Bankruptcy is often misunderstood by debtors

The recently passed legislation makes bankruptcy more difficult, but not impossible. A lot of people are baffled by the newly enacted bankruptcy legislation enacted two years ago by Washington. Bankruptcy legislation has always been intricate, and individuals filing for debt relief through the courts have usually needed to employ a lawyer to assist them in debt relief court.

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The Bankruptcy Abuse and Consumer Protection Act was enacted into law by Congress in the spring of 2005. President Bush signed the debt relief reform bill into law, proclaiming that it would make circumstances even better for people when it took effect later that year. The new legislation doesn't do much for the typical Joe; people with debt problems are vastly worse off under the newly enacted law than they were under the old one. The new debt relief law doesn't stop people who are genuinely destitute from filing, but it makes it more difficult. The only real beneficiaries of the new law are banks, credit card companies and other lending institutions.

 

Myth: In many states, your real estate will be guarded from creditors

Fact: Not true anymore. Under the original law, some states, like Florida and Texas, had charitable homestead exemptions. Long-time mortgage holders may be protected, but the days of quickly purchasing a residence in Florida to save your cash are gone. The previous law motivated some wealthy debtors who were in financial trouble into moving to states with more lenient laws and purchasing giant houses so that they might protect their funds from lenders. Safeguarding your residence from financial institutions will no longer be possible, as the new law allows a maximum of $125,000 as a homestead exemption if the home has been owned for less than forty months.

Myth: After the debt relief law takes effect, consumers will no longer be able to file for bankruptcy.

Fact: People with debt problems will still be able to file for bankruptcy. Surveys so far show that as much as 85% of debtors who could at this moment file by means of Chapter seven will still be able to do so once the new debt relief law takes effect. Mostly affected are the upper middle class and richer individuals. The debt relief law does require a "means test", which will compare the filer's income to that of similar people in his or her state. If the salary is higher than the median, the person will still be able to apply, but only by means of Chapter thirteen, and not using Chapter 7.