file a Bankruptcy, including credit counseling and limits on the availability of Chapter 13 Bankruptcy if you are behind on your mortgage. If I am behind on my mortgage, will the new law affect my ability to stop a foreclosure? Currently, many debtors can file a Chapter 13 Bankruptcy to stop a foreclosure, pay back their mortgage AND get out of many other debts. In many cases, it is that other debt, such as credit card debt, which makes it impossible to pay a mortgage on time. The current system makes it possible for many more debtors to pay back an overdue mortgage and get rid of credit card debt. Under the new legislation it is likely that many debtors will have to pay back their credit card debt through their Chapter 13 Bankruptcy while paying back their past due mortgage payments. In many cases, this will have the practical effect of making it difficult or impossible to salvage a home through a Chapter 13 Bankruptcy. Once the new law is enacted, will it go into effect immediately? The short answer is no. For most provisions that effect consumer Bankruptcy, there will be a 6-month period during which you can file under the old Bankruptcy law. So long as your Bankruptcy is filed before the EFFECTIVE DATE of the new law, you can take advantage of the old Bankruptcy laws, which can be used to wipe out most debts in their entirety. How can I tell when the new law is signed and when the effective date of the law is? The best way is to call our office or to log onto our web site for updates at www.forgetdebt.com. Why are the proposed changes to the Bankruptcy laws being made? Many commentators think that the main reason for the changes in the Bankruptcy laws is that the credit card companies and other lending institutions - the organizations that are being hurt by the current laws - have spent tens of millions of dollars in lobbying efforts to get the changes they want to the laws. (continued on next page) Will the cost of filing a Bankruptcy be greater or less under the new law? It is likely that the cost of a Bankruptcy will go up under the new law. Because the process has become more complicated it is expected that the time attorneys spend working on each Bankruptcy will increase, which will probably result in an increase in legal fees to file a Bankruptcy. What should I do if I am contemplating Bankruptcy? If you are considering Bankruptcy we urge you to get started as soon as possible, to take advantage of the current Bankruptcy laws. The current system is cheaper, easier and in many cases faster than the system created by the new law. How do I get started? The first step is to call our office for an appointment. There is no charge or obligation for an initial telephone consultation and an initial appointment at one of our three offices. In addition, we will work out a payment schedule so that you can get started with your Bankruptcy. We are committed to assisting our clients in taking advantage of the existing Bankruptcy law, while it is still in effect. Legislative LinksBill Summary and Status |
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