BANKRUPTCY "REFORM" AND CONSUMERS
On October 17, 2005, most of the provisions of the Bankruptcy Abuse Prevention and Consumer Protection Act went into effect. Although the title of the act refers to "consumer protection," the stated purpose of the act was to make it harder for consumers to erase debts and make a fresh start by forcing them to pay back more of the money they owe to credit-card companies, banks, and other lenders.
The most significant change was the creation of a "means test" for chapter 7 debtors. In order to qualify for chapter 7 bankruptcy debtors must now show they are either below the state median (statistical average) income or that they are unable to pay at least $100 a month to their creditors after deducting certain IRS-approved living expenses.
The other most significant changes in the Act are: the requirement that debtors complete a "debt counseling" class prior to filing; the requirement that debtors produce their last tax return, and; the requirement that debtors provide evidence of their current income (in the form of pay stubs or bank records for the self-employed) to the chapter 7 trustee.
What is important for debtors to remember is that anyone who makes less than the state median income is not subject to the means test. This means that a substantial majority of debtors are not subject to the means test and a substantial majority of debtors will still qualify for chapter 7 relief. Moreover, because certain classes of income such as social security are not included in the means test, a debtor with substantial social security or child support income may still qualify for chapter 7 relief.
The changes and the ambiguities created by the Act mean it is more important than ever for debtors to contact an experienced bankruptcy lawyer and explore their options. |
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