Bankruptcy: Yes or No?

Table of Contents

Chapter 1: You Must Decide Now!

Chapter 2: Screwed, Blued and Tattooed

Chapter 3: Lucky 7 or Friday the 13th

Chapter 4: Declaration of Independence

Chapter 5: Phone A Friend

Chapter 6: The Whole Ordeal

Chapter 7: The Morning After

CHAPTER 2: SCREWED, BLUED AND TATTOOED

“Every path has its puddle.” – English Proverb

Numerous studies have shown that individuals declaring bankruptcy are almost always hard working citizens that just had an extended bout of financial hardship.  Recognizing this fact, bankruptcy laws were written to allow anyone to have a second chance without undue hardship.  Unfortunately, credit card companies want to have their cake and eat it too.  They want to have very loose credit policies so anyone can qualify and continue spending.  They want to have high interest rates so they make tons of money.  Finally, they want to make it almost impossible for anyone to default on their bill so they never lose any money.  What a great deal.  To make their wish come true, credit card companies literally bought their way into changing the bankruptcy laws by contributing tens of millions of dollars to both political parties over the last several years.  The result: a proposed bankruptcy bill that is currently in the process of becoming a law.

Overall, this law has made it much harder to declare Chapter 7 bankruptcy.  After thoroughly researching the proposed law, I have summarized the important facts so you don’t have to read an extremely boring government document.  First, the bad news:

·    If your household income (includes you and your wife if you are both working) exceeds more than the median income for your state (varies from state to state, but the general range is approximately $25,000 to $35,000 per year), following passage of this bill you will only be able to declare Chapter 7 bankruptcy under very restrictive circumstances.  The circumstances are fairly complicated and are determined by applying a means test.  However, in most cases if your monthly income exceeds your state’s median income and you are making more than approximately $150 dollars per month after deducting set costs for food, personal care, transportation, clothing, housing and entertainment, you will be forced to file for Chapter 13 bankruptcy.  

·    Under Chapter 13 bankruptcy, if your income exceeds the state median your Chapter 13 payment plan must last a minimum of 5 years.

·    You can only file Chapter 7 once every 8 years.  You can only file Chapter 13 once every 5 years, although the House and Senate versions of the bills differ in this respect. 

·    You must live for approximately two years in your state of residence to use the exemptions allowed by that state.

·    Although not finalized, homestead exemptions in the Senate version of the bill would be limited to $125,000 (much less than most states currently allow).

·    If your schedules and forms contain errors under a Chapter 7 filing, your attorney could be sued.

·    The bill goes into effect 180 days (six months) after passage.

These are just some of the changes.  Overall, the proposed changes are catastrophic for most would-be Chapter 7 filers and extremely painful for would-be Chapter 13 filers.  The proposed changes greatly reduce the help bankruptcy can provide, and make filing bankruptcy a much more onerous, expensive and time-consuming task.   If you wait to declare bankruptcy after the grace period, you will literally be screwed.  Now that you have the sobering up-to-the-minute facts regarding the law, what can you do about it? 

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