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The Changes Brought By The New Bankruptcy Laws
The new bankruptcy laws have come into effect from October, 2005. If you are planning to file a court petition for bankruptcy, but you are not aware of the changes brought by the new laws, you may have to face a lot of difficulties during the bankruptcy declaration proceedings in the court. What is more, the unawareness of the new laws may also make it difficult for you to defend your bankruptcy claim. This article intends to give you a brief insight into all the latest changes that these new laws have brought.
Personal Bankruptcy
The major changes that the new bankruptcy laws have brought are mostly regarding the personal bankruptcy under chapter 7 and 13. Before the introduction of these laws, it was optional for the debtors to file for bankruptcy either in chapter 7 or chapter 13. However, now, it has become mandatory for them to go through certain tests, in order to determine which type of bankruptcy they are eligible for.
Means Test
In this regard, the first test that the debtor has to pass before filing bankruptcy is a Means Test. As per this test, the debtor's total income from all the sources is evaluated. Then, the evaluation of the debtor's essential expenses is done. These essential expenses are the expenses that the debtor cannot live without, such as food, cloth, home etc. Now, the amount of the essential expenses is deducted from the gross income, in order to evaluate the net income that is left with the debtor. As per the new bankruptcy laws, if this net income is greater than the median income of the state, the debtor is eligible for filing for bankruptcy under chapter 13, as per which the debtor will be allowed to continue with their business operations along with making the repayments for their debts, based on the suggested repayment plan by the bankruptcy court.
Credit Counseling
The new bankruptcy laws have also made it mandatory for the debtors to go through a credit counseling process, at least six months prior to filing the court petition for bankruptcy. The debtor must avail the credit counseling services from a government-approved agency. The main objective for adding this step is to evaluate the actual financial situation of the debtor. The credit-counseling agency will look into the financial details of the debtor and try to help them run their business in a profitable way. It is only if the credit counseling agency declares that the debtor is not in a situation to run their business in a profitable way, the debtor can file for chapter 7 bankruptcy.
The new bankruptcy laws have changed the way people used to go ahead for bankruptcy claim. The new laws have affected both the personal and business bankruptcy. Now, that the new laws have introduced, it is no more optional for the debtors to go either for the chapter 13 or chapter 7 bankruptcy. It is mandatory for the debtors to pass the Means test and go through a credit counseling service before filing bankruptcy.
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