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| How Credit Affects You |
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Changes in Bankruptcy Legislation
It's Tougher to FileIn 2005, U.S. bankruptcy law changed, making it tougher to file for bankruptcy. Key changes include:
- Income eligibility: You might not be eligible to file for Chapter 7 bankruptcy if your income is above your state’s median income level, or if the courts determine that you can afford to pay 25% of your unsecured debt.
- Determining what you can pay: If you are eligible to file for bankruptcy, the courts will determine how much you can repay. The courts will use living standards set by the IRS to decide what is reasonable for you to pay for rent, food, and other expenses and to determine how much of your debt you can pay off.
- New debt may not be discharged: Under the new legislation, any credit card debt, cash advances and other forms of consumer debt borrowed within 70 days of a bankruptcy filing may not be discharged.
- Your home may not be sheltered: The law puts a national cap of $125,000 if you bought your home less than three years and four months before filing. Under this plan, creditors can force the sale of a bankrupt person’s house. The owner can keep the equity up to $125,000 and the creditors could get the rest.
- Credit counseling is required: Six months before you file for bankruptcy, you must meet with a credit counselor, as well as attend and pay for money management classes.
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Checklist: Things to Do Before Deciding to File for Bankruptcy |
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- Reduce your spending. Consider a smaller home or less expensive vehicle. Slash your spending, and you may be surprised to find how much is left over to repay debt.
- Talk with your creditors. Despite what you may have heard, your creditors are often willing to work out a payment plan to help you pay off what you owe.
- Talk with a EOUST approved non-profit counseling agency. These agencies can help you create a plan to handle all of your debts.
- Talk to an attorney. Make sure you fully understand the consequences of declaring bankruptcy.
- Consider debt consolidation carefully. You may be able to borrow against a workplace retirement plan, stocks, other securities you own or the cash-value of a life insurance policy in order to pay off your debt. However, these options have serious implications. Make sure you analyze the potential risks and consequences thoroughly.
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