New Bankruptcy Law -- Bankruptcy Legal -- Bankruptcy Code

New Bankruptcy Law

There has been a major reform in US bankruptcy laws, and the new law is known as The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, which came into force on October 14, 2005. A debtor needs to understand what are the new bankruptcy laws, and their implications, decides on the best way to get out of debt quickly.

The new bankruptcy legal provisions stipulate that all debtors will have to get credit counseling before they can file for bankruptcy. They will also have to get additional counseling about budgeting and debt management before their debts can be wiped off. 

Counseling is essential even if you are being asked to pay debts that you feel are unfair or if it is apparent that a repayment is not practicable for you. 

If you want to file for bankruptcy under Chapter 7 or Chapter 13, you must undergo credit counseling with an agency that has been approved by the United States Trustee’s office.

After your bankruptcy case is over, you will still be required to go through another counseling session to learn about personal financial management provided by an approved debt counseling agency, before you can get a court discharge wiping off all your debts. 

The old rules allowed most debtors to select the type of bankruptcy that they felt was most suitable for them. This has been changed with the new bankruptcy law and debtors who have high incomes will not be able to file for bankruptcy under Chapter 7. They will have to pay at least part of their debts under Chapter 13.

To file for bankruptcy under Chapter 7, your current monthly income, which is your average monthly income in the last six months before you file, must be less than or equal to the median income for a family of your size, in your state. 

If your income is higher than this, you will have to pass “The Means Test,” which determines whether you have enough disposable income to make payments under a Chapter 13 repayment plan, after certain allowed expenses and monthly payments due on secured and priority debts. 

You will have to use the limits imposed by the IRS to calculate the allowed expenses, which may be lower than the cost of living in your city. Priority debts include tax debts, wages owed to employees, alimony, and child support. 

As per the new bankruptcy law, bankruptcy lawyers will have to vouch for the accuracy of the information provided by their clients. They will have to spend more time on every bankruptcy case and this will mean that debtors will have to be prepared to pay personal bankruptcy lawyers more. It will also be more difficult for debtors to find a lawyer to represent them in a bankruptcy case.