New Bankruptcy Laws
Title 11 of the United States Codes regulates federal bankruptcy law. On October 17, 2005, new bankruptcy laws took effect that changed bankruptcy procedures considerably. On this page we will describe the most important changes to bankruptcy law and how these new bankruptcy laws affect debtors.
Before October 17, 2005, a debtor could usually choose the type of bankruptcy that appeared best for him. Most chose liquidation, or chapter 7 bankruptcy, but the new bankruptcy law places income restrictions on a debtor’s eligibility to file for chapter 7 bankruptcy. The new bankruptcy law requires you to measure your current monthly income against the median monthly income for household in your state. Under the new bankruptcy law, you can file for chapter 7 bankruptcy if your income equals or is less than the state median for a household that’s the same size as yours. Even if your income is higher than the state median, the new bankruptcy laws allow you to file for chapter 7 bankruptcy if, after taking the so-called “means test”, your income is below a certain amount. The means test determines if you will have enough income left for a monthly repayment plan in a chapter 13 bankruptcy after subtracting state-allowed expense amounts and non-exempt debt payments.
Another amendment in the new bankruptcy laws is a mandatory credit counseling for each debtor. The new bankruptcy laws state that this mandatory credit counseling must be done with an agency approved by the United States Trustee’s Office.
The costs must be paid for by the debtor himself and can be as low as $50. The new bankruptcy law’s purpose for this mandatory credit counseling is to determine whether bankruptcy is really the only option for the debtor’s financial situation, or whether another form of debt relief would help the debtor recover financially. The new bankruptcy laws always require the debtor to participate in credit counseling, even with overwhelming evidence that a repayment plan is not feasible. But the new bankruptcy laws do not require you to accept any repayment plan the credit counseling agency constructs for you. Under the new bankruptcy laws, when you file your bankruptcy petition, you will have to submit any proposed repayment plan to the court along with your certificate of completion of the credit counseling. Lastly, the new bankruptcy laws have made allowances for more asset protection in the bankruptcy process.
According to the new bankruptcy laws, certain pension plans like IRA’s are exempt from a bankruptcy filing. For all those people approaching retirement time, the new bankruptcy laws offer their life’s earnings a certain amount of protection.