If you declare bankruptcy today, the rules that you must follow are vastly different from those in the past. Why should this matter to you? The reasons for the changes should be understood before you make any decisions, and knowing about the changes could help you to plan the timing and type of bankruptcy you may end up filing. Read on to learn more about the changes and how they affect filers today.
The Bankruptcy Abuse Protection and Consumer Protection Act of 2005 (BAPCA)
This act represented the first major reform of some very old laws and guidelines. In general, the changes brought about by the BAPCA do more to protect creditors than they do consumers, regardless of the name of the act.
The reason for these reforms has to do with the rise in consumer bankruptcy filings, particularly among the rich and particularly for those who seem to be "serial" filers. These changes actually make it more difficult for consumers to get debt relief since it put in place more hoops to jump through before they could file. That being said, most consumers still qualify for filing a chapter 7 or chapter13, which are the code numbers identifying the most common consumer bankruptcy filings. Here are a few of the major changes:
The Means Test
Large numbers of filers who had a high net worth must have prompted this change since you can only file for a chapter 7 if your income is at or below the median income for your state of residence. If your income is higher than the median you might still be allowed to file if the numbers work out in your favor. Your income, debts, monthly expenses, and more are taken into consideration. If you cannot pass this means test, you might consider filing using chapter13, which has no such income limitations.
The IRS Weighs In
The linking of income with your most recent tax year obligations are another change brought about by the BAPCA. If you have not yet filed your taxes for the previous year, then you will not be allowed to file either a chapter 7 or a chapter13 until you do so. You must be ready to provide a copy of last year's tax return at the time of your application. You must have also satisfied any tax debts for the most recent tax year.
There are now two different consumer finance education requirements that must be met: one before you file and one after filing. These two classes are offered online, in person, over the phone, and through the mail and there is a small cost involved. The cost can be waived if you show good cause.
Prior to the BAPCA, you could stop an eviction in its tracks by filing for bankruptcy, but no more. Now the landlord is allowed to proceed with an eviction for any reason that complies with landlord-tenant laws in your state. However, the automatic stop that previously protected filers is still in place when it comes to foreclosures, repossessions, collection actions, wage garnishments, and more.
These changes may make it more difficult to file bankruptcy but are not insurmountable. Speak to a bankruptcy lawyer to learn more. For more information, you can contact legal offices like McElrath Law.