Monday, 30 June 2014

Changes To The Bankruptcy Law – Will It Be Harder To File Bankruptcy?

Posted at  10:07  |  in  Bankruptcy

For a number of years, it was seen that consumers were using bankruptcy as a means of their financial planning so that they could start a fresh new financial life. Among all the debt relief options in the US, most struggling debtors use bankruptcy as this is perhaps the only way in which they could mend their bad financial decisions and start a new life. These decisions of the consumers inevitably lead to a huge loss for the credit card and personal loan lenders. This was when the consumer credit industry started interfering in the decisions of Congress and asked them to reform the bankruptcy law. Finally, the new rules were passed October 17th, 2005. However, it was always reported that the impact of the changing laws wasn’t as what the credit industry needed. Let’s have a look at the subtle changes that was brought in by the Congress.

A sneak peek into the BAPCPA of 2005 – Filing bankruptcy becomes tougher

Due to the increasingly large number of consumers who filed Chapter 7 bankruptcy irrespective of their repayment capability, the new rules came into effect. It is needless to mention that the new rules made it difficult for the consumers to restore their financial lives by filing Chapter 7 bankruptcy. Have a look at the different changes to the bankruptcy law.

What is your average income?

Under the rules that were introduced in 2005, the first change was that the consumers had to figure out their “present monthly income” in order to determine whether or not they can file Chapter 7 bankruptcy. Your present monthly income will be calculated against the median income for a family in your state of the same size. If after calculation, it is seen that your income is less than or equal to the median, you can qualify for Chapter 7 bankruptcy. And in case your income is more than the median income, you have to qualify in the new ‘Means Test’, which is an added requirement according to the new law.

What is the Chapter 7 means test?

The main goal of the Chapter 7 means test is to assess whether or not you have enough disposable income to pay down your debts through Chapter 13 plan. How would you know that you pass the means test? Well, in order to know that you require subtracting certain expenses and debt payments from your present monthly income. If the remaining amount is less than a certain amount, you can qualify for Chapter 7. This particular section was added to reduce the number of consumers filing Chapter 7 bankruptcy in spite of having the ability to repay their debts through Chapter 13.

Pre-bankruptcy counseling requirements

Another new addition to the bankruptcy laws is the requirement for pre-bankruptcy counseling. Before you file for bankruptcy (whether Chapter 7 or Chapter 13), you have to go through a session of credit counseling with an agency that is acknowledged by the United States Trustee’s Office. You must be wondering about the purpose of completing this credit counseling session! Well, this session will give you a clear idea about whether or not you need to file bankruptcy. The agent will discuss all the debt relief options so that you can determine the best option for you. Even after considering all the other debt relief options, if you still think that bankruptcy is the most suitable option for you, you can go for it.

Hence the new laws will certainly make it difficult for a particular class of people who have been misusing the powers of Chapter 7 bankruptcy. Are you one among them?

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Jimmy Simond is founder of he share his immense knowledge of finance in this blog. You can follow him on Google+.


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