Changes in the federal bankruptcy law took effect in 2005. These updates made it more difficult for some people to file for Chapter 7 bankruptcy. The new laws also require mandatory credit counseling before the court will approve a bankruptcy discharge.
New Chapter 7 Means Test
A new means test eliminated the Chapter 7 route for some high-income bankruptcy filers. These individuals must instead file for Chapter 13, which reorganizes debt into a more affordable repayment plan rather than discharging it completely as with Chapter 7. Prior to 2005, those filing for bankruptcy could choose either Chapter 7 or Chapter 13 bankruptcy. The means tests looks at a person's debt, income, projected future income and assets to determine whether he or she can afford to repay some of the debt. The threshold for Chapter 7 qualification varies based on the median income in your geographic area for a family of your size.
Required Debt Counseling
Before filing a bankruptcy petition, you must complete credit counseling through a federally approved agency at your own cost. After filing, you must complete a second counseling session before your debts will be reorganized or discharge. These new 2005 requirements apply to both Chapter 7 and Chapter 13 filings.
A bankruptcy law attorney can help you decide whether bankruptcy is right for you. He or she can also apply the means test to see if you qualify for Chapter 7.
