New Bankruptcy Laws 2005, effective October 17, will make it more difficult to discharge your debts by filing bankruptcy.
Changes to the law in the form of The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, are due to complaints by the banks and other financial institutions who cite abuse of the bankruptcy laws by financially irresponsible consumers.
Worries, however, abound that the New Bankruptcy Law will leave the most vulnerable in society - namely, the elderly, low income families and single mothers - with no protection against unmanageable debts due to job loss or other unforeseen circumstances.
Changes to the law in the form of the new bankruptcy laws of 2005 are as follows:
1. To escape the new law, your income must be below the median of income for families of the same size in the state where you live
2. You will be required to undertake a means test (based on income and expense) to ascertain whether or not you qualify for "debt forgiveness" (provided currently under Chapter 7 Bankruptcy)
3. If the bankruptcy court believes you have enough spare income each month to set aside for repayment of debts, you may be required to file Chapter 13 Bankruptcy, which will mean automatic participation in a debt repayment plan over 3-5 years
4. Under the new bankruptcy law, you'll be required to undertake debt counseling under Section 106
Under Chapter 7 bankruptcy, you are allowed to protect part of the equity of your home from creditors, as determined by the state laws where you reside. From the date of the changes, however, the new bankruptcy law overrules some of these exemptions. Subject to filing time limits, the exemption for your home is limited to $125,000.
The new bankruptcy laws of 2005 also affects businesses who file for bankruptcy.