Bankruptcy Laws
Significant changes in consumer bankruptcy laws took effect on October 17, 2005, with passage of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.
Before then, Chapter 7 was the most common form of bankruptcy in the United States, because in a Chapter 7 bankruptcy individuals are allowed to keep certain exempt property.
Before the changes in the law were enforced, many people were lacking in good judgment on how they used their credit, which created so much debt they would just file for bankruptcy as a quick solution.
Today, filing for chapter 7 is not as easy as it was before, because they have added several new restrictions to it.
Before the 2005 revision, filers could choose which code they wanted to file under.
It did not matter the amount of income you made either.
One of the biggest changes is that now those with a higher income will have to file under chapter 13 and therefore pay off some of their incurred debt.
The law also imposed new restrictions on bankruptcy lawyers.
It may be tougher now to find a lawyer who will represent you in a bankruptcy case.
Another change, is that now people planning to file for personal bankruptcy under chapter 7, must complete the mandatory credit counseling first.
Individuals that decide to pre-file, still have to complete the credit counseling requirement and people that post-file must complete a financial budget that they will use.
In light of our current economic situation, many feel these new standards should have been executed several years earlier.
These financial tools are designed to help people become better aware of their spending habits and to assist them in becoming more financially stable.
Similar to the changes in bankruptcy laws for chapter 7, filers for chapter 13 must provide income reports of their personal finances.
After paying for regular living expenses, any disposable income remaining must now go toward repaying any loans.
The IRS now determines the allowed actual living expenses, not the actual living expenses, if their income is higher than the median income in their state or per capita. Before filing for bankruptcy, you need to carefully consider all your options and become well informed on the legal aspect surrounding any new laws that may pertain to your personal situation.
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