Back in 2005, Congress put the bankruptcy code through some big changes trying to make it harder for people to file for Chapter 7 bankruptcy. The intent was to put a crimp in the bankruptcy plans of those who have been abusing the system. Since the changes in the 2005 bankruptcy code, people need to pass a means test to qualify for Chapter 7. The new bankruptcy law was added with the intent of forcing more people into Chapter 13 bankruptcy. With the tougher law, Congress felt that it would stop dishonest people from working the system by wiping out all of their unsecured debts with the benefit of becoming debt-free. There are many honest people that suffer from financial hardships that could not be stopped and these people still should be able to benefit from Chapter 7 bankruptcy.
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Under the current bankruptcy code, everyone filing for bankruptcy must now complete the means test. The means test is first based on the individual's current monthly income, with the amount you make being regulated by the median income for the state in which the bankruptcy filer resides. This was added to the qualifications, with the purpose of requiring debtors who might have the ability to pay back some of their unsecured debts, by making them switch to chapter 13 bankruptcy. This will require the debtor to pay back some of the unsecured debt through a 3 to 5 year payment plan. The means test was created to scrutinize any debtor that has income higher than the median income of their state. If the debtor earns more than the median income for the state, after including necessary expenses, and has more than $150 disposable income, the court will assume that the debtor doesn't qualify for Chapter 7 and should be forced into Chapter 13 bankruptcy.
Prior to the changes in the law, some debtors filing for bankruptcy would move across state lines to benefit from the exemption laws of another state. Since the change to the law, a debtor can no longer do that. When a debtor files for bankruptcy, they must reside in the state to which they've moved for six months before being able to use exemption laws of that state. If someone has to move, because of work or other reasons, they can still file in the state they moved to, but will have to use exemption laws from the previous state they lived in. This stops people from filing bankruptcy in the state that has the best exemption laws for their financial situation.
Another change that was added to the law in 2005, is the addition of credit counseling. All individuals filing for bankruptcy are required to take a pre-bankruptcy credit counseling course that must be submitted when the petition is turned into the court. Also required is a post 341 meeting financial management course which is required to be completed and turned in prior to the discharge. Failure to complete either of these courses will result in the dismissal of the bankruptcy with no discharge. The new laws have added quite a bit more work required of the debtor to be successful in bankruptcy. When considering bankruptcy it's a good idea to get an initial consultation with a local bankruptcy attorney to discuss your financial situation.
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