Tuesday, August 02, 2005

New Bankruptcy Rules on Discharge of Debts

The bankruptcy reform legislation passed earlier this year will change how long someone must wait to file bankruptcy if they have previously received a discharge. Under the current law, a debtor can file Chapter 7 again if it has been more than 6 years since he or she was discharged from the previous Chapter 7 bankruptcy.

Under the new bankruptcy laws taking effect on October 17, 2005, a debtor cannot file another Chapter 7 unless the debtor was discharged from the previous Chapter 7 or Chapter 11 bankruptcy more than eight years ago. In one recent case, I consulted with a client who needs to file another Chapter 7 because of excessive medical bills. This person previously filed a Chapter 7 that was discharged in May 1999. Athough currently eligible for Chapter 7 under the old 6-year rule, the new laws would require him to wait until May 2007 if he delays filing a new Chapter 7 much longer.

Under the new laws, a debtor cannot file a Chapter 13 unless: (1) the debtor received a discharge under Chapter 7, 11 or 12 more than four years ago; or (2) the debtor received a discharge under Chapter 13 more than two years ago.

As the saying goes, timing is everything. The new law contains potential traps for the unwary debtor and persons considering bankrutptcy should file well in advance of the effective date of the new legislation.

About the Author: Carl H. Starrett II has been a licensed attorney since 1993 and is a member in good standing with the California State Bar and the San Diego County Bar Association. Mr. Starrett practices in the areas of bankruptcy, business litigation, construction, corporate planning and debt collection.

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