Bankruptcy Article

Proposed legislation to change the bankruptcy laws by Holden Lewis, Bankrate.comSM

Bankruptcy reform bills in Congress contain a number of measures that are designed to reduce abuse of the bankruptcy system. Most of them would make it more expensive or more difficult to declare bankruptcy.

Some of the most important changes called for in the legislation are listed below. The links in each item takes you down to a fuller explanation.

Means Test: This test requires people filing Chapter 7 to pass a "Means Test" which is used to determine if you can file chapter 7, or chapter 13. Chapter 7 allows people to wipe out debts and get a fresh start.

Vehicle Protection: Under the proposed law it would be harder to protect one's personal vehicle from creditors. Internal Revenue Service standards for vehicle expenses would be adopted. Right now, it is up to the judge to decide whether vehicle expenses are reasonable.

In some cases, a house worth more than $250,000 would not be protected in bankruptcy, and it would be harder to move to a state with generous homestead laws, sink all your assets into a big house, then declare bankruptcy while keeping the house.

Education & Counseling: Although not required now, people who want to file bankruptcy would first have to receive education about the alternatives to bankruptcy and credit counseling.

Child Support and Alimony: These payments would have a higher priority. Creditors could ask the bankruptcy judge to throw out an individual’s bankruptcy petition or ask the judge to convert a Chapter 7 filing to Chapter 13. Right now, those with a financial interest in the proceedings, such as creditors, can't make such requests.

Tithing: People filing for bankruptcy could give as much as 15 percent of their income to charity without being challenged.

To find out if bankruptcy is right for you, use this FREE Legal Evaluation from a local bankruptcy attorney to help you decide.