On October 17, 2005, President George Bush signed into law the 2005 Bankruptcy Abuse and Consumer Protection Act, the most sweeping reforms of United States Bankruptcy Laws in 25 years. As a result, debt discharge from bankruptcies is not as easy as it once was. Traditionally, those seeking to file bankruptcy could choose which plan worked best for them - Chapter 7 or Chapter 13. Now, that decision has been taken out of the hands of the filer. A number of new requirements for those seeking relief were put into place as well as new guidelines for attorneys that specialize in this field. Ann Arbor lawyers can provide guidance on these new laws.
The "Means Test" - Bankruptcy applicants who wish to file for Chapter 7, or absolute bankruptcy, have to pass a "means test" first. If the applicant's net yearly income falls below the median income for their state, then they are eligible to file for Chapter 7 relief. However, if their monthly income is above the state median and they are able to pay $100 per month to their debtors, then they are entitled to file Chapter 13, or the "wage earner's plan", in which a portion or all of their debts are to be repaid to their creditors over time. This ability to pay $100 per month is calculated based on a formula that includes monthly income, monthly expenses and amount of debt.
Mandatory credit counseling - As part of the reforms, bankruptcy applicants, before filing, must undergo mandatory credit counseling with a government approved counseling service before they are allowed to file bankruptcy. A list of approved services can be obtained from the US Trustee Program or from Ann Arbor lawyers.
Less 'automatic stays" - Historically, filing bankruptcy gave the filer certain immediate protections from creditors and others such as debt collections and lawsuits. Termed "stays" in legal terms, these advantages have changed under the new laws. Immediate protection from evictions, driver's license revocations, legal measures for child support and divorce no longer apply.
Greater priority for child supports and alimony - Bankruptcy filings place a filer's creditors in specific order to receive any funds collected. Under the new laws, people who are owed child support or alimony receive higher priority on that list.
Proof of income and tax returns required - Under the new laws, bankruptcy filers must now provide proof of income by providing their tax return for the past year. If the filers have unpaid taxes, they must first pay these taxes before they can file for bankruptcy.
Mandatory financial management education - After a bankruptcy has been approved, but before any debt can be discharged, the filer must complete training in financial management education from a government- approved financial management educator or program. A list of these programs is available from the US Trustee Program or from Ann Arbor lawyers.
Tougher on the lawyers - and more expensive - Part of the new reforms require bankruptcy attorneys to personally vouch for the validity of all information submitted for their clients. This requires the attorneys to spend more time and effort of each case and consequentially, makes the fees for such services higher. Unfortunately, this also makes it harder to find an attorney willing to handle bankruptcies. However, Ann Arbor lawyers have the expertise and experience to meet these new requirements.
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When faced with the possibility of bankruptcy, Ann Arbor Lawyers can help get you better understand the current bankruptcy laws and recent changes.
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