2005 Bankruptcy Law
January 30th, 2008Chevy Asks,
I’m in some financial trouble and have been thinking more and more about bankruptcy. I’ve heard that lots of changes were made in 2005 and was wondering what has changed.
Chevy,
You are correct that the 2005 bankruptcy law has changed the way the system works. Here is a good overview of the changes that have been made:
Credit counseling has been made mandatory.
Before someone can file they must attend a government approved program for credit counseling.
Chapter 7 filing now has stricter eligibility
There is now a means test which has to do with your current monthly income and the median income in your state. Basically if your median income is less than the median income in your state, you can file for bankruptcy under chapter 7.
The filers tax returns and proof of income must be presented.
If the taxes for the previous year have not been paid, the person cannot file until he or she pays those taxes.
Chapter 13 has more filings.
If the filer passes the means test, they must file chapter 13 instead. Under chapter 13 bankruptcy the filer is entered into a 5 year repayment plan to repay creditors a portion of the monies owned.
Less automatic stay protection for filers.
Some of the automatic protections have been eliminated for filers. ie. Filing for bankruptcy no longer stops the eviction process and no longer stops divorce proceedings.
Unpaid alimony and child support given priority.
Child support and alimony owed takes priority over other creditors.
Financial management education has been made mandatory.
A government approved financial management education program must be taken by the filer before any debt can be discharged.
2005 bankruptcy law is not that complicated once you look at how it has effected each area of the process. Many of the changes are intended to protect creditors and prevent future financial difficulties of the filers.