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 Understanding the New Bankruptcy Law

Background Information

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 applies primarily to bankruptcy cases filed on and after October 17, 2005 (Title 11 of the U.S. Code).

Major changes that will affect those filing Chapter 7 or 13 include:

Before someone can file bankruptcy for either Chapter 7 or Chapter 13, they must complete credit counseling with an agency approved by the United States Trustee’s office. Before their bankruptcy case is over, they must attend another counseling session, this time to learn personal financial management. Only after a person submits proof to the court that they fulfilled this requirement can they get a bankruptcy discharge, preventing most of their creditors from collecting debts incurred before the filing of the bankruptcy petition.

A person’s income is a factor in determining whether a person files for Chapter 7 or Chapter 13. The higher their income, the more likely they will have to file for Chapter 13. A means test will be used to calculate their “disposable income”.

There are fewer “Automatic Stay” protections under the new law. Protections designed to delay or stop eviction actions, legal actions, or divorce proceedings have been narrowed under the new law.

Under the new law, a person must live in a state for at least two years prior to filing in order to use that state’s exemption laws. Otherwise, they must use the exemptions available in the state where the person used to live for the greater part of 180 days prior to filing.

Chapter 13 filers have to hand over all of their disposable income, but now they have to calculate their disposable income using allowed expense amounts dictated by the IRS—not their actual expenses—if their income is higher than the median in their state. A person looking to file Ch. 7 or 13 must provide proof of their income in the form of federal tax returns and pay stubs.

A chapter 7 debtor cannot receive a discharge if a prior discharge was received within 8 years of the new filing.

U.S. Bankruptcy Court (Western District of Michigan), March 2006

This information is not intended to be a substitute for legal advice or representation. Talk with an attorney if you have questions about how this information applies to your own situation.