Changes in Bankruptcy Law

New amendments and changes in bankruptcy law affect qualification

In 2005, the U.S. Senate successfully promoted the Abuse Prevention Act (S.256). This proposal was ratified by Congress and signed into law. The effective date of the new bankruptcy law was October 17, 2005, being 180 days following House confirmation in the spring. The changes in bankruptcy law contained in the new act included the following:

  • a new means testing requirement that presumes all people who earn above the median income in their state of residency file in bad faith.
  • mandatory credit counseling, from an officially approved source, is now a condition for filing, with failure to comply resulting in automatic dismissal.
  • longer plan payments and higher payments in Chapter 13 cases.
  • several new requirements to qualify for Chapter 7 discharge.

Coping with new changes

In practice, fewer than 15% of all cases will be affected by these changes. Prior to the amendments, most people filed by necessity rather than elective abuse of the system. Because above average income earner rarely file, the means testing requirement has little impact. Additionally, when above average income earners do file, the underlying cause tends to be catastrophic or fall into one of the exceptions drafted into the new law. Certainly, qualification and legal compliance is now more difficult, yet these obstacles are easily overcome by a talented attorney in most cases.

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