New Changes to the Bankruptcy Code What Type of Bankruptcy Should I File? What is Chapter 7 Bankruptcy? What is Chapter 11 Bankruptcy? What is Chapter 13 Bankruptcy? How to File for Chapter 7 Bankruptcy How to find a Bankruptcy Lawyer Bankruptcy Fraud When Bankruptcy is the Only Choice

New Changes to the Bankruptcy Code

In 2005, the Bankruptcy Code was changed to make it more difficult for consumers to abuse bankruptcy law. Not only does this law affect consumers who may potentially file bankruptcy, but it also holds bankruptcy attorneys more accountable for the information filed on behalf of their clients. As such, attorney fees have increased for filing bankruptcy. Despite this, it is very important that you consult a bankruptcy attorney before you file for bankruptcy. Bankruptcy laws are complex and if you do not understand every aspect of the law, you may do yourself more harm than good when you file for bankruptcy. A bankruptcy attorney should be able to navigate you through the nuances of bankruptcy law and help you file a complete and accurate petition. To assist in locating a banktuptcy attorney near you, go to AttorneyLocate.com where you are able to search by location.

One of the changes to the bankruptcy code is that individuals must pass a means test in order to file for bankruptcy under Chapter 7. Chapter 7 bankruptcy is the most popular type of bankruptcy that allows a debtor to discharge their debt through a liquidation of their assets (see What is Chapter 7 Bankruptcy?). In the past, individuals with the ability to pay back some or all of their debt would file for Chapter 7 bankruptcy instead of Chapter 13 bankruptcy. Chapter 13 bankruptcy allows debtors to arrange a plan to pay back their creditors over a 3-5 year period (see What is Chapter 13 Bankruptcy?).

The means test is in place to help ensure that individuals who can afford to pay back some or all of their debt file for Chapter 13 bankruptcy and are not eligible for Chapter 7 bankruptcy. A person’s ability to pay back debt is determined by comparing their annual income to the median annual income of a family of the same size in their state. If a person’s income is less than their state’s median income for a family of the debtor’s size, that person is eligible to file for Chapter 7 bankruptcy. 

If a person’s income is higher than their state’s median income for a family of the debtor’s size, they must prove that their disposable income over the next five years will not be sufficient to pay back creditors. Disposable income is calculated by subtracting a person’s living expenses from their annual income. Money that is left over is considered disposable. It is important to be aware that disposable income is not calculated according to a person’s actual living expenses, but according to the IRS’s allowable expenses. This means that your calculated disposable income under the bankruptcy means test may be higher than the actual amount you have available after you pay your living expenses. A bankruptcy attorney should be able to help you calculate your disposable income according to these standards.

Another one of the changes to the bankruptcy code is that individuals seeking bankruptcy must complete an individual or group session at an approved credit counseling agency within 180 days before filing for bankruptcy. This is in place to help individuals determine if they really need to file for bankruptcy or if they can work out their own repayment plan with their creditors.

In addition to these changes to the bankruptcy code, new laws prohibit debtors from filing back-to-back bankruptcies. When an individual files for Chapter 7 bankruptcy, they are not eligible to file for Chapter 13 bankruptcy until four years have passed. Likewise, there is a longer time period between when an individual can file for bankruptcy under Chapter 7 after previously filing for bankruptcy under Chapter 7. An experienced bankruptcy attorney should be able to help you understand not only what type of bankruptcy you may file for, but when you may file and how long you need to wait between bankruptcies before filing again.

These are only some of the changes to the bankruptcy code that may affect you. There are many details that an experienced bankruptcy attorney should be able to help you understand if you are seeking to file for bankruptcy. Bankruptcy is never an easy decision to make and you should not undergo the process alone as you will be liable for any mistakes or errors you make in the process. For this reason, it is usually a good idea to consult a bankruptcy attorney before you file for bankruptcy.