Bankruptcy

Q:  I’m seriously thinking of filing for bankruptcy, but I’ve heard new laws make this tougher. Has the process changed that much? — T.V., via the Internet

A:   There was a rush to file before the more demanding new bankruptcy law took effect last Oct. 17. Filings have since fallen to a five-year low.

Debtors must now obtain credit counseling before filing — verified by a certificate — and additional budget and debt-management counseling in a government-approved program before their debts are wiped out. Furthermore, some higher-income filers can’t use Chapter 7, but must use Chapter 13 instead.

“Bankruptcy has become an option of last resort instead of first resort,” said Howard Dvorkin, founder of nonprofit Consolidated Credit Counseling Services Inc. in Fort Lauderdale,Fla. “To qualify for a Chapter 7 filing, you must now pass an income test in which your income is compared to your state’s median income and your expenses to determine what you can afford to pay.”

Chapter 7 “liquidation” bankruptcy usually lasts three to six months. Some property may be sold to pay down debt and your unsecured debts (those for which you didn’t pledge collateral) will be erased.

In Chapter 13 “wage earner” bankruptcy, those with a reliable source of income repay some portion of debt in a proposed repayment plan of three to five years.