New Bankruptcy Laws: File By The End Of The Month or Start All Over! Part 1 of 2.

30 Mar New Bankruptcy Laws: File By The End Of The Month or Start All Over! Part 1 of 2.

With the advent of the new Bankruptcy laws in 2005 came a plethora of new changes and requirements, most of which require numerous substantiating documents which also coincide with strict time frames. Failing to supply such documents and/or abide by the new time frames might mean something as slight as continuation of your case to as drastic as complete dismissal!

Think of a Bankruptcy case as a snapshot in time. On the date the petition is filed, everything must be accurately disclosed as of that second, minute, hour, and day of filing; from the valuation of assets and amount of debts, to current income and current expenses. Make an error and its technically a false filing to the court under penalty of perjury, possibly a bankruptcy crime, and possibly punishable by a $500,000 fine and/or 5 years in prison, or both.

Luckily, most mistakes are innocent and very few debtors commit bankruptcy fraud to warrant punishment. Nevertheless, even the innocent mistakes can bring frustration and delay to discharge and case closure. Probably one of the biggest areas of concern is substantiating income for the means test under the new laws.

Unless your debts are primarily non-consumer debts, everyone needs to complete the means test to determine whether an abuse of the bankruptcy exists. In determining whether an abuse exists, current medium income must be established. This is figured out by determining the average monthly income for the 6 months preceding the month in which the bankruptcy case is filed.

For instance, if you filed a petition in March, 2008, current medium income would be determined by averaging all the income received from 9/1/7 thru 2/29/8. Since current medium income is based upon when money is “actually received” as opposed to when “actually earned,” further paystubs are almost always required both prior to the 6 month period and after.

For example: Suppose you planned to file your bankruptcy in March, 2008. In doing so, you supplied your attorney all your documents on 3/15/08. These included all your paystubs for the past 7 months, bank statements for the past 7 months, tax returns for past 2 years, payoffs on all secured assets, etc. The attorney then processed the case and had the final draft ready for review on 3/25/08.

A “signing appointment” was then set up for 3/28/08, but your child suddenly became sick and you had to reschedule for the following week. Since the new appointment was 4/2/8, a small disaster just erupted since a new month ticked by.

You and the attorney basically now need to start from scratch all over again. Its very frustrating, both for you and the attorney. Little did Congress realize how frustrating their new laws would be when something so simple as a day passes by in filing a case. To read more about the exact changes and how a new month can bring huge changes to any bankruptcy case, please click here.

Written by Michael G. Doan

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