In 2005 members of Congress and President George W. Bush enacted the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. This new bankruptcy law, as people began calling it, made provisions to increase the stipulations on how consumers were approved for bankruptcy in an attempt to stop unnecessary filings. If you are considering filing for bankruptcy, understanding the basics of this law will help you research your options.

The new law limited the income for people who choose to file Chapter 7 bankruptcy. The income is calculated, using provisions set in the law for deductions and exemptions, and then compared to the median income in the debtor’s state. Debtors who make at or below the median income can file for Chapter 7. Those who make more than the median income are subject to the means test.

The means test scrutinizes the income more closely, looking at applicable deductions in order to determine whether or not the debtor can reasonably pay back his or her debts. The results of the means test will determine whether or not the debtor can file for Chapter 7 bankruptcy. If Chapter 7 is not available, Chapter 13 still is.

In addition, the new law increased the amount of time debtors had to wait before filing for bankruptcy after a previous filing. Now, the time between bankruptcy cases has been increased to eight years. Prior to the new law the waiting period was six years. This waiting period change only applies to Chapter 7.

The new law now requires debtors to attend credit counseling prior to filing either type of bankruptcy. The credit counseling must occur within 180 days of filing for bankruptcy. The counselor must be approved by the trustee or bankruptcy administrator. In addition, all debtors interested in filing bankruptcy must complete a financial management program. The goal of these changes is to teach debtors how to better handle their money to avoid future bankruptcy cases.

Finally, the new law increased the number of exceptions to debt discharges, which provides some protection to creditors. For instance, the presumption of fraud in credit card usage was changed. Now, if the debtor charges over $500 for luxury goods, they are guilty of fraud and that debt cannot be discharged. Prior to the new law, the amount was $1,225. This prevents people from wracking up a bunch of debt right before declaring bankruptcy.

In general, the new law makes it harder to file bankruptcy if you don’t really need to, but it is still possible if you are facing a true financial crisis. To find out how the new law affects your financial situation, contact a bankruptcy attorney today.

Just always remember never file bankruptcy if you have other options. There are a lot of strings attached. If you absolutely feel you have to file bankruptcy, do your research learn what you are getting into. It is always good to know the rules of bankruptcy to play the game right. If you do your research well you will do just fine.

Author Bio: Gabrielle Daae and a team of writers author articles for People in need od information for bankruptcy. You can visit their site at http://www.bankruptcydistrictcourt.com for additional information on bankruptcy laws and bankruptcy and filing bankruptcy visit their website.

Category: Finances
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