The New Bankruptcy Law - Its Impact on Bankruptcies

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, more commonly called the 2005 Bankruptcy Act or New Bankruptcy Law, made significant reforms to the current US Bankruptcy code. Its purpose is to prevent perceived abuse by customers especially those individuals who file for bankruptcy just to avoid paying for unwanted debts. An example of these changes is that before individuals are eligible to file for bankruptcy relief, they must go through a mandatory credit counseling program for six months. After that individual has filed for bankruptcy, a financial management course must also be completed.

An individual's eligibility to file for Chapter 7 and Chapter 13 bankruptcy has also been changed under the New Bankruptcy law. To determine which chapter you are eligible to file for, the bankruptcy court uses the means test. This means that it compares the your state's median income to your average income over the preceding six months. You can only file for Chapter 7 Bankruptcy if your income falls below that median. If not, however, further measures in the means test will help you understand whether you need to file Chapter 7 or Chapter 13,

Therefore, before you file, it's more important than ever to know the full extent of your circumstances. Your current income sources, debts, monthly living expenses, the deeds to any real estate or other major property that you own, records of any large financial transactions for the last two years, and tax returns should be properly recorded, filed and cataloged to make the process easier and to avoid any penalties or even disqualification. You'll need the guidance of an attorney to review your assets because not all property is exempt from being seized as part of the bankruptcy process. Don't forget to secure the necessary forms to be used as well as to file a petition. Because any other information brought forth by your creditors could jeopardize the success of your bankruptcy, it's very important that you are detailed and truthful on this petition.

If you're filing for Chapter 13, you must also create and submit a repayment plan. Your leftover money after your living expenses and how that will be divided with your creditors should also be considered and planned carefully. You must be prepared to pay back child support and taxes in full while your unsecured debts (like medical bills and credit card debt) are partially paid.

An automatic stay is granted to all your debts when you file for bankruptcy. Once you have officially filed, any foreclosure proceedings currently in the works at the time of filing and all communications from creditors will be stopped. However, this temporary relief comes at a price. The court will appoint a trustee to manage your case and all of your property that are not protected by the exemptions. Although the New Bankruptcy Law allows for a more merit-based, albeit confusing, bankruptcy filing, it is still in your best interest to speak with an attorney to clarify some questions and to guide you correctly through the entire process.

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