New Bankruptcy Law is Not Cause for PANIC
I'm posting this as a good summary of the pre-law vs. post-law reality. There has been such a flood of press and ads related to getting consumers to file before the law change - now that it's here, it's time to get the word out there that, "you can still file for bankruptcy".
Here's the article:
"Change can be frightening, especially when it concerns legislation governing personal finances.
"Don't hit the panic button just yet," said attorney David Sergeant. "The new bankruptcy law has been somewhat over discussed from a 'scare' stand- point. It's got people thinking they can't file for relief - that's not the case. It just means there will be more work to do. Bankruptcy is still an option."
Sergeant, of Fort Dodge, specializes in bankruptcy law, acting on behalf of both individuals and the government. He not only helps people seeking debt relief, he switches hats and acts as a regional trustee with the Central Division of Northern District of Iowa and is responsible for reviewing cases to determine whether there remains any items of value that can be turned into money for creditors.
As a trustee, he normally has three or four hearing dates set each a month. However, because people were frightened by reports of increased stringency within the bankruptcy laws that went into effect Oct. 17, Sergeant said he expects three times the normal number of hearings to be set in November to handle the flood of cases filed just before the deadline.
"Four or five months' worth of cases were filed within a week," he said. "Everybody wanted to file before the changes took place. As far as I know, one case has been filed since the new law went into effect. Preceding it, I can't tell you how many, probably hundreds."
Sergeant estimates it will take the court system at least a month and a half to deal with the sudden influx, and those cases will most likely be administered using the old law.
"It's a concentrated occurrence," he said. "I expect it to reduce significantly once the initial rush is handled, but time will tell whether there will be more filings as people get more comfortable with the new law."
Perhaps the biggest change people will have to get comfortable with is the upfront, in-depth assessment of their income, Sergeant said. They will have to go back six months to calculate their average pre-tax income and then compare it with a chart to determine whether they fall below or above the Iowa median income.
The state's median income for a one person household is $35,321 and for a four- person household it's $61,951. If the person seeking relief through bankruptcy makes less than the median, Sergeant said they're in a good position to file Chapter 7, the simplest of bankruptcy procedures, without any real difficulties.
It's estimated 85 percent of the individuals who file bankruptcy will be below the line and able to file without further scrutiny. However, if people make more than the median they go on for more detailed analysis or means testing.
"Concerns are whether there is abuse existing when people file bankruptcy, and that's what this is all about," Sergeant said. "If in the end, they have less than $100 in disposable income, they can go ahead and file Chapter 7 without the presumption of abuse. If they have more than $100, they may very well find themselves filing a different type of bankruptcy, Chapter 13."
Under the Chapter 13 procedures, further calculations are done and a five-year payment plan is set up through the court to pay off creditors. Also, Sergeant said, verification of information becomes crucial. People must have proof of what they're reporting for expenses and income, and lawyers must then independently substantiate the information.
''A lot of due diligence is required by lawyers representing individuals," Sergeant said, "and due diligence has been thrown on the clients who must provide more information.''
However, before people even file, and regardless of what chapter they might end up filing under, they have to attend mandatory a credit-counseling session. Also once their case is taken care of in the courts, they must attend a class on personal finance management.
"Everybody needs to be prepared," Sergeant said, "but bankruptcy is still a viable option."
