Bankruptcy Law Changes
KEY CHANGES IN BANKRUPTCY LAWS
California Bankruptcy Laws
Most San Diego and Southern California residents now think filing for bankruptcy is no longer an option due to the Bankruptcy Reform Legislation passed in 2005.
NOTHING COULD BE FURTHER FROM THE TRUTH!!!!
In fact, we have actually found that in most cases, its now EASIER to QUALIFY for Chapter 7 bankruptcy and Chapter 13 bankruptcy under the new laws than the old laws! Of course the credit industry does not want you to realize this! And they have been very effective with their cause.
We are now almost 7 years since the laws have changed, and the filing levels are nearly the same as under the old laws. In fact, here in the Southern District of California we continue to set new bankruptcy records, higher than before the laws changed!
In every bankruptcy case we have filed so far for the past 7 years under both Chapter 7 and Chapter 13, EVERY CASE HAS GONE THROUGH! Recently we had a married couple earning over $150,000 in income file for Chapter 7 relief under the new laws. NO PROBLEM! We successfully erased over $875,000 in debt for them and they are now on to their fresh start, debt free, and looking for a new home to purchase.
Our San Diego bankruptcy attorneys at the Doan Law Firm were the first to file a Chapter 7 and Chapter 13 case under the new laws in the Southern District of California and one of the first firms to file under the new laws Nationwide!
While all the other attorneys sat and watched, we continued to file new bankruptcy cases. Eventually, the other bankruptcy lawyers followed our path, learned the laws, and started filing cases again. So although the new laws are still fresh and there is much skepticism on whether one can still file for bankruptcy, rest assured you are in good hands with our firm. We have had no problems filing under the new laws and will continue to do so.
Nevertheless, the Top 10 Technical Key Changes in the New Bankruptcy Laws are as follows:
Mandatory Credit Counseling: Prior to filing any bankruptcy case in Southern California, one must now complete a credit counseling course online or over the phone. They generally cost $0.00 to $50.00 and must be given free of charge if you don’t have the ability to pay for one. The mandatory credit counseling course usually lasts 45 to 60 minutes, and can be taken usually 24/7. A certificate will be issued upon completion and must be provided to our office as a condition of filing your case. Failure to timely file the certificate of completion results in an automatic case dismissal. Most of our clients have indicated so far that they found the course very enlightening and educational. Moreover, studies thus far have indicated that 97% of all debtors taking the counseling courses have been specifically advised by the counseling organizations that they cannot help them and that they should file bankruptcy.
Means Test: This new eight (8) page test was designed to take the discretion from Bankruptcy Judges to dismiss bankruptcy cases where it appeared an abuse of the bankruptcy system was taking effect. This is actually where, in many cases, it is now easier to file for bankruptcy. Since we now have a new test which solely looks to the past 6 months income and has mandatory expense deductions, most people automatically qualify. Moreover, if you fall under the “medium family income” classification, you also qualify. It has been our experience that most of our clients, or about 90%, fall under the medium family income guidelines. The medium family income parameters start at $43,436 for a single person and reach $80,910 for a family of 6, while adding an additional $6300 for every aditional family member or dependent over 6 family members. Unfortunately for the credit industry, this new 8 page test backfired against them and we are qualifying more individuals under this new law than the old laws.
Tax Returns: In a Southern California Chapter 7 bankruptcy filing, a debtor is required to submit the previous year’s tax return, but only if they filed a return. If they did not file a return, a declaration is submitted instead. In a Southern California Chapter 13 bankruptcy filing, the debtor is required to submit the last 2 years’ tax returns, and possibly up to the most recent 4 years’ of tax returns , depending upon the circumstances.
Mandatory Debt Management: Just as with Credit Counseling, a debtor is now required to undergo a Debt Management Course after the bankruptcy case is filed. The same fees and time frames apply as with Credit Counseling. Moreover, it has been our experience that this is one of the most beneficial aspects of bankruptcy according to our clients. Debt Management is the course that everyone wanted to learn in High School and College, but nobody taught. In fact, this course very easily explains how to budget and eventually arrange your finances to become very successful!
Time Periods: The following time periods now apply between bankruptcy filings (start date is date of filing the case, not date the of discharge):
- Chapter 7 to Chapter 7: 8 years
- Chapter 7 to Chapter 13: 4 years
- Chapter 13 to Chapter 7: 4 years or 7 years depending on the circumstances
- Chapter 13 to Chapter 13: 2 years
The new bankruptcy laws now require proof of 6 months’ pay stubs to document income. Ironically, they call this CURRENT MEDIUM INCOME, but has nothing to do with your current income on the date your case is filed. A crazy example would be a football player making $100,000 per month, or $600,000 in the 6 months prior to filing his case, but who then ends his contract in the 7th month and is unemployed with no income when his bankruptcy case is filed. According to Congress, he still makes $100k per month and will have his case dismissed since he is “abusing” the bankruptcy laws. Absolute Nonsense!
Or take an individual who is unemployed in the 6 months prior to filing, but then becomes employed at $100,000 per month. He qualifies since his income is $0.00 per month. But don’t worry, we know how to get past this problem and have done it many times with success!
Non-dischargeable Debts: The new bankruptcy laws have now made certain debts non-dischargeable that were dischargeable under the old laws. However, very few cases see these issues arise and it has been our experience that only about 1 out of 100 cases will be impacted by this change. Unless you have committed acts of fraud or other malfeasance, you don’t need to worry about this change.
Attorney Verification: We are now on the hook with you! If you lie, make a misrepresentation, fail to disclose an asset, or commit any other false oath in your bankruptcy schedules, we can be sanctioned just like you. This new bankruptcy law now allows the attorney to be sanctioned if he or she assumes you are telling the truth!
For instance, if you tell the attorney that you have never filed a bankruptcy before, and the attorney does not believe you and asks you 5 more times if you have ever filed bankruptcy in the past, and each time you deny the previous filing, and finally the attorney believes you and files your case without doing an independent bankruptcy search, he or she can be sanctioned. Amazingly, the new laws now require us to assume you are lying or we will be sanctioned. So don’t be alarmed by all the new documents you will be asked to provide, nor by the internet identity searches we must now perform. Good news, however, we have found NO LYING CLIENTS!?
Reaffirmation Agreements: It has long been our Southern California Law firm’s practice to not execute reaffirmation agreements except in very limited circumstances. Since the reaffirmation agreement puts you back on the hook to be liable for the debt, it defeats the underlying purpose of a bankruptcy filing. Additionally, under the new bankruptcy laws, you now must attend a mandatory hearing with the attorney before the Bankruptcy Judge. There is an additional fee to draft the Reaffirmation Agreement and attend the hearing. Finally, the Bankruptcy Court does not always approve the reaffirmation agreements and frowns upon most of them. Although all creditors and most bankruptcy attorneys will tell you that you must reaffirm the “car debt” or lose the car, it has been our practice that as long as you remain current and maintain insurance, you will keep the asset and eventually own it once paid in full. Many creditors have threatened us to execute reaffirmation agreements under threat of repossession and we have always said “NO!”. To date, there have been no repossessions, and as soon as we get a repossession, we will be suing that creditor under state laws that they are probably unaware of.
Exemptions: Exemptions are what allow a debtor to keep property in a bankruptcy proceeding. Under the new bankruptcy laws, we must use the exemptions in the state you resided in the past 2 years. If you resided in more than one state over the past 2 years, then we must use the exemptions in the state you resided in for the majority of the time for 2.5 to 2 years ago. The purpose of this law was to keep debtors from moving to favorable bankruptcy states, for instance to Texas, where they could keep their $20 million dollar house, Rolls Royce, etc. For most people, this new law has no impact on the outcome of their bankruptcy case. So far, in all of our Southern California bankruptcy cases filed, we have yet to see any debtors affected by this law. Due to poor drafting of the new laws, most states’ exemptions cannot be used anyway, as they only apply to residents of that state, and we must then default to the Federal Exemptions which are almost as good as California’s bankruptcy laws. In summary, this law will probably not apply to you.
In Summary, the new bankruptcy laws have for the most part BACKFIRED. Almost every Bankruptcy Attorney, Trustee, and Judge will tell you they despise the new laws. The new laws have made bankruptcy filing more expensive and created more work, with no other effect. Bankruptcy cases in Southern California can still be filed as before, and as previously discussed, qualifying gets easier in most cases. In fact, many of the unsecured creditors and credit card issuers are now seeking to overturn the new laws, as they are now getting paid less money in Chapter 13 bankruptcy cases than than they were under the old laws.
Nevertheless, you can rest assured that our San Diego bankruptcy lawyers at Doan Law Firm, know the new bankruptcy laws inside and out. We have been studying the new bankruptcy laws since they were first proposed in the late 1990s and know how to easily navigate your Southern California County bankruptcy case through all the new requirements. All our cases have gone through so far under the new laws, and so will yours.
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PURSUANT TO THE NEW LAWS, WE MUST DISCLOSE THAT WE ARE A DESIGNATED DEBT RELIEF AGENCY UNDER 11 U.S.C. ß528. WE HAVE SUCCESSFULLY ASSISTED TENS OF THOUSANDS OF SOUTHERN CALIFORNIANS IN FILING BANKRUPTCY, DISCHARGING BILLIONS OF DOLLARS, AND WILL CONTINUE TO DO SO UNDER THE LAWS.