What Were the Changes to the Bankruptcy Law?

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What Were the Changes to the Bankruptcy Law?

Post  Admin on Mon Sep 21, 2009 11:26 am

On October 17, 2005, Congress significantly changed bankruptcy laws and procedure. Make sure any information or forms you possess have been updated to take into account these changes. The following are some of the most significant changes under the new law:

1. Prior to filing bankruptcy, you must take an educational course through an approved counseling agency. For a list of approved counselors, see the U.S. Trustee’s website, listed in the Resources panel of this pamphlet. In some cases, the filing fee to the court and costs of credit counseling classes can be waived under the new law depending on your income.

2. Before discharge of your case, you must take a course in financial management and receive a certificate from an approved counseling agency.

3. Income and expenses can determine whether you are eligible to file a Chapter 7 bankruptcy. You must provide additional documentation to the court, trustee and U.S. Trustee, such as copies of recent tax returns, bank statements and pay stubs. Under the new law, while Congress has placed additional burdens on people to file bankruptcy, the benefits of filing bankruptcy are generally still available to all people.

Before filing for Chapter 7 bankruptcy, you will have to qualify through a Chapter 7 means test. When you file a Chapter 7 bankruptcy petition, the means test is applied to make sure that you really need to file bankruptcy and aren’t “abusing” the system. That might sound intimidating, but it’s a simple test, and the vast majority of debtors qualify for Chapter 7 bankruptcy.

The Chapter 7 means test focuses on two aspects of your income and expenses.

The first stage of the test compares your monthly income (as determined by a worksheet provided by the courts) to the median income for your area and household size. If your monthly income falls at or below the median, the means test is over—there is no presumption of abuse and you can file for Chapter 7 bankruptcy.

The median is determined by your geographic location and the size of your family. In Arizona, the 2007 median income for an individual is $38,703, for a family of two it is $50,201, and for a family of three it is $53,241. The more dependents you have the greater your income can be simply put.

Although there was a lot of media hype about the means test disqualifying people from filing for Chapter 7 bankruptcy when it was introduced in 2005, the truth is that more than 96% of potential Chapter 7 petitioners still qualify. In the unlikely event that you are one of those few who do not, you may still file under Chapter 13 bankruptcy.


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