New Bankruptcy Laws: Bankruptcy Law Reform - New Bankruptcy Code.

Mar. 11 '05 - Senate Passes Bill   |   Apr. 14 '05 - Congress Passes Bill   |   Apr. 20 '05 - The President signs the Bill.

Text of the Bill     |  When New Laws Take Effect

Are you eligible to file Chapter 7?

To determine your eligibility for chapter 7 bankruptcy you must pass the two stages of the means test. The first stage of the means test involves comparing your average income for the last 6 months to the median monthly income for your state. If your median monthly income is below the state average you are eligible for chapter 7.

In the case that your monthly average income is higher than your state's median income a bankruptcy lawyer may be able to help you determine if you are eligible for chapter 7 based on your allowable expenses that are allowed to be used in the calculation.

Government explanation of the bankruptcy means test.  

Bankruptcy means test form your lawyer will complete for you.

Two extra hoops to jump through

A person filing Chapter 7 bankruptcy will have to take an approved Credit Counseling Course within the 6 months before he or she files. Your bankruptcy lawyer can set this up for you or you can find a list of approved credit counselors here. In some cases the course can be taken over the Internet.

An approved Financial Management Course will have to be completed before you can be discharged. Your bankruptcy lawyer can set this up for you or you can find a list of approved credit counselors here.

Filing Procedures under the New Bankruptcy Code
(Effective October 17, 2005)

Chart Prepared by BankruptcyAction.com

Major Intent of Bankruptcy Reform:
The major intent of bankruptcy reform is to require people, who can afford to make some payments towards their debt, to make these payments, while still affording them the right to have the rest of their debt erased. These people must file Chapter 13.

Status of the Bills:
The Senate passed the Bill on March 11, 2005 and the Congress on April 14, 2005.

When will this be Law:
The bill was signed into law by the president on April 20, 2005.

Sections 308, 322 and 330, all concerning the homestead exemption, take effect immediately.

This is law now: The exemption is limited to $125,000 if the property was acquired within the previous 1215 day (3.3 years). The cap is not applicable to any interest transferred from a debtor's previous principal residence (which was acquired prior to the beginning of such 1215-day period)

The rest of the provisions of the law will come into effect 180 days after the Bill is signed or on October 17, 2005.

Major Changes:

Means Test:
This will identify debtors who have the financial capacity to pay some money to their creditors. The test will work as follows:

TEST # 1:
Is the family earning above the median income for their state?
You can check to see if your income is above the median income for your state.
If the answer is "No" Chapter 7 can be filed!

TEST # 2:
If the answer is "Yes" to TEST # 1 , do you have excess monthly income of more than $166.66/month to pay $10,000 of debt over 5 years?
If the answer is "No" you must answer another question, if "Yes" Chapter 7 cannot be filed but Chapter 13 may be filed!

TEST # 3:
If the answer is "No" to TEST # 2 do you have excess income of greater than $100/month to pay over the next 60 months at least 25% of your unsecured debt?
If the answer is "No" you can file Chapter 7, if "Yes" chapter 7 cannot be filed but Chapter 13 may be filed!

Proof of Income:
Debtors filing Chapter 7 or Chapter 13 bankruptcy, must provide to the trustee, at least seven days prior to the 341 meeting, a copy of a tax return or transcript of a tax return, for the period for which the return was most recently due.

State Exemptions:
You cannot use the exemptions in your state of residence unless you have lived there at least 2 years.

Homesteads:
This goes into effect as soon as the bill is signed by the president! The exemption is limited to $125,000 if the property was acquired within the previous 1215 day (3.3 years). The cap is not applicable to any interest transferred from a debtor's previous principal residence (which was acquired prior to the beginning of such 1215-day period)

Counseling:
You must have finished counseling within the last 6 months before you can file.

Child Support and Alimony:
These debts would go from a priority of 7th to 1st.

Tithing:
Up to 15% of your income can be given to charity. This is seen by some as a loophole allowing people who may be just over the thresh hold of having to file Chapter 13 to drop down low enough to file Chapter 7.


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