Understanding the Provisions of the New Bankruptcy Law

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, otherwise known as the New Bankruptcy Law took effect on October 17, 2005. It presented changes on the requirements and processes involved in filing for bankruptcy.

A lot of people perceive this new law as somewhat limiting. After all, the provisions of the bankruptcy law made it more difficult for some people to file bankruptcy. Is this contention true?

To better understand the new bankruptcy law, allow us to tackle the most significant changes included in the new law.

Provisions in the 2005 Bankruptcy Law

Let us enumerate the changes presented in the bankruptcy law.

1. Strict Requirements for Chapter 7 Bankruptcy. In the old law, people have more freedom to choose which type of bankruptcy to file. Most people chose Chapter 7 over Chapter 13 Bankruptcy. This is because this option allows them to liquidate their assets to retire their debts. But the new bankruptcy law is more prohibitive. It prevents people with higher incomes to file for Chapter 7 bankruptcy.

In the new law, a filer is required to compute his current monthly income. Then he must compare it with a median income earned by a household of the same size, in his state. If the income is less than or equal to the median, the person is allowed to file for Chapter 7 bankruptcy. Otherwise, he must first pass the means test before he can file for this type of bankruptcy

[Article:  Steps On How To File For Personal Bankruptcy]

2. The Means Test. In relation to the first provision, the means test determines if you qualify for a Chapter 7 Bankruptcy. This test will determine whether you have enough disposable income that will allow you to repay your debts under Chapter 13 Bankruptcy. How does this work?

First you must know your current income. Then, you will subtract certain allowed expenses and debt payments from your earnings. If the disposable income is below a standard amount, then you qualify for Chapter 7 Bankruptcy. Otherwise, you will be encouraged to be a Chapter 13-filer.

[Article: Tips In Filing for Bankruptcy In the United States]

3. Need to Undergo Credit Counseling. The new bankruptcy law also requires filers to complete credit counseling. The purpose of this is to help you determine whether you need to file for bankruptcy or not. This is because some filers have the capability to repay their debts through informal repayment plans.

Once you have taken credit counseling you will need to get the repayment plan suggested to you. You should also get the certificate of completion. These two documents are essential papers that you need to present in courts, before you can file for bankruptcy.

You also need to attend another counseling session after your bankruptcy case. This session serves a new purpose. It will help you learn how you can manage your finances well. You need to complete this credit counseling since it is a requirement before the court thoroughly wipes out your debt.

[Article: Be Familiar With Bankruptcy, Know The Things Behind It]

4. Filers of Chapter 13 Bankruptcy Will Need to Live on Less. The new bankruptcy law provides the IRS to dictate the allowed amount of expenses. This is a great shift from the provisions of the old law. Before, filers must devote all their disposable income to their repayment plans. Now, aside from handing over their disposable income, filers must adhere to the dictated amount by the IRS. They have to subtract the amount given by the IRS, and not their actual expenses, from their monthly income. This means that people filing for a Chapter 13 Bankruptcy will have to live on less money to support their monthly expenses.

These are just some of the provisions of the new bankruptcy law. We hope that through this short overview you have gained a better understanding of the changes presented in the new law.

Elizabeth Roberts

Elizabeth Roberts

Liz Roberts and her team are continuously providing information to people who are ready to repair their credit and improve their credit score. Also NewHorizon.org team strives to empower the homebased and small business owners by bringing information that can help them to manage and grow their businesses. Let our 24+ years of business finance experience help you to get the financing you need! CONTACT US if need financing for your business.

1 Comment
  1. My dad can barely afford to pay for his mortgage, that’s why he’s been thinking of filing for bankruptcy. Thankfully you shared these requirements; at least now we’re aware that people who have higher salaries are not eligible to file for Chapter 7. I also never knew that my dad has to obtain a certificate of completion in credit counseling before the proceeding.

Leave a reply

NHBS Inc © 2024

NewHorizon.org is an independent, advertising supported website. The owner of the site may be compensated in exchange for featured placement of certain sponsored products and services, or your clicking on links posted on this website. NewHorizon.org has not reviewed all available credit card offers in the marketplace.

Privacy Policy Terms of Use

NHBS Inc © 2022

NewHorizon.org is an independent, advertising supported website. The owner of the site may be compensated in exchange for featured placement of certain sponsored products and services, or your clicking on links posted on this website. NewHorizon.org has not reviewed all available credit card offers in the marketplace.

Privacy Policy Terms of Use

Business Loans

Consumer Loans

New Horizon
Logo
Enable registration in settings - general