As we all know, on October 17, 2005, new bankruptcy rules became the law of the land. Bankruptcy is a federal matter, which means that the rules apply all over the United States - everyone is in the same boat.
There are several excellent resources available to provide an overview of the new bankruptcy provisions, and I cannot detail them in a single page article, so I will try to cover the provisions that apply to the foreclosure industry and Ward's graduates.
First, despite what you have heard, you can still file for bankruptcy. Bankruptcy courts are still in business and are still accepting filings. However, a key weapon in our arsenal, the emergency bankruptcy filing, has been sharply curtailed. You can no longer file a bankruptcy in two hours. Now, they have to be planned. This may well increase the number of trustee sales in the months ahead, we will see.
The reason for that is that bankruptcy filers are required to attend a credit counseling meeting and have a certificate of completion at the time of filing the bankruptcy. The credit counseling can be done over the phone, on the internet or in person. The average cost is about $50; the counselor can also charge for the certificate. The sessions last about 90 minutes on average. Again, this must be done before the filing of the bankruptcy petition. There are very few exceptions, primarily medical or Hurricane Katrina related.
In addition, and complicating the emergency filing requirement, is that the paperwork required for filing has increased. All new petitions are needed, the pre-October 2005 forms can no longer be used. The filing fee has also gone up.
Worse, in order to prepare the petition, the filer is now required to provide:
Next, most people will not be able to choose Chapter 7 (liquidation) and will be forced into a repayment plan under Chapter 13. These repayment plans take about 5 years to implement. Finally, when you complete the repayment plan, you will be required to attend a financial management class. Curiously, as I write this, the format for the financial management class has not been approved by the government.
In order to keep the family home, the potential bankrupt will almost certainly have to choose Chapter 13 bankruptcy. In addition, within 30 days of filing the bankruptcy petition, the bankruptcy petitioner must file an notice with the court stating they wish to affirm the mortgage debt and a plan to make the mortgage payments.
In conclusion, this is a new, untested world. These rules are likely to be changed in the years ahead, but for now, the promise of stopping a foreclosure by filing a bankruptcy the morning of the sale no longer appears possible.
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