Bankruptcy Legalities

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.

Many people spent years being careless with their credit and debts because it could be fixed with a quick filing for bankruptcy.

Now that the law has changed, there are more restrictions for filing chapter 7.

Previous to the updated bankruptcy law in 2005, people had the ability to select the code they wanted to file under.

It did not matter the amount of income you made either.

The most obvious change was made in how a person files, based on their income; for example, people that filed for bankruptcy under Chapter 13 of the Bankruptcy Code, have the opportunity to repay some or all the debts in their name, in better terms, i.e. lower or no interest and that is unlike Chapter 7 which involves liquidation of assets.

The law also imposed new restrictions on bankruptcy lawyers.

Because of this, some lawyers no longer are willing to take on clients wanting to file for bankruptcy.

In addition to the new income restrictions, there is also mandatory counseling that debtors must complete before and after filing for bankruptcy chapter 7.

Pre-filing, individuals must complete credit counseling and post-filing and also are required to complete some type of financial budgeting plan.

These should have been implemented years before.

These financial tools are designed to help people become better aware of their spending habits and to assist them in becoming more financially stable.

There is also a change for chapter 13 bankruptcy filers and a new income demand of personal finances.

All disposable income left after paying actual living expenses must now go into their repayment plan.

However, now the IRS has set in place a system within each state to determine what the accepted living expense level will be, based on the average income earning per capita. Filing for bankruptcy is not a decision to take lightly, therefore you would do good to consult an attorney that can help you better understand the legalities that could effect your decision.