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Question from one of
our subscribers : I’ve been reading
about some changes in the bankruptcy laws
… what’s happening and how does
it affect me as an investor?
Answer: Thanks for your
question! We’ve been reading up on
the upcoming changes in the BK laws and
will be addressing these issues in this
and future newsletters. In fact, we’ll
expand this section and consider it part
of our normal “Tip of the Month”
so we can keep you up to date.
(1) The only change that
has gone into effect immediately is the
change in the homestead exemption rules.
According to an online summary by CNN/Money:
“Currently, if
you declare bankruptcy, the state where
you file may allow you to protect from creditors
some or all of your home equity. In Florida,
for instance, your home may be entirely
exempt, even if you bought it soon before
filing. In Nevada, you may exempt up to
$200,000.” (In Georgia, a single filer
can exempt up to $10,000 and a couple can
exempt up to $20,000).
“The new law, however,
places more stringent restrictions on the
homestead exemption. For instance, if filers
haven’t lived in a state for at least
two years, they may only take the state
exemption of the state where they lived
for the majority of the time for the 180
days before the two-year period.”
“Filers may only
exempt up to $125,000, regardless of a state’s
exemption allowance, if their home was acquired
less than 40 months before filing or if
the filer has violated securities laws or
been found guilty of certainly criminal
conduct.”
(2) Another significant
difference is how the court will be determining
whether a filer can/must file for Chapter
7 or 13. Under the new law, fewer people
will be allowed to file Chapter 7 and more
will be forced to file Chapter 13 and therefore,
make payments to unsecured creditors. Again,
according to an online summary by CNN/Money…
“Currently, it’s
up to the court to determine if your case
qualifies for Chapter 7 bankruptcy. Under
the new law, your income will be subject
to a two-part means test. First, it will
be subject to a formula that exempts certainly
expenses (rent, food, etc.) to determine
whether you can afford to pay 25% of your
“nonpriority unsecured debt”
such as your credit card bills. Second,
your income would be compared to your state’s
median income.”
“You won’t
be allowed to file for Chapter 7 if your
income is above your state’s median
and you can afford to pay 25% of your unsecured
debt, said California-based bankruptcy attorney
Stephen Elias, who is coauthor of the book
“How to File for Chapter 7 Bankruptcy.”
But, he said, you may be allowed to file
for Chapter 13.”
“If your income
is below the state’s median but you
can pay 25% of your unsecured debt, you
may be able to file Chapter 7, but the court
can still require you to file Chapter 13
instead if it believes that you would be
abusing the system by filing for Chapter
7, Elias said.”
“Under current
law, the court has great latitude in deciding
whether debtors may file for bankruptcy
in consideration of their personal circumstances.
Under the new law, there will be few if
any exceptions made to the means test, no
matter how sympathetic your case, said Leon
Bayer, a bankruptcy attorney in Los Angeles.”
**Many of you may be
wondering how the new law will impact you
as a Post-Bankruptcy Report subscriber.
The full bill takes effect in October, 2005.
Experts say that we should expect to see
a LOT more bankruptcy filings before that
October date. The same experts predict a
reduction in filings after October, which
is what proponents of the bill are hoping
for, but they don’t expect the drop-off
to continue long-term. “The thing
that makes people file for bankruptcy is
not the statute. It’s lack of money,
and that happens whether the bankruptcy
code says X or Y. If you can’t buy
food, you don’t worry about the niceties
of the statute.”
Click
here to learn more about our Post-Bankruptcy
Report!
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