It seems that more and more people are struggling to pay their bills these days. Bankruptcy is one option that you should consider if your situation is severe enough. However, many people are under the impression that they can no longer file for bankruptcy due to recent changes in bankruptcy law.
Yes, Congress did make some changes in the bankruptcy laws, but it did not eliminate bankruptcy as a possible solution. You might be surprised to find out that you can still qualify for bankruptcy protection.
In case you’re wondering, the new law that everyone is talking about is named the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. (Try to say that three times fast.) The bottom line is that this makes the process of filing bankruptcy more complex, but few people have been made ineligible by the new law.
Perhaps the biggest change is the so called bankruptcy means test. The purpose of this test is to determine whether you can reasonably be expected to pay your debts off without bankruptcy. If your income is below the median income for your state, you don’t even have to worry about this test.
However, if your income is higher than the median for your state, then you’ll have to go through a more intense process. You’ll have to provide documentation of your income and expenses to show that you really can’t afford to pay your bills. Otherwise, you might have to settle for chapter 13 bankruptcy in which you agree to a repayment plan instead of simply wiping out your debts.
The goal of a means test is to make sure that people who make more money are not taking the easy way out by declaring bankruptcy. Other changes include mandatory credit counseling and financial management courses. Essentially, Congress, along with your creditors, wants you to do your best to prevent any financial disasters in the future.
You’ll also have to make your income tax returns public for your creditors to take a look at if you request them. The whole point of these new rules is to prove that you really need bankruptcy and to help prevent another personal bankruptcy in the future.
One of the unfortunate consequences of the new, more complex legal code is the possibility of higher lawyer fees. Because there’s more work involved, your lawyer may have to work harder on your keys and end up charging you more. You can help lower your cost by getting your documents in order and learning as much about the process as possible before making your first appointment.
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