Personal bankruptcy questions

If you have not been keeping up with changes in bankruptcy regulations and are now considering whether or not to file for bankruptcy, you should be aware that there have been significant changes made to the bankruptcy procedures in the United States.  The new bankruptcy law, established in 2005, has made it much more difficult and time-consuming for individuals to file bankruptcy.  The new personal bankruptcy law is intended to discourage individuals from filing for bankruptcy.  The major changes include:

• Making it more difficult to qualify for Chapter 7 and forcing many into Chapter 13.
• Making credit-counseling classes mandatory.
• Making filers show much more documentation than was previously necessary.
• Establishing a “means test” that compares the debtor’s income to the income of others in the state.

The two types of bankruptcies are Chapter 7 and Chapter 13.  Generally speaking, Chapter 7 eliminates most debt, with the exceptions of a few types of debt that never go away - such as child support payments, tax bills, and government student loans - and chapter 13 does not eliminate debt; instead, the indebtedness is “reorganized.”

The new bankruptcy law makes it more difficult for debtors to file under Chapter 7 by mandating that claimants under go means testing. If a debtor makes the average salary, or more than the average salary, in his home state, he may not be able to file Chapter 7. He may be forced to file under Chapter 13, which is not nearly as attractive an option as Chapter 7.

The new bankruptcy law also mandates that the debtor show records going back many years in some cases and prove that he truly has an inability to repay his indebtedness.   He must also show that he has made a good-faith effort to repay his obligations.