From www.thirdage.com

New Laws Make Chapter 13 Bankruptcy Tougher From the Nolo.com Debt & Bankruptcy Center

Congress has passed legislation making major changes to Chapter 13 or "reorganization" bankruptcy, and the President has promised to sign the bill into law.

People who file for Chapter 13 repay part or all of their debts over three to five years. At the end of the repayment period, most remaining debts are wiped out. The new law will make plans last longer and payments higher, and will keep some people from filing at all.

Many other changes in the new law will affect all bankruptcy filers, including people who choose Chapter 13 bankruptcy.

Lower Allowances for Expenses, Higher Payments to Creditors

Losers: People who have high living expenses or who reside in an area with a high cost of living.

Debtors must pay all of their "disposable income" into their Chapter 13 plans. Currently, disposable income is calculated by subtracting reasonably necessary expenses from income. The bankruptcy court determines whether expenses are reasonable.

Under the new law, if the debtor's household income is more than the state median income, the court's discretion will be replaced by stringent guidelines established by the IRS for each region of the country. Many debtors, especially those who live where the cost of living is high, will find it very difficult, or impossible, to keep their expenses within the guidelines -- meaning Chapter 13 bankruptcy will not be a realistic option.

Longer Repayment Plans

Losers: People who earn an above-average income and don't want to be strapped with a repayment plan for five years.

Under current law, the typical Chapter 13 repayment plan is for three years, although some last as long as five years. The new legislation would increase the standard length to five years for people who earn more than the state median income for their family size. This would require them to pay back a larger portion of their debts.

The state median income for a family of four ranges from approximately $43,000 in New Mexico to $75,000 in Connecticut.

-- Anonymous, May 06, 2001