Important Update – New Bankruptcy Law
After decades of the bankruptcy ‘abuse’ or more politically correct – bankruptcy fraud, finally in 2005 the Congress passed a more rigid (less lenient) new bankruptcy law, and on April 20, 2005, President Bush signed this new bankruptcy law under the name Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 or the BAPCPA. And since its approval, the BAPCPA has been making substantial changes to the Bankruptcy Code. Without more ado, the Bankruptcy Judges Division itself has directly made significant revisions to online versions of bankruptcy information, interim rules, and official forms to account for the new BAPCPA changes made on the Code. Also, most of these BAPCPA changes are almost immediately applicable to cases filed on or after October 17, 2005.
The following are just some of the major changes recently made on the new bankruptcy law that has immense effects on individual consumers who are considering filing for bankruptcy.
First and foremost, individuals who would qualify for filing bankruptcy would need to undergo a more thorough evaluation called ‘Means Test’, performed in order to identify the ability of the debtor to pay their debts. Applicably, the new Chapter7 Bankruptcy requires that the individuals opting for bankruptcy should have incomes lower than their state-mandated median family income. The new Chapter13, on the other hand verifies that filers should not have a monthly disposable income (excess earnings minus priority allowances for child support, food, housing, etc.) of $100 or more. These are the bankruptcy means-to-pay tests that also test the sense of responsibility of individual consumers in handling their debts. Failure to meet these conditions would impel individuals to have a repayment of some of their important debts (after revealing they actually can) instead of being completely relieved (‘discharged’) from most of it. Hence, Chapter7 goers now have a more probability of falling under the Chapter13 ‘reorganization’ procedure without much choice.
The new bankruptcy law also obliges more document proofs of income such as recent tax returns, and 2-years minimum residency to qualify for state exceptions, plus, the new law also expects filers to undergo credit counseling courses. Also under the new law, the length of time for the automatic stay is limited for previous bankruptcy filers, the amount of non-dischargeable debts from ‘luxury’ goods purchase is decreased meaning if the debtor spends $750 within 70days of filing, those debts are not included in the discharge and must be paid in full, and, the homestead exemptions in some states are also now limited.
These changes were prompted by years of complaints by banks and other financial services companies who believe that the bankruptcy laws have been abused by gamblers, compulsive shoppers, and others. And although the new bankruptcy law may generally make if more difficult for individuals to remove their debts through bankruptcy, the intention of the said act was to help people (who can afford to pay) in paying their debts instead of escaping them.