Bankruptcy Laws
For some people bankruptcy was obviously a tactic to make a fresh start after being buried with debt. For others bankruptcy was just something to pull over the fast one on credit card providers. This is no longer the truth due to a legislation passed in 2005, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. This act was passed by former president George W. Bush in order to stop people from abusing both credit system as well as the bankruptcy system.
Because of this act set up several changes were created to the bankruptcy laws. It introduced things like means tests, extended wait periods in between bankruptcy filings, among others. These changes were carried out to manage to root out those who would abuse bankruptcy laws for their personal gain.
So what does a means test involve?
A means test was established to evaluate if or not a person is qualified to receive certain bankruptcies like Chapter 7 or Chapter 13 bankruptcy. This is performed in order for the courts reserve Chapter 7 bankruptcy for all those debtors who are incapable of repay their debts through reorganization plans.
A means test involves an analysis of person’s monthly income, commonly known as a presumed income, which spans the amount of income gained in 6 months. This involves exploring a person’s personal income and comparing it to their state median income, which is determined geographically. This basically signifies that if a person makes under the state median income then they might be able to file under Chapter seven bankruptcy. On another hand, if a person makes over a certain amount for the state median income then they will not be eligible for Chapter seven. This test also considers the size of the household, i.e. married couples, children, etc., and current monthly salary of the debtor.
All these factors come up when determining the applicable median income. Those whose income is beyond the state median income who seek bankruptcy relief are found to be abusive under 707(b)(2). The test is then calculated running a number of variables for instance presumed expenses, living expenses, continued contributions to care for non-dependent relatives (elderly parents or grandparents), expenses for education (children in elementary school, high school, etc.), contributions to tax-exempt charities, and others.
Other Changes
Another major change to the bankruptcy laws involves debtors visiting credit guidance. This also determines a person’s eligibility for bankruptcy. This signifies that a person is not permitted to apply for either Chapter 7 or Chapter 13 bankruptcy unless they have taken an instructional course on personal financial management 180 days leading up to filing. Also the waiting period between being allowed to file for Chapter 7 was changed. This extended the waiting period between filings for six years to eight years. Although this extension was place upon people submitting Chapter seven it didn’t affect the waiting period for declaring Chapter 13. Other changes include additional filing fees, increased liability for attorneys, new ways for creditors to pursue collections, and laws concerning assets and pensions.
Learn more about bankruptcy laws. Stop by Monique Bergeron’s site where you can find out all about bankruptcy help and what it can do for you.
