New Bankruptcy Law

Filing for bankruptcy, although not particularly desirable, isn’t a very complicated process.

In fact, until recently, the process has been so straightforward that most people have been able to complete it on their own with little or no help from a bankruptcy attorney. Further, because the guidelines for using this process have been relatively flexible, bankruptcy has been a viable option for many people. Unfortunately, recent changes in the bankruptcy laws have changed that.

Among the many changes that came into effect on October 17th when the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 became law are limits on your ability to choose between Chapter 7 and Chapter 13, changes in the manner in which disposable income is calculated when determining how to fund a Chapter 13 repayment plan, and a longer residency requirement for those choosing state exemptions. And, to make a bad situation even worse, before an individual can file for bankruptcy, they must first complete an approved credit counseling course.

How the Bankruptcy Law Has Changed

So, what does all of this mean? Essentially, the new laws were enacted in an effort to reduce the increasing number of fraudulent bankruptcy filings that seem to occur each year. Part of the way the new laws achieve this is by making it more difficult for people with above-average incomes to apply for bankruptcy. This is done by assigning higher values to collateral including homes, cars, and other similar items which, in turn, inflates the overall value of the debtor’s assets. And, when the debtor is worth more, they will be expected to pay their creditors more.

The new laws also place more stringent residency requirements on filers to prevent them from moving to a particular state just to take advantage of their more lenient bankruptcy laws. Further, there are new limits on the period of time that must elapse between filings. While under the old laws, there was no minimum waiting period for filing a new Chapter 13 case subsequent to either a Chapter 7 or Chapter 13 case, the new laws require debtors to wait eight years between Chapter 7 cases, four years between a Chapter 7 and Chapter 13 case and 2 years between Chapter 13 cases.

Getting Bankruptcy Help

A vital part of the new requirements is the Means Test, a tool used to determine whether the debtor is able to file for Chapter 7 or Chapter 13. In general, individuals whose average income during the six months is greater than the median income in the state where they reside must file their case as a Chapter 13 bankruptcy case. Because the calculation is somewhat complex, it is usually performed by an attorney or other type of bankruptcy specialist. Additionally, the new laws require that the values assigned to items of collateral must be certified by an attorney.

Given the additional burden placed on the attorney, it can be assumed that the fees they charge to complete a bankruptcy case will likewise increase. Indeed, some industry analysts predict that under the new laws, the fee for handling a standard bankruptcy case can be as high as $3,000.

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