New Bankruptcy Laws

The new bankruptcy laws saw many changes, so if you are researching debt relief, look to Bankruptcy Attorney Nation find the best lawyer in your neighborhood. Check out our debt relief directory and get a free bankruptcy evalution and stop creditor harassment.

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), also known as the new bankruptcy laws, was signed into law by President George W. Bush on April 20, 2005. These laws were designed make it more difficult for consumers and businesses to file under Chapter 7 bankruptcy, under which most debts are forgiven (discharged), and instead be forced to file under Chapter 13. Under Chapter 13, filers are put in a repayment plan rather than having many of their debts discharged.

This article outlines some of the important changes you need to be made aware of before filing for bankruptcy. To start with, the new law increases the amount of paperwork involved in filing and raises the filing fees for debtors earning 150 percent of the federal poverty level or more. Plus, attorneys representing bankruptcy filers are now required to conduct an investigation of their clients' filings and can be held personally liable for inaccuracies.

Additional Chapter 7 Requirements under New Bankruptcy Laws

In order to file for a Chapter 7 bankruptcy, you must first measure your "current monthly income" against the median income for a household of your size in your state. If your income is less than or equal to the median, you can file for Chapter 7 bankruptcy. If it is more than the median, you must pass the means test, which determines if you have enough disposable monthly income (DMI), after subtracting certain allowed expenses and required debt payments, to make payments on a Chapter 13 plan. If the income that's left over is less than $100, you can still file under Chapter 7. Otherwise, you'll have to file under Chapter 13.

Additional Chapter 13 Requirements under New Bankruptcy Laws

Under the old rules, people who filed under Chapter 13 had to devote all of their disposable income (what they had left after paying their actual living expenses) to their repayment plan. Now, the disposable income is now calculated using allowed expense amounts dictated by the IRS, rather than your actual expenses. And, these allowed expenses must be subtracted not from your actual earnings each month, but from your average income during the six months before filing.

Additional Provisions under New Bankruptcy Laws

Other provisions under the new laws include changes to the amount of time you must live in a state before being able to use that state's exemption laws. You now must reside in a state for at least 720 days before filing in order to use that state's exemption laws. This could make a big difference in determining what property you are allowed to keep. Plus, a cap ot $125,000 has been placed on what a debtor may claim as a homestead exemption on a home purchased within the last 40 months.

The way property is valued under the new laws has also been changed under the new laws. Under the old laws, property was valued by auction value. Now, it is valued at replacement cost.

All Chapter 7, 11 and 13 filers must complete credit counseling with an agency approved by the United States Trustee's office, whether or not a repayment plan is feasible. (To find an approved agency in your area, go to the Trustee's website, and click "Credit Counseling and Debtor Education".) You don't necessarily have to undergo any repayment plan the agency proposes. However, you will have to submit the repayment plan proposal to the court, along with a certificate showing that you completed the counseling, before you can file for bankruptcy.

While under the first mandatory counseling session, you are not protected under bankruptcy law. Creditors and collectors can still collect from you, foreclosures can still proceed and you can get evicted from your property. But, you are afforded these protections once you've undergone the first mandatory counseling session and filed your case with the Court. However, the new laws eliminate some of the protections bankruptcy filers previously had, such as stopping or delaying evictions, avoiding driver's license suspensions and delaying child support proceedings.

All Chapter 7, 11 and 13 files also have to undergo a second counseling session towards the end of the bankruptcy case. This one is for learning personal financial management. Only after filers submit proof to the court that this requirement was fulfilled can the bankruptcy case be completed and closed.

More Changes to Chapter 11 Bankruptcies

In addition to having to go through mandatory counseling, there are increased compliance requirements for small businesses filing for Chapter 11 bankruptcy. The new law increases the bureaucratic compliance obligations and shortens the deadline for Chapter 11 reorganizations involving small businesses, a series of new requirements not applicable to larger businesses.

There are many other changes to the new bankruptcy laws that could affect your case. An experienced bankruptcy lawyer can tell you how the changes may affect your case. Check out our debt relief directory and get a free bankruptcy evalution, so you can get on the road to financial recovery.