New Bankruptcy Law - Does It Make Filing For Bankruptcy Impossible?


If you find yourself in a financial mess with creditors hounding you day in and night, you may one day consider filing for bankruptcy as the only way out of your situation. However, you may have heard people saying that the amendments in bankruptcy law make it impossible to declare bankruptcy nowadays.

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 or simply called the New Bankruptcy Law may seem more stringent than before, but it doesn't mean that bankruptcy is no longer an option for those who deserve it.

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There are some provisions of this new law that may seem complex for you to understand, but you can actually just leave the nitty gritty details of it to your lawyer. There are just three things that you need to know if you are thinking of filing for bankruptcy:

1. Means Test. You will be asked to take a "means test" which will tell the court if you are really incapable of paying off your debts. Your income is evaluated against the median income of people in your state and if you fall below this benchmark, then it means you pass the test. If however, your income is above the average income in your state, then you would have to provide more proof that you after paying your living expenses, you no longer have enough to pay off your debts.

If the bankruptcy court still finds you ineligible for a Chapter 7 bankruptcy or full pardon for your debts, it may approve a Chapter 13 bankruptcy for you. This type of bankruptcy requires you to agree to repay your debts over a period of 3-5 years.

2. Financial Counseling. The new bankruptcy law requires you to take sessions in personal finance and credit management within a 180 day period prior to filing. Congress approved this in order to make sure that you will come out of your bankruptcy experience as a more matured and responsible borrower. This will actually benefit you in the long run, because the training will help you get rid of bad spending habits and will prevent you from falling into another bankruptcy trap in the future.

3. Increased Lawyer Fees. Because the new bankruptcy law is more complicated than before, lawyers have increased their fees to compensate for more work involved in the filing process. There is also more liability for law firms in the event that their client is found to be attempting bankruptcy fraud which is another reason why bankruptcy lawyers are charging more.

You maybe able to decrease your attorney's fees by making your lawyer's job less demanding. You can do this by preparing all the documents that your lawyer may need and by exercising transparency regarding your financial activities in the past.

It may require more work to file bankruptcy now than before, but if there is no doubt that you are eligible for it, then the court will still grant it to you. The only important thing is to know beforehand what the law requires so as to make you succeed in filing for bankruptcy.


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