Counsel's Corner: Bankruptcy, do you qualify?
Bankruptcy laws originated in England as a method of satisfying creditors by distributing a debtor's assets among creditors as payment for the debts. While the law was originally intended to satisfy creditors, it has evolved into a method of equitable treatment for both debtor and creditor. One of the primary purposes of bankruptcy is to give a debtor a new beginning in life by clearing debts so the debtor can pursue future opportunities without the pressure of debt. In the 1970s, the main reason for bankruptcy was high medical bills. Today, it is high credit card balances.The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) was signed into law by President George W. Bush on April 20, 2005, and became effective on October 17, 2005. The Act represents one of the most comprehensive overhauls of the Bankruptcy Code in more than 25 years, particularly with respect to its consumer bankruptcy reforms. The intent of Congress was to improve bankruptcy and practice with a dominant theme of restoring personal responsibility and integrity to the bankruptcy system. The passage BAPCPA made it harder for some people to file bankruptcy. And a few filers with higher incomes are no longer allowed to use Chapter 7 bankruptcy, but will instead have to repay at least some of their debt under Chapter 13. All debtors now have to get credit counseling before they can file a bankruptcy case and additional counseling on budgeting and debt management before their debts can be wiped out. And, because the law imposes new requirements on lawyers, it is sometimes tougher to find an attorney to represent you in a bankruptcy case. Here are some things you should know if you are contemplating bankruptcy: Under the old rules, most filers could choose the type of bankruptcy that seemed best for them and most chose Chapter 7 bankruptcy (liquidation) over Chapter 13 bankruptcy (repayment). The new law prohibits some filers with higher incomes from using Chapter 7 bankruptcy. Under the BAPCPA rules, the first step in figuring out whether you can file for Chapter 7 bankruptcy is to measure your "current monthly income" against the median income for a household of your size in your state. If your income is less than or equal to the median, you can file for Chapter 7 bankruptcy. If it is more than the median, however, you must pass "the means test" another requirement of the new law in order to file for Chapter 7. The purpose of the means test is to figure out whether you have enough disposable income, after subtracting certain allowed expenses and required debt payments, to make payments on a Chapter 13 plan. To find out whether you pass the means test, you subtract certain allowed expenses and debt payments from your current monthly income. If the income that's left over after these calculations is below a certain amount, you can file for Chapter 7. If you're looking for an easy way to determine your eligibility under the means test, unfortunately there is not. The calculations are quite cumbersome. You can access this information on the United States Trustee's office web site www.usdoj.gov/ust. However, most attorneys will do the calculations for you for free of charge. If you pass the Means test, you can file for bankruptcy under either Chapter 7 or Chapter 13. However, most people opt for chapter 7 because chapter 7 liquidates (gets rid off) all you debts. So if you are contemplating filing for bankruptcy you should determine if you pass the means test as soon as possible, this will avoid a lot of hassle down the road. The purpose of this column is to provide general information on the law, which is subject to change. It is not legal advice. Consult a lawyer if you have a specific legal problem.
********** Published: May 15, 2009 - Volume 8 - Issue 4