Top 5 Changes in Bankruptcy Laws

30 Jun Top 5 Changes in Bankruptcy Laws

In October, 2005, sweeping legislation changed the Bankruptcy Code. Most people rushed to file before these new laws went into effect, simply because they were unfamiliar with the new laws and thought they might not otherwise qualify after they took effect.

By the same token, many Bankrutpcy Attorneys entirely gave up their Bankruptcy Practices instead of learning the new laws.

The reality is, that most people still qualify to file under the new laws. The results are the same, but more work and fees are required to get there. Ironically, in some cases, its actually easier to qualify. Below are the top 5 changes arising from the new laws:

1) Credit Counseling: Debtors are now required to take a credit counseling course prior to filing for relief. Most these courses are done online or over the phone in under an hour and result in a certificate of completion which must be filed in each case.

2) Means Testing: A Bankruptcy test was developed to determine whether one might be abusing the bankruptcy code based upon a completely artificial test dealing with past irrelevant income and unrelated IRS expenses in an attempt to remove control from judges deciding eligability issues. Generally, this test fails to disqualify most individuals and simply creates more work to filing a case.

3) Financial Management Couse: Just like the credit counseling course, the Debtor needs to take a second course online or over the phone immediately after filing the bankrutpcy. Failure to do so will result in dismissal of the case.

4) Time Periods: Time periods between successive bankruptcy cases have now been increased in order to get a discharge. Generally, they are now as follows:

  • Chapter 7 to Chapter 7: 8 years
  • Chapter 7 to Chapter 13: 4 years
  • Chapter 13 to Chapter 7: 4 years or 7 years depending on the circumstances
  • Chapter 13 to Chapter 13: 2 years

5) Documentation: Much more documentation is now required. Generally, 6 months paystubs and the previous year’s tax return is now required, although your jurisdiction may require substantially more.

While there are many more changes as well, most still do not eliminate the fundamental process of going from step A, having debt, to step B, discharging the debt. By way of analogy, before you could “run around the house 2 times and pay fees” to get a discharge, but under the new laws, you need to “run around the house 5 times and pay twice as much in fees” to get a discharge. More work and fees, same result. Isn’t Congress great?

So don’t worry about not qualifying under the new laws! While they have made Bankrutpcy more expensive and require more work, the same relief and discharge occures in most cases.

Written by Michael G. Doan

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