How does the new bankruptcy law work?

In October 2005, after years of lobbying by the credit card industry, a new bankruptcy law became effective. Contrary to popular belief, it does not prevent people from filing for bankruptcy, but simply imposes a higher degree to scrutiny to assure that people seeking bankruptcy relief are truly worthy of this protection. In our experience, we have found that simply passing a new law does not change people's financial reality.

The new law encourages individuals to use chapter 13 to pay their creditors a least a portion of their unsecured debt, over a period of up to five years, rather then filing chapter 7 to discharge their debts with no payments to creditors. This is accomplished by creating a two-step process to determining eligibility for Chapter 7 bankruptcy. Those not eligible for Chapter 7 may still file Chapter 13.

The first step for chapter 7 eligibility is to determine if a household is under the statewide median income for a household of that size. The current New York State Median Income figures are as follows:

NUMBER IN HOUSEHOLD

MEDIAN INCOME

1

$ 42,896

2

$ 51,994

3

$ 62,815

4

$ 74,501

5

$ 80,801

6

$ 87,101

7

$ 93,401

8

$ 99,701

Individuals with households below the median income are presumed eligible for Chapter 7.

If you household income is above the median, you may still be able to file for Chapter 7. To make this determination, we must conduct a detailed review of your income and expenses, and compare these figures against the expenses the IRS allows to taxpayers who owe delinquent taxes. If we find that your actual expenses are within the IRS allowances, then you may be able to file under Chapter 7.

If, using the IRS expense allowances, you would appear to have sufficient income to pay creditors, we can structure a five-year interest free plan to pay your debt in full, and in some cases, a plan under which you would only pay a portion of your debt, and receive a discharge of the rest.

The secret to our success is that we care about our clients