Understand Your Filing Requirements under Bankruptcy Law
Important Info about the 2005 Bankruptcy Law
If you’ve thought about filing bankruptcy, you may have heard some myths about the "new bankruptcy law" that took effect at the end of 2005, such as that it is harder to file bankruptcy nowadays and that you can’t file for Chapter 7 bankruptcy anymore.
You’re not alone if you’ve been subjected to such myths; many people have similar questions about filing bankruptcy nowadays under bankruptcy law. You should know that while the bankruptcy law change did stipulate new requirements to filing bankruptcy, Chapter 7 or 13 bankruptcy will more than likely still be options for you.
At Bankruptcy.Me, we’ve created this page to look at bankruptcy law changes and what they now mean to you. While providing a nice introduction to bankruptcy law, this page is no substitute for speaking with a local bankruptcy lawyer who can provide you with even more insight into the history of the 2005 bankruptcy law.
By simply filling out our free bankruptcy case evaluation form or calling (888) 632-0587, Bankruptcy.Me can connect you with a local bankruptcy lawyer who can examine bankruptcy law and your current financial situation in more detail.
What Was the Bankruptcy Law Change and Why Should You Care?
On October 17, 2005, the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) took effect, instituting new requirements for bankruptcy filers and attempting to curtail alleged instances of abuse of the bankruptcy system.
The product of the intense lobbying efforts for nearly a decade of the credit card industry, BAPCPA was crafted around the misrepresented idea that many people were recklessly racking up debt and using bankruptcy as a get-out-of-jail card when in fact, many people are forced to file bankruptcy due to unexpected medical illnesses, job losses or other setbacks.
Anyway, the goal of the new bankruptcy law was to make it "harder" for people to file bankruptcy. While the new law instituted more bankruptcy requirements, including the Chapter 7 means test, the credit counseling briefing before filing, and the debtor education course after filing but before receiving a discharge, it has not necessarily made it harder for people like you who may be interested in filing bankruptcy from actually doing so.
As an example, bankruptcy filings have increasingly made their way back towards pre-BAPCPA levels. It has been estimated that more than 1 million Americans will file bankruptcy at the end of this year.
Check out yearly bankruptcy filings over the last 10 years at the always informative Credit Slips Blog.
What Bankruptcy Law Changes Took Effect & What May They Mean to You?
Chief among the new bankruptcy requirements that you must know about if you are to file bankruptcy include:
Obtaining a Credit Counseling Briefing before Filing
Before you can file bankruptcy, you must complete a credit counseling briefing from a UST-Approved Agency within six months of your bankruptcy petition.
Essentially, the credit counseling briefing is your ticket in to filing bankruptcy, making sure that you know what the bankruptcy process is all about and covering topics like alternatives to bankruptcy. You should know that your bankruptcy case petition will most certainly be thrown out if you did not obtain a credit counseling briefing, which will be attached to your bankruptcy petition by your bankruptcy lawyer when he or she files on your behalf.
Luckily, you can take a credit counseling briefing in person, online over the telephone, and receive your briefing at an affordable price from a UST-Approved Agency like Start Fresh Today (SFT). For more information on the credit counseling briefing, let Bankruptcy.Me put you in touch with a local bankruptcy lawyer who can explain it in more detail.
Completing a Debtor Education Course before Receiving Your Discharge
After filing bankruptcy but before you can exit (be discharged) from bankruptcy, you must complete a UST Approved personal financial management debtor education course.
Basically, the debtor education course covers some important topics that you’ll want to be aware of as you attain to capitalize on your fresh start after bankruptcy, including how to create a budget, manage money and use credit wisely.
If you file Chapter 7 bankruptcy, you will have more limited time to complete the debtor education course, as Chapter 7 cases may take as little as six months to finish. On the other hand, you will have more time to complete the debtor education course if you file Chapter 13 bankruptcy as your repayment plan may be anywhere from three to five years. Once again, you may purchase an online or telephonic debtor education course at Start Fresh Today (SFT).
If you are interested in filing bankruptcy, the new bankruptcy law requires that you pass a means test. Basically assessing whether you are eligible for Chapter 7 bankruptcy protection, the Chapter 7 means test consists of two parts: 1) a comparison of your family’s income with the median income of the average family of the same size in your state, and 2) a calculation of your disposable income and unsecured debts.
While the means test may sound a bit complicated upon first glance, you should know that most people who want to file Chapter 7 bankruptcy have still been able to since the new bankruptcy law; as for those who aren’t eligible for Chapter 7 bankruptcy, they may still have Chapter 13 bankruptcy as an option.
Of course, you can learn more about eligibility under the Chapter 7 means test by getting in touch with a local bankruptcy lawyer through Bankruptcy.Me or visiting our sister site, Chapter7.Me.
Are There Any Other New Bankruptcy Law Changes That You Should Be Aware of?
Yes. While not as prominent as the changes detailed above, other changes with the new bankruptcy law that you should be aware of and get more information from your bankruptcy lawyer include:
Required Tax Returns and Proof of Income
Whether you intend on filing for Chapter 7 bankruptcy or Chapter 13 bankruptcy, the new bankruptcy law requires that you show proof of your income and tax returns.
Fewer Automatic Stay Provisions
One of the most appealing elements of the bankruptcy process is the automatic stay, a court order which stops all collection actions against you during your bankruptcy case. Prior to the new bankruptcy law, the automatic stay delayed or stopped eviction actions, driver’s license suspensions, legal actions for child support and divorce proceedings. After the new bankruptcy law, these actions are no longer halted when filing bankruptcy.
Higher Priorities for Unpaid Child Support and Alimony
With the new bankruptcy law, family members who are owed child support or alimony take by the bankruptcy filer take precedence over any other creditors.
So Is It Harder to File Bankruptcy Nowadays & Will You Be Able to File?
Initially, the credit industry took pride in the fact that consumer bankruptcy filings dropped after the inception of the new bankruptcy law. Of course, what they failed to notice was that many people rushed to file bankruptcy prior to BAPCPA out of a fear that they wouldn’t be able to do so in the future.
So while bankruptcy filings were significantly down in the first couple of months after the new bankruptcy law (based on the fact that many people filed before BAPCPA, thus skewing the filing numbers), consumer bankruptcy filings have continued to reach pre-BAPCPA levels.
As an example, July 2008 consumer bankruptcy filings totaled 94,124, marking a near 50 percent increase for the same time period from the year before and representing a 13.2 percent increase from June of that year. In fact, the daily bankruptcy filing rate in July 2008 was nearly at 4,400, indicating that while there may be more work to file bankruptcy nowadays, it is still an option for most people.
In terms of determining whether you may be able to file bankruptcy, you should examine your situation in more detail with a bankruptcy lawyer. At Bankrupty.Me, we can connect you with a bankruptcy lawyer quickly after you fill out our free bankruptcy case evaluation form or call (888) 632-0587.
After you make the effort to get in touch with a bankruptcy lawyer, be sure to take some time learning more about bankruptcy throughout Bankrutpcy.Me, where it’s all about you when it comes to addressing your financial situation.
The above summary is not legal advice. Laws may have changed since our last update. For the latest information on bankruptcy laws, speak to a local bankruptcy lawyer in your state.