Bankruptcy Advice: Bankruptcy Law Changes
Bankruptcy law changes of 2005 made it harder to qualify for chapter 7.
The law changes enacted in 2005 have made it significantly tougher for consumers to discharge their unsecured debts by filing chapter 7 bankruptcy. Filers with higher incomes will no longer be allowed to discharge debts but instead opt for a repayment plan under chapter 13. Also the new law makes it a requirement for all filers to get credit counseling before they can file their bankruptcy case.
Restrictions on Chapter 7 Eligibility
It used to be that most filers could simply pick the bankruptcy chapter that made the most sense for them, making it easy for most filers to choose chapter 7 (liquidation) over chapter 13 (reorganization). Under the new law this is no longer possible, and all filers are subject to a bankruptcy means test, which determines the eligibility of the filer.
The means figures out how much disposable income there is after subtracting allowed expenses and required debt payments to file chapter 13. For chapter 7 you would subtract the allowed expenses and debt payments from the current monthly income. If what's left over is less than the median income in your state/area you should qualify.
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Legal Fees Have Gotten More Expensive
Other complicated requirements brought on by the bankruptcy law changes of 2005 have made it less affordable for consumers to seek the help of lawyers who specialize in the field of bankruptcy. These new requirements make it more time consuming and expensive for a lawyer to represent filers in bankruptcy cases, making their legal fees jump up in price.
One of those requirements is that lawyers must personally vouch for the accuracy of all the information their clients provide them, increasing the time it takes to prepare a case.
Changes to Chapter 13 Requirements
Under the old laws, when consumers filed chapter 13 bankruptcy, they had to surrender all of their disposable income, what they had after paying their actual living expenses, for the bankruptcy repayment plan. In 2005 the law says: Chapter 13 filers still have to hand over all of their disposable income AND they have to calculate their allowed expenses using "allowed expense amounts" dictated by the IRS, not their actual expenses. These amount are now subtracted not from the filer's actual earnings each month, but from the filer's average income during the six months before filing.
Other Changes and Requirements of the New Law
Most bankruptcy filers have been affected negatively by the law changes of 2005, including how the valuation of property is done, now using a replacement cost instead of auction value, meaning more filers are now at risk of having their properties and possessions taken by the trustee and liquidated to pay creditors. Most of the law changes have basically made it harder to discharge debts
