The New Bankruptcy Law

Originally U.S. Bankruptcy laws were written to help individuals and commercial entities facing insolvency. The assumption was that well meaning debtors intended to repay debts, but were unable to do so due to some misfortune. Over the years, buying on credit became the norm. Easy credit allowed increasing numbers of people to pile on debt, and subsequently file for bankruptcy to discharge their debt, while creditors found it more difficult to collect money owed to them.

The Bankruptcy Reform and Consumer Protection Act of 2005 (BAPCPA) commonly referred to as the New Bankruptcy Law, made sweeping changes affecting both consumer and commercial bankruptcies. The new rules are intended to eliminate abusive bankruptcy filing by those trying to commit fraud and to offer more protection to creditors. The procedures for filing bankruptcy now involve more stringent documentation and more restrictive qualification requirements, making it easier for creditors to collect money, and more difficult for debtors file for bankruptcy and evade debt.

BAPCPA forces more people to file Chapter 13 rather than Chapter 7. Some debtors with higher incomes are not permitted to use Chapter 7 (liquidation), but have to file for Chapter 13 bankruptcy, which requires them to repay at least some of their debt.

All debtors now are required to get credit counseling with approved counseling agencies before they can file a bankruptcy case, as well as additional budgeting and debt management counseling before their debts can be (forgiven) discharged.

Under the new BAPCPA rules, the first step in figuring out whether you can file for Chapter 7 is to measure your ‘‘current monthly income’’ against the median income for a household of your size in your state. If your income is less than or equal to the median, you can file for Chapter 7. However, if your income exceeds the median, you must pass ‘‘the means test’’ (Click here to learn about The Means Test) another requirement of the new law to file for a Chapter 7 bankruptcy.

Each state has its own set of bankruptcy exemptions. According to BAPCPA, the State a debtor uses for exemptions must be the state in which he has lived for the 2 years prior to filing the bankruptcy. If the debtor has not lived in any particular state for 2 years, he must use the state in which he spent the majority of the 180 days preceding the 2-year period. If neither of the above two options are valid, the debtor may use the Federal exemptions. Filing for bankruptcy is now more complicated and time consuming than ever before. When insolvency occurs, whether for you as an individual or in your business, there is no substitute for an experienced bankruptcy attorney at your side.

At Bailey & Galyen, the attorneys in our bankruptcy department will be glad to answer your questions regarding the new bankruptcy law and assist you in determining whether seeking protection under bankruptcy is your best option.

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