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The new bankruptcy laws and how they affect you.
Your options in filing bankruptcy as a homeowner.
It has been over a year since the new, tougher federal bankruptcy laws took effect. In that space of time, personal bankruptcy cases have shrunk and the consumers must clear more financial hurdles than ever to get a financial fresh start from the courts.
Despite the slowdown, more and more homeowners will face a difficult choice when their finances are upended by mortgage resets on their adjustable-rate-mortgage debt. Many homeowners with short term interest-only or pay option arms could see their mortgage payments more than double when the loan terms recast. You need to know your options when the threat of foreclosure looms.
Mortgage interest rate resets will rise on over one trillion dollars of adjustable-rate mortgages in 2007, a figure that is projected to increase to over $2 trillion in each of the next two years.
As the market slows, it is expected that real estate related issues are going to put a substantial strain on the bankruptcy system. As a homeowner you need to know about the latest changes in the law and how they affect you..
Under the new law, a 'Means test' is used to determine whether someone could extinguish all debt by filing Chapter 7 liquidation. Under a Chapter 7 bankruptcy, a liquidation takes place; a court-appointed trustee distributes assets among creditors. Some property is exempt, and not all debts can be discharged. Under Chapter 13, a debt-repayment plan for individuals who earn more than their state's median income will agree to make periodic payments to creditors over a 3 to 5-year period.
The new law also requires borrowers to undergo credit counseling and provide substantially more documentation, increased legal fees and other costs involved in filing personal bankruptcy.
While the law was reformed to help counter fraud in the system and force scofflaws to pay on their bills, the law also can harm cash-strapped people in financial ruin caused by housing costs, health problems or job loss.
