By: Jonathan Cohen
I frequently get asked, “Isn’t it harder to file bankruptcy now than it used to be?” The short answer is no. This question is typically posed in reference to the changes to the bankruptcy code that went into effect in 2005.
In 2005, Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA). Although over seven years old now, the changes to the Bankruptcy code under BAPCPA are still referred to as the “New Bankruptcy Laws”.
The major changes to the code from BAPCPA are discussed below.
BAPCPA heralded the introduction of the Means Test. The Means Test determines whether or not a repayment of debt is required by deducting specific allowable monthly expenses from your current monthly income. These allowable expenses are based on the Internal Revenue Service’s (IRS) financial standards used in collecting taxes. Current monthly income is an average of your past six months of gross income The Means Test is a highly complex form. It is governed both by the bankruptcy code and local practice guidelines for each Chapter 13 Trustee. Do not try this at home! I have had many clients come in to meet with me for the first time thinking that they have done the Means Test correctly. It turns out that they have done it incorrectly so that they are not actually eligible for a Chapter 7 Bankruptcy or are facing a higher repayment of debt than they thought. Leave the Means Test to me. I am always happy to walk a client through how it works step by step.
The use of Median Income as part of the Means Test to determine eligibility to file a Chapter 7 or Chapter 13 Bankruptcy came into play with BAPCPA. The IRS determines Median Income. It varies by family size and your state of legal residence.
Waiting Period Between Filings
Before BAPCPA, an individual or married couple filing jointly was be eligible to file Chapter 7 Bankruptcy every 6 years. BAPCPA changed the law to 8 years between Chapter 7 filings. If you were discharged from a Chapter 7 Bankruptcy less than 8 years ago, you can file a base plan Chapter 13. A base plan Chapter 13 would result in a repayment to creditors of approximately $100.00 a month for 36 months regardless of the amount of debt included in the bankruptcy.
“Don’t I have to take a course to file bankruptcy?” The 2005 changes to the bankruptcy code require pre-filing Credit Counseling and pre-discharge Debtor Education. Yes, you do have to take a “course” but not in the sense that you have to go to class, study, or have any fear of failing. These “courses” are done online or over the phone with a nonprofit budget and credit counseling agency appointed by the United States Trustee’s Office. There are many credit counseling agencies. Our office tends to recommend Green Path Debt Solutions, www.greenpathbk.com. Remember, you cannot fail Credit Counseling or Debtor Education and your answers cannot prevent you from being eligible to file bankruptcy. There you have it.
These are the major changes to the Bankruptcy Code that arose from the 2005 bankruptcy bill. They do not make it harder for you to file bankruptcy. Instead, the changes make a petition more complicated and time intensive for me, as your bankruptcy lawyer to complete. The changes are not a bar to you getting relief from debt and a fresh start through filing for bankruptcy.