Which New Chapter 7 Bankruptcy Laws will Affect Me Most?

The new Chapter 7 bankruptcy laws have changed several things for potential bankruptcy filers. Collectively called the "new" laws, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 added new rules in order to weed out people who might be abusing the system from being able to file Chapter 7.

Chapter 7 bankruptcy offers protection from creditors for debtors who have high amounts of unsecured debt, such as credit cards or medical bills, by selling off their assets (excluding exemptions allowed by state law) in order to repay creditors. When a Chapter 7 bankruptcy is concluded, any unpaid debt that was included in the bankruptcy is discharged, or forgiven.

Eligibility

The new 2005 laws added an income test to determine if a filer is eligible to file for Chapter 7:

• The filer's current monthly income over the previous six months is compared with the median income in their state
• Income from other members of the household is to be included (except if that income is from Social Security or is compensation from certain crimes)
• If the current monthly income is below the state median income, you may file Chapter 7

If your income is above the state median income, the next step to determine eligibility is a "means test". Your bankruptcy attorney can help you work through the means test.

• Certain deductions may be taken for fixed expenses such as housing, transportation, and utilities
• If you are left with less than $166 per month after deducting the allowed expenses, you may file Chapter 7
• A form showing the results of the means test is required with the Chapter 7 filing paperwork

Credit Counseling

The other changes that will affect you twice in the bankruptcy process, whether you file Chapter 7 or Chapter 13, are the new requirements for credit counseling and finance management.

Within the six months before you file bankruptcy you are required to attend a credit counseling session from a certified company in your state. The session lasts about sixty to ninety minutes. You will be asked to disclose information about your finances to the credit counselor, so be prepared at this session with:

• recent pay stubs
• last 2 years income tax returns
• list of all debts, and their current balances
• list of all assets including your home, car(s), property, jewelry, bank accounts, retirement accounts

At the completion of the session you will be given a certificate which must also be included in your bankruptcy filing. If you are married, and you and your spouse are each filing bankruptcy you may attend the same session, but you each need your own certificate for the filing.

During your actual bankruptcy, before your debts are discharged you will have to attend a special financial management class where you will obtain a certificate that also must be filed with the bankruptcy court. This two hour course covers a variety of topics regarding managing your finances and remaining in control of any future debt as you come out of bankruptcy.

Get Legal Help

An experienced bankruptcy attorney should be hired to assist with making decisions about which type of bankruptcy is right for you, filing all of the correct paperwork, and dealing with your creditors. This is a big step, and one that will affect your life for many years to come. You deserve professional advice and assistance.