New Changes in the Bankruptcy Laws for California
In October 2005 major changes were enacted in the bankruptcy code in an attempt to minimize some fraud that had been being used by some unscrupulous filers. Though it was feared that it would become tougher for people to go bankrupt, in reality, most people will still qualify, and in some cases, it becomes easier to qualify.
Following are the major changes in the law.
1. Chapter 13 Must Be Used for Higher Income Filers
A means test has been established to ensure people aren’t simply bankrupting out of debts unnecessarily. If the person wishing to file makes more than the California median income, they must file for Chapter 13, where a payment plan is worked out, rather than Chapter 7 where the debts are simply discharged. Only lower income filers are permitted to file under Chapter 7.
2. More Documentation and Audits Are Required
To ensure persons are not fraudulently filing for bankruptcy, more documentation, such as six-months worth of pay stubs, past tax returns, and other documentation is required to be submitted in addition to simple declarations. In addition, Federal Auditors are reviewing a much higher percentage of bankruptcy filings to ensure they are being handled properly under the law. Filers are also notified that they will be subject to fraud prosecution if they their filing is fraudulent.
3. New Rules about Reasonable Living Expenses
Under the old rules, you could continue to live on your current living expenses and use your disposable income to pay off your debts, but in the new law, your reasonable living expenses are scrutinized more closely, and you may have to learn to get by on less monthly outgo for living expenses. The court won’t force you to live on less than you’re able, but they won’t let you live a life of luxury either.
4. Credit and Financial Management Counseling.
Before you file for bankruptcy protection, you must first go though a credit and budgeting counseling course. You’ll also have to undergo a financial management counseling session before your case is completed. Both of these courses be taken online or by telephone and are provided at nominal cost. Certificates of completion are required.
5. New Property Valuation Methods
Prior bankruptcy proceedings valued your property at low values, or at what you may have paid for it years ago. Under the new laws, it is valued at the replacement value in today’s market – adjusted for age and condition. Of course if the trustee orders property sold, it is only valued at whatever price it can be sold for, usually far less than the replacement value, so this new provision has little effect from the original laws.
6. Time Between Bankruptcies Have Increased.
If you filed for bankruptcy in the past, the time allowed before you can file again have been increased. If you filed for a Chapter 7 in the past, you must wait 8 years before filing another Chapter 7, or 4 years before you can file a chapter 13. If you filed a Chapter 13 in the past, you must wait either 4 or 7 years before filing a Chapter 7, depending on your circumstances, and 2 years before filing another Chapter 13.
7. Increased Residency Times to Take Advantage of State Exemptions
If you have lived in California for less than 2 years you must use the exemptions from the state you moved from, rather than the California Exemptions for personal property. This has increased from 2 months in the previous law.
The homestead exemption for your home is also based on residency. If you have lived in California less than 2 years, you must use the homestead exemption from the state you moved from. If you’ve lived in California from 2 years to 40 months, you can use the California exemption, but it is subject to an equity cap of $136,875. If you have lived in California for more than 40 months, you simply use the California homestead exemption.
8. More Legal Responsibilities and Red Tape
While there are no more problems qualifying for bankruptcy than there used to be, the amount of effort and paperwork it takes has substantially increased. There was a time when you could get it done on you own, but to do so now would be unwise. A competent California bankruptcy attorney is a far wiser choice under the new laws.
Stephen Brittain is a Bankruptcy Attorney serving Los Angeles, Orange, San Bernardino and Riverside Counties, and all of Southern California. He specializes in helping people who have gotten behind in their bills and need relief from bill collectors, foreclosure on their houses, and other financial difficulties from divorce, disability, excessive medical expenses, and more. Stephen offers a free initial consultation. His web site is http://www.stephenbrittain.com
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