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| What Do I Need to Know About the New Bankruptcy Law? |
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by: D.C. Bar Pro Bono Program
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| Q. | When does the new law start? |
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| A. | The new federal law goes into effect on October 17, 2005. |
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| Q. |
Will I still be able to file
bankruptcy after October 17, 2005?
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| A. |
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Most people still will be able to file
bankruptcy even after the new law goes into effect. However, your
income level will determine whether you are allowed to file a
Chapter 7 bankruptcy or whether you must file a Chapter 13 bankruptcy
that requires a repayment plan.
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The law intends to distinguish between
those who can repay all or a portion of their debts and those who
cannot. The federal government believes that debtors who have
income above a certain amount can repay all or a portion of their
debts, and will be eligible to enter into a 5-year repayment plan
(Chapter 13) only.
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Those who the government believes are
unable to repay their debts because they are below a certain income
level will still be able to file a Chapter 7 bankruptcy which
discharges or wipes out most of the debt unless abuse is shown.
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The federal government has set a "means
test" to determine whether your income is above the level which
requires you to enter into a repayment plan. The means test is based
on where you live. You can go to this link to view official median
income data:
http://www.usdoj.gov/ust/bapcpa/bci_data/median_income_table.htm.
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In the District of Columbia, if your
income is above $62,167 for a family of three, you may not be able to
file a Chapter 7 bankruptcy which discharges most of your debt.
Instead, you will be eligible to file a Chapter 13 bankruptcy, which
sets up a 5-year repayment plan.
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If your income is below the median
income for your state, then the means test imposed by the new law
(which could require a repayment plan) does not apply to you. The rest
of the new law applies, however.
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| Q. | Will there be additional requirements when I file for bankruptcy? |
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| A. |
- Yes. All debtors filing for bankruptcy must complete a financial counseling seminar with a government approved counseling agency sometime within the 6 months before filing. In the event of an emergency, you may be able to complete this requirement within 45 days after filing.
- You also will be required to provide the Trustee with proof of your income (a copy of your most recent tax return and pay stubs) at least 7 days before the First Meeting of Creditors.
- If an attorney represents you, the attorney will be required to certify that the case is well grounded in fact and not an abuse.
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| Q. | Will there be any changes on how my debts are handled in bankruptcy? |
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| A. |
- Generally, you will be required to continue paying child support and alimony even after you file for bankruptcy. If your wages are being garnished to satisfy back support payments, that will continue even after you file for bankruptcy.
- In some instances, your landlord may be able to pursue eviction proceedings against you, even after you file for bankruptcy.
- Some debts for luxury goods and cash advances will be more difficult to discharge.
- Student loans from profit-making institutions will be non-dischargeable (just like government student loans were already) unless you can prove an undue financial hardship.
- One benefit of filing a Chapter 13 is that debtors were able to reduce the amount of their car loans to the value of their cars. In other words, if your car loan is for $20,000 but your car is only valued at $12,000, you would be able to discharge all but $12,000 of the loan. Under the new law, this will not be allowed if the car was purchased within the last 2 ½ years before filing.
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| Q. | Will I still be able to choose between the federal and District exemptions? |
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| A. |
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In order to select the D.C. exemptions, you will need to be a D.C. resident for the 2-year period prior to filing bankruptcy. Otherwise, you are limited to using either the federal exemptions or the exemptions from the state in which you lived the majority of the 6 month period prior to moving to D.C.
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The District’s homestead exemption which allows you to protect equity in your home even when you file a chapter 7 bankruptcy will be capped at $125,000 if you moved to the District from another state within three years and four months of filing. |
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| Q. | Will the new law increase the time I must wait before filing a second bankruptcy? |
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| A. |
- Yes. The new law lengthens the amount of time between Chapter 7 filings from six to eight years. There must be four years between a Chapter 7 and a Chapter 13, and two years between consecutive Chapter 13s.
- Also, the law imposes penalties when you file again after having a case dismissed. If you have to re-file, it may be more difficult to get automatic protection from collection actions. These penalties are imposed even if the case was dismissed because of a simple error. It is important to be aware of especially if you are filing without an attorney representing you.
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Last Reviewed On: 10/18/05 |
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