You are young, fabulous and living well beyond your means. You are probably telling yourself...no problem. This ebay habit is completely manageable. Worse comes to worse you think: "I can just file for bankruptcy." Well...think again.
The U.S. government is about to pass a set of laws that will reform the entire bankruptcy process. And the changes aren't pretty. Bankruptcy will no longer offer an easy panacea for the financially challenged. And this has creditors cheering.
But just what kind of changes should you expect? Here is a list of the highlights:
First of all, it will be much harder to qualify for bankruptcy. But before you let your heart-rate skyrocket, breathe, because you still may meet the requirements under one of two tests.
Under the first test, you must show that you have earned less than the median state income for 6 straight months. If this is true in your case, then you may automatically file for Chapter 7, the kind of bankruptcy filing that allows you to erase the majority of your debt.
Now don't start dancing in your chair just yet. A typical single 35-year-old man earns about $36,000.00 a year. So it is entirely possible to experience financial difficulties while still coming in well above the median state income. If it happens you do not qualify under this first test, you will be subjected to the more stringent Means Test. In this case, a trustee of the court must calculate your income over 60 months and then subtract your expenses over that same 60 month period. If the balance is more than $6000.00, then you may be forced to pay your debts. But don't worry. The court will create a reasonable repayment plan under Chapter 13, the type of bankruptcy filing that allows you to pay your debts back over a longer period of time.
You should know that the federal government is trying its best to discourage bankruptcy, so most of these new laws are designed to target repeat offenders. Under the new law, a debtor will be required to wait 8 years—not the traditional 6 years—before filing for bankruptcy a second time.
Oh and one more thing—if you move, you have to wait 2 years before filing in your new home state. In other words, once you move to a new state you will have to live there for exactly 730 days before filing. And that may feel like a lifetime if you are under the gun to pay your credit cards.
Get ready to shell out some initial cash. The federal government will force you to undergo consumer credit counseling before you even try to file for bankruptcy. That means not only will you have to pay for the counseling services, but you will also have to work out a payment plan with your creditors before you file. This counseling will likely take up to three months. So, you will need to continue making payments on your bills, which will continue to accrue interest and penalties. Ouch!
Remember: Keep that certificate of credit counseling because you will need to supply it to court when filing for bankruptcy.
You are allowed far fewer exemptions (assets that are protected from your creditors). In other words, you will have to hand over a lot more or your property for either repossession or liquidation.
Under the new laws, you'll have to repay more of your loans, and you'll be responsible for the full amount that you owe. For example, when filing for bankruptcy in the past, your auto loan might have been reduced to the market value of the car. So if you owed $10,000.00 on your car loan but your car was only worth $2000.00, you would only have to pay back the $2,000.00. With the new changes, however, you'll be responsible for the full amount owed on the car loan—$10,000.00.
Car loans are not the only area where debtors will be squeezed. Look for big changes in tax liabilities as well. Unlike in the past, you will most likely have to pay the government what you owe, as fewer taxes will be discharged. Also expect to owe more in the area of educational loans. Those school loans you've been deferring for years are simply not going to go away. Finally, don't expect any breaks on spousal or child support. The government is not about to let you shirk your familial responsibilities.