Understanding personal bankruptcy laws is essential for finding the right bankruptcy chapter to file. The Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), that went into effect in October 2005, makes it more difficult for consumers to qualify for Chapter 7 bankruptcy and imposes stricter rules to those who file Chapter 13. The new law requires individuals to have valid reasons for applying bankruptcy.
Do you think bankruptcy is an easy way out? Before you decide to go with bankruptcy as your debt relief route learn about personal bankruptcy laws and major requirements for filing. This way you can get a general idea about available options that best suits your financial situation. Let’s start with credit counseling sessions.
Credit Counseling Sessions
Completing credit counseling is one of the many requirements for filing bankruptcy. The counseling is mandatory because this session is to decide whether you need to file bankruptcy or go ahead with a repayment plan that both you and your creditors can live with. For this reason, you must apply for and complete credit counseling with an agency approved by the United States Trustee’s office.
You do not have to go with any repayment plans the credit counselor recommends. But if you are given a plan, you will have to present i to the court with a certificate showing that you completed the counseling before you can file for bankruptcy.
Once your bankruptcy case is over, you will have to attend final counseling session to learn about personal financial management. The court will discharge all your debts after you have completed this counseling session.
Can You File for Chapter 7 Bankruptcy?
To qualify for filing bankruptcy you will need to undergo a Means Test. The purpose of the means test is to find your ability to pay your debts or, in other words, to decide your eligibility for Chapter 7 or Chapter 13 bankruptcy.
To apply the means test, the courts will look at your average income for the 6 months before filing and then compare it to the median income for your state. If the income is below your state’s median, then Chapter 7 remains open as an option. If the income exceeds the median, you will need to go ahead to the remaining parts of the means test.
The next calculation takes income less living expenses and multiplies that figure times 60, which represents the amount of money available over a 5-year period. If the available money for debt repayment is $10,000 or more, then you will need to file Chapter 13.
And the test will go on if your income is above the median but you don’t have at least $10,000 to pay toward your debts. If the amount is lower than $6,000, you may be able to file Chapter 7. For any result between $6,000 and $10,000 you have to compare it against your debt as a percentage, with 25% being the benchmark. Above 25%, you would be required to file under Chapter 13.
Chapter 7 and Chapter 13 Personal Bankruptcy Laws
From the means test you can see the new Chapter 7 personal bankruptcy law requires that your income is lower than your state-mandated median family income. The new Chapter 13, on the other hand verifies that you should not have a monthly disposable income of $100 or more.
The means-to-pay test will prohibit you from choosing between Chapter 7 and Chapter 13. If you have a high, steady income you will be prohibited from using Chapter 7. Instead of being completely discharged from most of your debts you are most likely falling under the Chapter 13 reorganization procedure.
Even if you are qualified for filing Chapter 7, don’t be misled by those who refer it as a fresh start. Not all of your debts will be erased with bankruptcy. You may still be responsible for alimony, child support, student loans, taxes and other debts.
Personal Bankruptcy Laws and Bankruptcy Help
Still have many bankruptcy questions? You’re not alone. Understanding personal bankruptcy laws is something that the average person might not be able to do, especially because they are very complicated. As the laws change, they become more and more complicated.
For the best and most accurate information available, consider contacting a local bankruptcy lawyer. Bankruptcy laws and proceedings may vary slightly from state to state, be sure to call a reputable attorney in the state where you plan to file for bankruptcy because they have the most accurate knowledge of current personal bankruptcy laws.