New Bankruptcy Law

     The new bankruptcy law refers to the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.  The revisions in this new bankruptcy law affected almost all aspects of bankruptcy filing.  First of all, the statute requires credit counseling by an agencies approved by the United States Trustee's office.  The potential filer is evaluated to see if bankruptcy is the only alternative.  It might be that debt consolidation and financial management could avoid a bankruptcy filing.  If not, the potential filer must pass an income means test in which a six month average income figure is computed and then compared to the median income in his area.  A Chapter 7 bankruptcy filing is not allowed if his average income is greater than the median.  For candidates whose income level is less than the median, disposable income is then computed.  This involves determining expenses based on the IRS standards instead of actual expenses.  The determined expenses are then deducted from the average income.  If disposable income is less than $100, then a Chapter 7 bankruptcy filing can take place.

The New Bankruptcy Law Requirements

     The pre-filing counseling requirement is only one of the counseling requirements imposed by the new bankruptcy law.  An individual filing a straight bankruptcy must show proof of completion of debt and financial management classes before the court will allow a discharge of debt.  In Chapter 7 bankruptcy and Chapter 13 bankruptcy cases, the counseling agency will present a plan to the Bankruptcy Court. The plan doesn't have to be accepted by the filer or the bankruptcy court.

     In liquidation cases, the value of assets has to be determined.  The new bankruptcy law changed the method of asset valuation to replacement value at a retail vendor which results in higher value for a lot of assets and that filers are able to claim fewer exempt assets.  In addition, state residency requirements are two years for filers to use the rules of that state. This determines the amount of equity required in a home, cars, etc.  Filers can use the federal rules or the rules in the previous state where they resided.

Lawyers and the New Bankruptcy Law

     The role of bankruptcy lawyers is also affect by the 2005 New Bankruptcy law. They now have to personally vouch for the accuracy of the facts as presented by their clients and now have to spend more time checking out the facts.  This will probably results in increased legal fees.

     The changes to Chapter 13 bankruptcy filers basically have to do with the new computation of income and expenses.  The redefinitions leave the filer with less income to live on since a larger chunk of it is going to pay his creditors.  In addition, the new 2005 bankruptcy law does not prevent legal action for eviction, child support, divorce or driver's license suspensions.

     The result of the 2005 new bankruptcy law is more Chapter 13 bankruptcy filings and fewer Chapter 7 bankruptcy filings.  In addition, bankruptcy attorneys will charge higher legal fees because of the increased work for them due to the requirement of making them personally vouch for the accuracy of the information provided. Although you can do your own online bankruptcy you should seek the aid of a professional bankruptcy lawyer who is familiar with the new bankruptcy law.