A rush on bankruptcy courts

If you have less than $100 a month left over after all the allowed deductions, you're allowed to continue with your Chapter 7 filing. If you have more than $166.66, Chapter 13 is a given.

If the amount falls between $100 and $166.66, yet another calculation is made. Is this leftover income enough to repay at least 25% of the debt you would otherwise erase? If so, you're generally shunted into a repayment plan. If not, you can continue with your Chapter 7.

Exception: Debtors can avoid Chapter 13 by arguing they have "special circumstances." While attorneys don't expect many to be successful, the DOJ has said that the courts can consider income loss, increased expenses or other difficulties arising from natural disasters as special circumstances that warrant allowing debtors to remain in Chapter 7.

Repayment lasts longer

If you do wind up in a Chapter 13 repayment plan, you'll have to stay in it longer to get relief.

Under the old law, a debtor who hewed to a Chapter 13 repayment plan for three years could have his or her remaining debt erased. Under the new law, repayment plans must last for five years if the borrower's income is over the state's median. Also, the borrower must file new statements of income and expenses each year.

No relief for an upside-down car loan

Under previous bankruptcy law, people who owed more on their cars than the vehicles were worth could get the excess debt erased in Chapter 13. They could keep the cars if they could continue making the payments, and the total amount they owed was reduced to the fair market value of the car.

This "cram down" or "lien stripping" will no longer be allowed if the auto was purchased within 910 days (about 2.5 years) of filing.

More debts are inerasable

Some unsecured debts, like recent taxes and child support, typically couldn't be discharged or erased under previous bankruptcy law. Now more types of loans come under that restriction, including:

• Student loans. Prior to the new law, student loans couldn't be erased if the money was lent by a not-for-profit or in a government-sponsored loan program, unless the debtor could show undue hardship. Now, that protection has been expanded to private and for-profit lenders.
• Cash advances. Under the prior law, debtors had to pay back credit-card cash advances of more than $1,225 taken out 60 days or less before a filing. The new law reduces the amount to $750 and includes advances made within 70 days of a filing.
• Fraudulent credit-card use. If the court decides you racked up credit-card debt knowing you were going to file for bankruptcy, the amount you owe won't be discharged in Chapter 7 or Chapter 13. It used to be that a creditor had to successfully object to the charges to prevent a Chapter 7 discharge, but even then debt could be erased in Chapter 13 if the debtor completed his or her plan.

In addition, the "super discharge" available in Chapter 13 has been reduced. This discharge in the past effectively wiped out most remaining debt after debtors completed their repayment plans. Now more types of debt will survive the Chapter 13, including debts for trust-fund taxes, domestic support payments, student loans, drunken-driving liabilities and some types of court-ordered damages.

You can't refile for 8 years

In the past, a debtor could file another Chapter 7 case six years after receiving a discharge from his or her last Chapter 7 case. The waiting period has been increased to eight years. There are also more restrictions on how often debtors can file Chapter 13 cases, which in the past were often used fraudulently to stop or slow evictions or foreclosures even when the borrower had no intention of following through with the case.

Liz Pulliam Weston's latest book, "Easy Money: How to Simplify Your Finances and Get What You Want Out of Life," is now available. Columns by Weston, the Web's most-read personal-finance writer and winner of the 2007 Clarion Award for online journalism, appear every Monday and Thursday, exclusively on MSN Money. She also answers reader questions on the Your Money message board.

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