Bankruptcy Laws Have Changed: Can I Still File?
September 22, 2005 — That's the question on a lot of my clients' minds lately. Since the passing of tough new legislation know as the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, which became effective this past October 17, 2005, I have received countless inquiries from debt-burdened consumers who fear that bankruptcy may no longer be an option for obtaining needed financial relief.
As is often the case with legal matters, the answer to this question depends largely upon who is asking. Indeed, for some individuals, particularly those in higher income brackets, bankruptcy relief will be a bit harder to come by, but by no means will it be unavailable.
Contrary to some of the media hype, according to American Bankruptcy Institute research, the vast majority of post-October 17th filers (approximately 97-98%) will still be eligible for the same relief as they would have received prior to October 17th, the only major difference being that they will now have to comply with a few more procedural requirements than previously. Among these new requirements, is the need for all filers to obtain a certificate, verifying the fact that they have completed a "Briefing" with a federally approved credit- counseling agency.
Thus far, according to the feedback I have received from my clients, the credit briefing process, though somewhat time-consuming, is relatively painless, as it can be completed in person, or on the phone, or by internet in about forty minutes. Some of my clients have reported that the counselors were in fact very pleasant and quite informative. One agency supplied my client with complimentary budget software to help keep her on track in the future. These services are not free and range in cost from $50 to $100 dollars.
In addition to credit counseling, the new bankruptcy laws also require that, after filing, but prior to receiving a bankruptcy "discharge" (the final paper that verifies debts have been wiped-out), all bankruptcy filers complete a "Financial Management Course". These courses are offered by the same approved agencies that conduct the credit counseling briefings. A list of approved Credit Counseling agencies can be found on the Bankruptcy Court website or from any qualified bankruptcy attorney.
The new law also imposes additional obligations upon bankruptcy filers to provide their attorneys and the Bankruptcy Court with more documentation than previously required. These documents include items such as copies of tax returns and pay stubs that for most people, should not be too difficult to gather.
For a small percentage of filers (the remaining 2-3%) bankruptcy reform will cause them to be ineligible for Chapter 7 bankruptcy (the simplest bankruptcy sometimes referred to as "straight bankruptcy" or "liquidation"). Instead, they will only be eligible for Chapter 13 bankruptcy (a more complicated filing which requires that a portion of the filers' debts be repaid on a monthly basis over a period of between 3 -5 years.)
For the most part, even this outcome is not substantially different from post-reform law, in that bankruptcy law prior to October 17th already contained various provisions requiring those who could actually afford to pay something back to creditors to do so, by way of filing a chapter 13 rather than Chapter 7.
Moreover, although the road to bankruptcy relief has been narrowed by a number of new obstacles and inconveniences, for most people in financial crisis, thankfully, the road remains open, and continues to be a viable and critically important option for those individuals.
For those considering a bankruptcy filing, be prepared to spend some additional time and effort in comparison to your friend or relative who may have filed pre-Bankruptcy Reform. Also, be prepared to perhaps spend some additional money. Bankruptcy attorneys now strapped with additional, time-consuming obligations to comply with the new law have been forced to raise their fees accordingly. Other than that, expect the bankruptcy landscape to remain largely unchanged, in that it is still a very powerful and effective tool which will continue to provide a sensible solution for certain individuals who need very badly to find a way out of debt.
As for the question: "Can I still file?," the short answer is "yes." Most anybody can still qualify for a fresh start under the federal bankruptcy code, but depending upon your individual situation, you may be required to file under chapter 13 and pay something back to creditors, rather than just wiping out debts in a chapter 7. To find out which chapter you would be eligible for, consult with an experienced attorney specializing in consumer bankruptcy. Most attorneys will provide you with an initial consultation either for free, or for a nominal fee.
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