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How did Bankruptcy Laws Change in 2005?

I've heard a lot about the new bankruptcy laws. Has bankruptcy law changed?

YES. In April of 2005, the "Bankruptcy Abuse Prevention and Consumer Protection Act" was signed into law. Most of the changes took place on October 17, 2005. All bankruptcy cases which are filed on or after October 17,2005 are subject to the new laws.

Is it true I have to go to Credit Counseling before I file bankruptcy?

Yes. You must attend credit counseling from an approved nonprofit budget and credit counseling agency, within 180 days of filing bankruptcy. You will have to file a certification with the Bankruptcy Court that you have completed the counseling. In cases of emergency, you may be able to file bankruptcy without the counseling, but you will have to complete the counseling shortly afterwards.

Is it true that more people will have to file Chapter 13 payment plans?

Maybe. There is a new provision known as the "means test". If your income is greater than the median income for the state you live in, you may, under certain circumstances, have to file a Chapter 13 repayment plan that pays at least $100 per month to creditors over five years. The "median income" is determined by your average income over the previous six months. Certain debts and expenses are deducted, under a rather complicated formula. There are exceptions for special circumstances, such as the loss of a job shortly before filing bankruptcy.

It appears that most people filing bankruptcy, however, will not be forced into a Chapter 13 repayment plan under the "means test".

What if I filed bankruptcy before? Can I file again?

Yes, but you may to wait longer. If you filed bankruptcy less than eight years ago, and received a discharge, you cannot receive another discharge now. The rule used to be six years. There are also new rules which affect discharge in Chapter 13 cases. Occasionally, it may be beneficial to file a Chapter 13 case, even if you cannot receive a discharge, and you may wish to discuss this possibility with your attorney.

I heard there will be more paperwork. Is this true?

Yes - in addition to your list of creditors, schedules of property, income and expenses, you will have to provide:

a certificate of credit counseling;

payment records from your employer for the past 60 days;

a statement of monthly net income, and any anticipated increase in income or expenses after filing;

tax return or transcripts for the most recent tax year;

tax returns filed during the case, including tax returns for prior years which had not been filed when the bankruptcy case began. Failure to comply may result in dismissal of your case. Your attorney will instruct you on other necessary paperwork to bring in or sign.

Have the exemption laws (laws that protect my property) changed?

Exemption laws (laws which decide how much property you can keep) have changed in two important ways.

1. Exemption laws vary from state to state. Under the new bankruptcy laws, if you have lived in a state for at least 2 years (730 days), you use the laws of the state you now live in. If you have moved within two years, however, you may have to use the laws of the state you used to live in, depending on how long you lived there (your attorney will review the exact requirements). The other state's laws may be more generous or less generous than the state you currently live in.

2. If you qualify for the exemption laws of Indiana, most of the exemption amounts doubled on July 1, 2005. For example, the exemption for your residence is now $15,000 ($30,000 for a married couple). The exemption applies to the value of your home, minus any mortgages or liens against it. Under certain circumstances, a married couple who owns land jointly may get to exempt a larger amount of property. The exemption for other property (cars, furniture, etc.) is now $8,000 ($16,000 for a married couple). An attorney can explain how the exemptions protect your rights to keep property.

Has the bankruptcy filing fee gone up?

Yes. The Chapter 7 filing fee was raised from $209 to $274. (The fee goes up to $299 on April 9, 2006). But there was also a positive change: if your income is less than 150% of the federal poverty line, you can ask the Court to waive the filing fee altogether. The Court may allow you to waive the fee. If the Court denies your request, you will be allowed to pay the fee in installments. A typical installment plan is three payments of about $91 - $92 each.

The filing fee for Chapter 13 cases actually decreased slightly, from $194 to $189. (It goes up to $274 on April 9, 2006) This can be paid in installments.

Are these the only changes in bankruptcy laws?

NO - there are other changes, which your attorney will discuss with you, depending on the circumstances of your case.

This guide is meant to give you some general information about bankruptcy law changes. Only an attorney can give you specific legal advice. Please note that Congress may change the laws at any time, as it did in 2005.

Some people think that in 2005, Congress made it impossible to file bankruptcy. This is not true. Bankruptcy may still be a very beneficial way for you to gain protection from creditors and obtain a fresh financial start. You should seek an attorney to review the circumstances of your case, and help you determine whether bankruptcy is appropriate for you.

Last revised: 11-2005
LSC Code: 1010000

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How did Bankruptcy Laws Change in 2005?

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