The new law appears to be detrimental to small enterprises and individuals. Another aspect of the new law in which entrepreneurs expecting for a fresh start by filing for chapter 7 bankruptcy will be disappointed, as they will be unable to obtain one. The intent of the Bankruptcy Act was to make bankruptcy a significantly less preferable option for those whose businesses have failed. With the passage of the new law, debtors would confront more challenging options than before. The new law makes it more difficult for individuals to discharge their debts through bankruptcy.
Historically, Chapter 7 was the favored filing option for the majority of individuals seeking bankruptcy protection. The debtor's prior debts were canceled, allowing them to start over. However, under the new law, debtors seeking bankruptcy protection must apply under Chapter 13. If their income is greater than the state's median income, they will be required to repay a portion of their debts under the new law. For this purpose, a means test has been established as the deciding factor.
More than ninety percent of individuals who filed for bankruptcy were able to have all of their debts discharged without making any installment payments. However, the new law will require individuals who fail the means test to file for bankruptcy under Chapter 13 and make structured payments. Thus, creditors will benefit if the debtor has a higher income than the median income of his state of domicile.
As a consequence of the new legislation, there will likely be fewer Chapter 7 bankruptcy filings. According to attorneys, the new means test could discourage some debtors from registering for bankruptcy protection. The purpose of bankruptcy is to allow for a new beginning, and if people are discouraged from filing, they will continue to operate, but will go underground financially and find alternative ways to finance their activities. You must also keep in mind that Chapter 7 bankruptcy does not discharge student loans, certain IRS debts, family obligations, or criminal obligations.
If you choose to file Chapter 7, you must counsel with an attorney. He will assist you in the preparation of documents detailing your creditors, assets, income, and expenses. You sign and present these schedules with the court along with a voluntary petition for bankruptcy. As soon as these documents are lodged, the automatic stay provision of the Federal Bankruptcy Code takes effect.
Typically, it takes three to four months for the bankruptcy judge to sign the discharge order. The new Chapter 7 bankruptcy law has some beneficial provisions, but has also altered the concept of bankruptcy filing.
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