Understanding the “New” Bankruptcy Laws
If you want to learn more about how the Bankruptcy Abuse Prevention and Consumer Protection Act impacts your ability to file for bankruptcy, then you will want to read this article. We will be highlighting some of the key changes that this act brought about and how they change who qualifies for Bankruptcy. After reading this article, you should have a better understanding as to how the new bankruptcy laws can impact you.
Chapter 7 is more difficult to qualify for
The impact of the “new” bankruptcy laws is that Chapter 7 is now much more difficult to file for. The goal of the laws is to force people with a stable income into Chapter 13 rather than Chapter 7. Here is an overview of how the law determines who is eligible for Chapter 7 Bankruptcy protection.
Income
Any debtor who earns more than the median income for their state, must now be subject to a means test. Those with an income at or below their state median may file for Chapter 7 with no restrictions.
Means Test
You must first determine your income. This will be calculated as an average of your income for the six months prior to filing. From this, you deduct the IRS allowable living expenses plus the true cost of your insurances (health, disability) and home energy costs. You may also deduct up to $1500 per year for each child for expenses related to their education. Then you will calculate 1/60th of all of your secured and priority debt. After all of these items are deducted from your income, if you have $166.67 in monthly income available or $100 but this would be enough to pay your unsecured creditors at least ¼ of what you owe them, then you fail the means test. This means that the only option for you is to file Chapter 13.