Bankruptcy Regulations for Individuals

Coupled with a struggling economy and high unemployment rates, more Americans are having trouble meeting their financial obligations. Some are deep in debt due to living off their credit cards or paying for expensive medical care. People who would have never considered bankruptcy as an option in the past now view this as a way to get out from burdensome debts and make a new start. Under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCA), the new bankruptcy regulations requires all debtors to receive credit counseling from an approved agency within 180 days of filing their petition.

Qualifying For Chapter 7

The bankruptcy regulations changed in 2005, making it harder for some to qualify for Chapter 7, which is known as the liquidation bankruptcy. The debtor’s income is examined to determine if he or she is able to repay 25% of their unsecured debts. If their income is found to be insufficient, then the next hurdle is calculating their recent income. To be eligible for filing Chapter 7, the individual must have made less than the average median income within the past six months prior to filing. For example, a family of four would have to make less than the average family of four within the same jurisdiction. Those who pass the “means test” can file a Chapter 7 bankruptcy petition.

Restructuring Debts Under Chapter 13

For those unable to qualify for a Chapter 7, they may be eligible to file a Chapter 13 bankruptcy. This allows the debtor to restructure their debts while retaining their assets. This is often called “the wage-earners bankruptcy” because the law requires the petitioner to have a regular monthly income while they are paying back their debts over a three to five-year period. The repayment plan must outline in detail how the debtor will pay their creditors. Priority debts must be paid first, which include:

• Any child support or alimony that is past due
• All tax debts that are due, including both state and federal income taxes that are less than three years old
• Student loans
• Court ordered restitution to victims, such as debts that resulted from a drunk driving incident
• All criminal fines
• For business owners, any wages, salaries and commissions that are owed to their employee, including contributions owed to the employee’s benefit fund

Most homeowners can use either the state or federal homestead exemption to protect the equity in their home. Once the repayment plan is complete, any remaining eligible debts will be discharged.

Getting Help From a Bankruptcy Lawyer

Bankruptcy allows people to reduce or restructure their debts giving them a chance to keep their homes and vehicles while they are experiencing financial difficulties. Both state and federal laws govern the bankruptcy regulations and if you make a mistake when filing your petition, it can end up costing you more than what a bankruptcy attorney would charge for expert legal advice.