If anyone has thought about filing for bankruptcy, now is the
time to do it.

The sense of urgency comes from a change in the bankruptcy law
that goes into effect Monday.

In essence, the law will make it harder and more expensive for
people to completely wipe out their debts as allowed under Chapter
7 bankruptcy.

“It’s a complete scheme to force people out of Chapter 7 and
into Chapter 13,” Bradford attorney Ron Langella said.

Chapter 7 lets a person who doesn’t have the “capacity to pay
their debt back, get out from underneath it,” Langella said.

Chapter 13 bankruptcy has been another option. This allows
someone to repay his debt over the course of several months. For
instance, that person may be able to pay back his debt, but the
creditor does not make him pay the interest.

The new law seemingly makes it harder for people already in
financial turmoil to declare bankruptcy.

“People are really struggling,” Langella said. “Why make it
purposely harder?”

Finance officials say this is the most sweeping change in
bankruptcy law.

Now, someone will have five years to repay their debt instead of
three, meaning creditors will not get their money as quickly as
before.

Under the new law, a “means test” – a “complex series of
calculations,” according to Langella – looks at the available
household income according to family size and compares it to the
average in that state.

If the family income exceeds the median in that person’s state,
they have to file for Chapter 13 bankruptcy. If they have at least
$100 a month left over after paying certain debts and expenses,
they will have to file a five-year repayment plan under Chapter
13.

Proponents welcome what they say is a long-needed crackdown on
those who rack up credit card debts recklessly, only to shed them
in Chapter 7. They maintain that abuse of the bankruptcy process
results in higher interest rates for everyone else, a “tax”
averaging $400 per family per year, The Associated Press
reported.

Langella is concerned that people in this region won’t get a
fair deal since officials will look at the state median.

“They limit you to what the IRS says is an allowable living
expense,” he said. “It’s set up, geared toward the big cities.”

“Those people don’t come to see me. Their four wheels are
touching the ground,” he said, adding something bad generally
happens to precipitate people filing for bankruptcy.

Currently, people just disclose their income and expenses to
declare bankruptcy.

Under the new law, there’s also six months of credit counseling,
which the person pays for.

This makes it “hard and more expensive for people to get help,”
Langella said. “There will be more steps, be more expensive and
hurt the person getting help.”

He added that no one is quite sure how the counseling is going
to work because not all of the details are in place.

The main reasons people file for bankruptcy, according to
Langella, are those who are self-employed who started their own
business, lost their job, seniors or divorced and have suffered
“severe financial consequences.”

Langella, who said bankruptcy has been a large part of his
practice, explained that one example is if someone loses his
$50,000 a year job. He then starts a new job for substantially less
– $25,000 – so he pays his bills with credit cards, sending him
further into credit card debt.

There’s also senior citizens on a fixed income of social
security and small pensions with high medical bills.

One elderly retired man came to Langella when he had to pay a
$150,000 medical bill as an out-of-pocket expense.

“They are boxed in financially,” Langella said. “They have
limited resources.”

If people are not ready to file, they can do a “merit file” by
Monday which starts the process under the old rules.

“If for no other reason than to avoid more cost,” Langella
said.

Langella, who fields about eight to 10 calls a week about
bankruptcy, advises that people should not wait.

“You may still be eligible to get help,” he said, referring to
the Monday changeover. “But there will be more hoops to jump
through.”

“It’s a complicated scheme. It really hurts the little guy.”

The Bankruptcy Abuse Prevention and Consumer Protection Act of
2005 – a 501-page bill – was signed by President Bush April 20. The
eight-year campaign was headed by the banking, credit card and
retailing industries.