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Understanding the new bankruptcy law
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"The effect of this is that when your collateral is worth more, that puts a higher value on your assets in the bankruptcy petition, which could ultimately result in you making higher payments to your unsecured creditors."

Increased paperwork and expense load
Paperwork overview. The burden on the consumer to document income and expenses has vastly increased under the new law. According to the American Bankruptcy Institute, consumers must provide:

  • A list of all creditors, secured and unsecured.
  • Schedules of assets and liabilities.
  • Schedules of income and expenses.
  • Certificate of credit counseling.
  • Evidence of payment from employers, including pay stubs of the past 60 days.
  • Statement of monthly net income.
  • Tax returns for the most-recent tax year.
  • Tax returns for several years prior to the filing, if those returns hadn't previously been filed with the IRS.
  • Photo identification.

If these documents aren't provided to the bankruptcy court within 45 days of the initial filing, the court will automatically dismiss the case. You can file for one 45-day extension, which may or may not be granted.

Legal costs. John Penn, president of the American Bankruptcy Institute and a partner with the law firm Haynes and Boone in Fort Worth, Texas, estimates that legal costs involved in a bankruptcy filing are likely to be twice what lawyers charged under the old law.

"The main reason it will be more expensive is there is so much more work required of lawyers and debtors," he says. While there is no set fee for these cases throughout the country, typical fees currently range from $750 to $1,500, he says. Doubling those fees drives up the cost to between $1,500 and $3,000.

Besides increased costs, lawyers will labor under increased burdens. They will be required to certify that their clients' claims for their assets, liabilities, income and expenses are accurate, and could face court sanctions if they aren't.

Lawyers are also placed in the odd position of being unable to advise their clients to take on new debt before they file for bankruptcy, including the debt of legal fees. "You can't advise your client to incur additional debt, but paying the lawyer will result in more debt," says Ehrenberg. "You have violated the code if you have encouraged them to incur an additional debt, whether that is legal fees or other costs, even if that is the best advice you can offer."

Refiling and serial filings
Refiling. If your bankruptcy case is dismissed for any reason and you still can't pay your bills, you'll have to refile. Before the law went into effect, it wasn't much of an issue because completing a case is much easier and there aren't penalties for refiling. But that has changed.

"There are provisions in the law that sharply limit relief if you are filing after a prior case has been dismissed," says Penn. "You will probably see people who try to do it themselves end up having their case dismissed, and by the time they come back for round two the terms won't be as good."

Next: "law allows courts to impose debt reductions of up to 20 percent ..."
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