Bankruptcy Law Reform

What you thought was true about the bankruptcy code may no longer be. The Bill was signed into law by the President on April 20, 2005. Some changes were effective from the time of the signature while others do no take effect until 180 days after the Bill was signed. Make sure you know all of the facts before you decide to file. Below are some of the changes.

General reason for the reform
In a nutshell he purpose of the bankruptcy reform is so that people who are capable of paying some but not all of their debts make these payments while still giving them the right to erase the rest of their debt. This will channel more poeple to file Chapter 13 whereas under the old code they might have filed for Chapter 7.

New filing procedures
There are also changes to filing procedure under the new bankruptcy code which is effective as of October 17th, 2005. Before you can file, you must now have taken an approved financial counseling course within the last 6 months.

Chapter 7 bankruptcy eligibility
If your current income is less than your state's median income you may file for chapter 7 bankruptcy. If it is more, you must pass a means test to determine your eligibility. First calculate your monthly income and subtract your monthly expenses. Multiply that number by 60 months to get the result. If this excess is less than or equal to $6000 then you may file for chapter 7. Mostly everyone else must now file a 5 year chapter 13 bankruptcy.

Getting discharged
Under both chapter 7 and chapter 13, the debtor must take an approved financial management course before he or she receives a discharge from the court.

Homestead exemption changes
This exemption is now limited to $125,000 if the property was acquired within the last 3.3 years or 1215 days. This limit does not apply to any interest transferred from the previous principal residence of a debtor which was acquired before the 1215 days.

Child support and alimony
This exemption is has been moved to first priority from its previous position of seventh.