Email this page to a friend:: New Bankruptcy
We often get a lot of questions about “new” bankruptcy. In reality, there isn’t any “new” bankruptcy law. The most recent changes to bankruptcy law were in 2005. There have been some proposals for additional changes, but nothing has passed and been signed into law yet regarding those proposals. The 2005 Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) did include some major changes to the bankruptcy laws. This article explains the major changes that people considering a bankruptcy need to know about.
Then biggest change and the one that got a lot of attention is the concept of means testing. Prior to the law change, people of any income level could file for a Chapter 7 bankruptcy as long as their case was not a substantial abuse. Courts often reviewed a debtor’s budget for reasonableness and if the debtor could show that monthly reasonable expenses left very little to pay anything to creditors, then the case could survive any dismissal action by the trustee. The rule was the same despite income level. BAPCPA requires debtors whose income exceeds the median for a similar household size in their state to complete a “means test” analysis. Depending on the result of the “means test” application, there could be a “presumption of abuse.” While it is possible to overcome the presumption, in most cases, when a presumption of abuse arises, the debtor would need to file chapter 13. rather than Chapter 7. Explanations of the differences between a Chapter 7 and Chapter 13 bankruptcy are available elsewhere on our website.
Specifically, the “means test” calculates your income by looking at all income received in the 6 months prior to the filing. All of your income is included, even if you have lost your job or have fewer hours. The law requires that income be used to calculate your average monthly income over that span. That is often called your “presumed income.” If that income falls below the median income level for your state and household size, no application of the “means test” is required and the law simply requires the case not to be an abuse.
If presumed income is above the median income, then the law requires the application of a complicated test which takes out a set of allowed deductions which are specified by the IRS. With a few exceptions (like mortgage payments), they are not your actual expenses, but instead what the IRS has decided you should be allowed to deduct. These are often called “presumed expenses.” Once they subtract the presumed expenses from the presumed income, the income left is called disposable monthly income (DMI). If, after taking out allowed expenses, you have less than $166.67 of DMI and your DMI will not pay at least 25% of your debt, there is no presumption of abuse. If it is over $166.67, or you have over $100 of DMI and it will pay at least 25% of your debt, then there is a presumption of abuse, and usually that means you must file a Chapter 13 bankruptcy.
Confused? Don’t worry; you don’t have to figure this out on your own. One of our attorneys will be happy to calculate what type of bankruptcy you may qualify for. Just call and set up a free initial consultation. Even a lot of bankruptcy lawyers get confused trying to apply this test. That is why you need an experienced, knowledgeable attorney to represent you in bankruptcy.
Another change is that BAPCPA changed the amount of time you must wait between bankruptcy filings. You must now wait eight years between Chapter 7 filings. Before BAPCPA, the waiting period was only six years.
BAPCPA also added a requirement that people filing for a Chapter 7 or 13 bankruptcy must take two classes in order to file a bankruptcy. You must participate in a credit counseling session before you file and you must take a Course of Financial Management after you file.
These are just a few of the highlights of the 2005 amendments. There are lots of other changes – too many to list here. Some of those changes include increased filing fees, a change in how you calculate the amount Chapter 13 filers have to pay back to creditors, increases in documentation requirements, changes to the amount of property that can be exempted from a bankruptcy, modified calculation of property values, different rules on how the automatic stay operates, and increased attorney liability and costs. All of these changes had the effect of increasing the complexity and difficulty of a bankruptcy filing, which also led to higher attorney’s fees and other costs.
Legal Helpers is one of the nation’s largest bankruptcy firms, and we focus our entire practice around bankruptcy. Our attorneys are very experienced in navigating this long and complicated law, because that’s all they do. Also, we do everything we can to keep our attorneys’ fees low and make it affordable to file a bankruptcy. Set up a free consultation to find out how we can help.
