You may have heard that there are new bankruptcy laws.  These new bankruptcy laws went into effect in April 2005 and may make it harder for some people to file bankruptcy.  Specifically, the new law makes it harder for high income earners to file Chapter 7 unless they meet certain criteria. If specific criteria are not met, borrowers cannot file Chapter 7 bankruptcy and must, instead, file under Chapter 13.

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.