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.
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.
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 new law added certain limitations to be placed 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.
Pre-filing, individuals must complete credit counseling and post-filing and also are required to complete some type of financial budgeting plan.
In light of our current economic situation, many feel these new standards should have been executed several years earlier.
They are designed to keep people aware of their spending and keep them on track.
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.
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. 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.