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New Bankruptcy Law

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) became effective October 17, 2005. It was written, passed, and is now enforced primarily to combat bankruptcy fraud and abuses.

Here are some of the most important changes:

  • Pre-Petition Counseling Requirements — Before a consumer can file for bankruptcy under either Chapter 7 or Chapter 13, they must complete credit counseling with an agency approved by the United States Trustee’s office.
  • Pre-Discharge Counseling Requirements — Once your bankruptcy case is over, you’ll have to attend another counseling session, this time to learn personal financial management. Only after you submit proof to the court that you fulfilled this requirement can you get a bankruptcy discharge wiping out your debts.
  • Restricted Eligibility for Chapter 7 — The new law will prohibit some filers with higher incomes from using Chapter 7. If their monthly income, averaged over the past six months, is in excess of the median income for a family of your size in their state, they then have to pass a so-called means test to determine whether they have enough disposable income, after subtracting certain allowed expenses and required debt payments, to make payments on a Chapter 13 plan.
  • Property Must Be Valued At Replacement Cost for Chapter 7 Filers – The new law forces the filer to fairly estimate what it would cost to buy any valuables in their current condition from a retail vendor. This will result in less property being exempted from liquidation.
  • Lawyers Will Be More Expensive, and Harder to Find — The new law adds some complicated requirements to the field of bankruptcy, making it more expensive and time-consuming for lawyers to represent clients in bankruptcy cases. More attorney time means attorney fees.

It will still be just as easy to get into financial trouble, but harder than ever to erase the debt and maintain clean credit.

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