THE BANKRUPTCY LAW HAS CHANGED

This website will be updated to reflect the new law by January 31, 2006.

Here is a brief summary of two major changes in the law.

On April 20, 2005, the Bankruptcy Abuse Prevention and Consumer Protection Act  (BAPCPA) was signed into law.  You may have heard of the new law  that  went into effect on October 17, 2005.  On that day, (BAPCPA) substantially changed the current bankruptcy laws, especially with respect to individual (versus corporate) filers whose debts are mainly consumer debts.  Two major changes that all individuals will have to face that are not in effect at this time are:

• the requirement to undergo credit counseling and

• having to pass “means testing” if you wish to file a Chapter 7 bankruptcy. 

Credit Counseling:  Any individual wanting to file for bankruptcy will have to undergo credit counseling, before filing, unless there are “exigent” (emergency) circumstances. A good example of an exigent circumstance is a pending foreclosure. The credit counselor must be on a list that has been approved by the Office of the United States Trustee in the jurisdiction where the debtor is filing.  If exigent circumstances exist, the debtor will still have to undergo counseling soon after filing.  Further, before receiving a discharge in the bankruptcy case, an individual will also have to undergo a session on financial education through an approved agency.

Means Testing:  If an individual wants to file or files a chapter 7 bankruptcy,  “means testing” is applied to the debtor to determine if their present income, or their average income in the past 180 days,  is above the median income in the state where they must file.  To get general information in order to determine median income in your state you can go to http://www.census.gov/hhes/www/income/statemedfaminc.html. You can get more specific information, for example, for a household of four people at  http://www.census.gov/hhes/www/income/4person.html.  Debtors below the state median income will not face any problem as a result of means testing and can proceed to file a chapter 7 bankruptcy (liquidation) if they choose to do so.  Debtors above the state median income,  who file a chapter 7 bankruptcy,  will have to overcome a presumption that their filing was an abuse of the new bankruptcy law and face dismissal or a decision to convert to a chapter 13 bankruptcy.  This presumption is based on the fact that the new law assumes that persons over a state’s median income can afford to repay at least a portion of their debt and therefore should either enter into a repayment plan with their creditors outside of bankruptcy or file a Chapter 13 bankruptcy.

Many other changes will affect individuals including:

• the amount of filing fees

• the place (jurisdiction) where the debtor must file

• when the court imposes the order that stops collection action against the debtor or the debtor’s property (the automatic stay)

• when or if a debtor can file subsequent bankruptcies

• how certain debts are treated and if they can be discharged.

• new documentation and changes to current bankruptcy documents.

As a result of these changes, if you are thinking of filing for bankruptcy and you think that the changes mentioned here will affect you, it may make sense to contact an attorney for further information so you can make an informed choice about when to file.