Debt Options - Under the New Bankruptcy Law, Going Bankrupt Has Become Harder and More Expensive

Among different debt options to get your finances back on track is bankruptcy, a pretty drastic measure that can sometimes do more harm than good. That explains why in many cases filing bankruptcy is considered a last resort to give a debtor a "fresh start". However, due to the New Bankruptcy Law that went into effect October 17, 2005, declaring yourself bankrupt has become more expensive and complex than what it used to be. What's even worse: due to this new regulation, less filers will actually be able to get a "fresh start".

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Brief Bankruptcy Glossary

Here's a brief glossary to understand the main differences between filing under the old and the new law.

Disposable Income: the money the consumer has after paying for his living expenses.

Chapter 7: most of the debt is cancelled, giving the debtor a "fresh start". A consumer's assets (minus his exempt property) are liquidated and given to creditors.

Chapter 13: the debtor is placed on a repayment plan for up to five years.

Less People Will Be Able To File Under Chapter 7

This means less people will get a "fresh start" and more people will be placed on a repayment plan. The new Law specifies that if a consumer has an income higher than the median for his State, he'll need to file under Chapter 13 instead of 7. Thus, instead of cancelling most of his debts, a debtor will be assigned to a repayment plan.

Many Consumers Will Need To Live With Less Money

The court used to decide what were considered basic living expenses to calculate a debtor's disposable income. Under the new law, the IRS will settle these expenses for debtors whose income is higher than the median for their State. The downfall of this regulation is that, for the most part, the allowed expenses assigned by the IRS are lower than actual living costs. For example, the IRS might not consider paying for cable or internet as a basic need that should to be covered. As a result, consumers will find themselves with less money to spend in their daily lives.

Get Ready To Spend More Of Your Money And Time

Enrolling in credit counseling and money management classes within the six months prior to filing is a requirement according to the New Bankruptcy Law. This means you'll have to spend more of your time and money in declaring yourself insolvent. In addition, Bankruptcy Lawyer fees have gone up. The new law requires a Lawyer to vouch for the veracity of each client's information. If the paperwork isn't accurate, he could be fined. Therefore, Lawyers need to spend more time on each client and, as expected, their fees have gone up.

Is Bankruptcy A Good Option To Get Out Of Debt?

Many debtors are deeply in debt, and their only way out is by filing bankruptcy. However, while some debtors think bankruptcy is their only hope, many times it isn't. In most cases, bankruptcy should be considered as a last resort among the different debt options available to consumers.

If you're thinking of filing as your way out of debt, make sure to contact a Bankruptcy Attorney to go over your case in detail. Declaring yourself insolvent might be your only hope, but in many cases, it isn't, and other financial alternatives, such as debt settlement, could be a less severe measure to effectively rescue your finances.

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