In 2005, new bankruptcy laws went into effect in an order to stop the abuse of Chapter 7 filings and increase the amount of money repaid to creditors. These new laws have dramatically impacted the way that bankruptcies are managed at Court and what assets are valued at when seized by the trustee.
Qualifying For Chapter 7
Chapter 7 bankruptcy absolves the filer of all of their debts, and many people were using this option even if they had the ability to restructure and repay their debts. Now, in an effort to force more people into Chapter 13 bankruptcy protection, the Court has established a Means Test to determine if you have the ability to repay your debts.
Now, the trustee will look at all of your income and your debts and other mandatory obligations such as child or spouse support and ta obligations, and will determine how much disposable income you have left after paying all of these obligations from your current income.
If your disposable income is $100.00 or less, the Court will allow you to file Chapter 7. If your disposable income exceeds $166.66, you must file Chapter 13. If your disposable income falls within these two figures it is at the discretion of the trustee and the Court to determine which chapter you can file. There are no exceptions to this rule. To learn more about the specifics of this rule, consult with experienced bankruptcy attorneys.
As part of any bankruptcy, the Court appointed trustee will review your assets to determine what is to be sold to cover your debts. This applies to both Chapter 7 and 13. In the past, these assets were valued at what they could be sold for at a “fire sale” or quick auction. These prices were often very low, and creditors were forced to write off large debts.
Now the law states that the assets must be valued at what the current cost it would take to replace that asset. This increase in value has increased the amount of assets being taken by the trustee and sold to pay off debts. However, it should be noted that the items are still sold at a quick sale and it does not matter what the trustee valued you them at, they can sell for any price.