Vail Valley: Recent bankruptcy laws make filing more difficult for some |

Vail Valley: Recent bankruptcy laws make filing more difficult for some

Susan Balcomb
Vail, CO, Colorado

With bankruptcy on the rise, a law intended to curb consumers’ skyrocketing debt has significantly changed how consumers declare bankruptcy.

These changes include a new “means test” that prevents some people from filing a Chapter 7 bankruptcy. The law requires instead that some consumers file for a five-year repayment plan under Chapter 13 of the bankruptcy code, and also mandates increased financial counseling and education to help consumers better manage their finances in the future.

Called the “Bankruptcy Abuse and Prevention Consumer Protection Act of 2005,” the law allows a trustee or creditor to bring a motion to dismiss a Chapter 7 bankruptcy – which discharges debt, subject to some exceptions if a consumer’s income is greater than the state median income. As a result, certain debtors with higher incomes would shift to a five-year repayment plan.

Consumers may only file for Chapter 7 once every eight years, and domestic support obligations – including child and spousal support – are given first priority in distribution of assets.

Under the law, consumers must also take education classes about alternatives to bankruptcy, and before the process is complete, debtors also must complete a personal financial management course.

Other changes include a provision preventing the discharge of student loans, barring undue hardship. Recently acquired luxury good totaling more than $500 are also presumed non-dischargeable, as are cash advances of $750 if procured within 70 days of filing.

A debtor may only exempt up to $125,000 of interest in a homestead that was acquired within roughly three years and four months prior to the filing. In addition, under Chapter 13 bankruptcy, a secured creditor can retain its lien on a vehicle until the payment of the entire debt, as long as the vehicle was purchased within 910 days of the filing.

The law’s provisions apply to bankruptcy cases filed on or after Oct. 17, 2005.

Consumers facing bankruptcy, or who need to fulfill the necessary education requirements, can enlist the help of approved organizations. The Debt Doctor can provide you with a list of non-profit agencies that provide pre-filing bankruptcy credit counseling for as little as $50 per household. Post-filing debtor education fees cost about $50. Consumers taking the course via telephone pay may be charged additional fees, which can be waived in certain circumstances. Together, these tools are intended to help consumers avoid financial calamities in the future, and get back on solid financial footing.

The Debt Doctor (970-376-0615) offers financial counseling for homeowners potentially facing foreclosure and other financial difficulties. Free public seminars regarding debt management and home ownership are also available through Select the Seminar button to explore schedules and sign up for the seminars.

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