Restricted eligibility for Chapter 7 bankruptcy is one of the biggest changes.  According to the new bankruptcy laws, the first step to determining whether you can file for Chapter 7 is to calculate your total monthly household income.  This figure must be compared against the median household income in your state.  If your household income is more than the state median, you must pass the “means test” before qualifying to file Chapter 7.

The “means test” is designed to determine whether you have enough disposable income (after deducting certain allowed expenses and debt payments) to make payments under a Chapter 13 bankruptcy plan.  To pass the means test, you must subtract certain allowed expenses and debt payments from your monthly income.  If the remaining income after this calculation is below a certain level, then you can file under Chapter 7.  If not, you will be required to file Chapter 13.

Under the new bankruptcy laws, all borrowers must undergo credit counseling before filing a bankruptcy case.  Counseling is required even if it’s clear that a repayment plan isn’t possible for you – or if you are facing unfair debts that you don’t plan to pay.  While you are required to participate in counseling, you are not required to follow any repayment plan the counseling agency proposes.  It’s important to realize, however, that if the agency establishes a repayment plan, you will have to submit the repayment plan to the court along with a certificate showing you completed the counseling.  This must be submitted before you can file for bankruptcy.

Under the new bankruptcy laws, additional counseling on debt management and budgeting is also required before all debts can be discharged.  The new bankruptcy laws also impose new requirements on attorneys.  As a result, it may be more difficult to find a qualified bankruptcy attorney to represent you, depending on your financial situation.

The main intent of the new bankruptcy law is to require people who can afford to make some payments towards their debt, to make these payments.  The new bankruptcy laws are more rigid in determining who qualifies to file Chapter 7 bankruptcy, which discharges most outstanding debt.

Some of the new changes include passing a “means test” in order to qualify for Chapter 7, state residence exemptions, counseling requirements, proof of income requirements, homestead exemptions, and guidelines for tithing and charitable donations.  The “means test” is one of the biggest changes, and was designed to identify debtors who have the means to pay some money to their creditors.  If you are filing Chapter 7 or Chapter 13, you must provide proof of income to the bankruptcy trustee, including a copy of your tax return for the period in which the return was most recently due.

The new residency rule mandates that you cannot use the exemptions in your state of residence unless you have lived there for at least 2 years.  The new counseling requirement states that you must have finished financial counseling within the last 6 months before you can file, and the new tithing rule states that up to 15% of your income can be given to charity. This is a loophole that allows people who may be just over the threshold of having to file Chapter 13 to drop down low enough to qualify for Chapter 7 bankruptcy.