Revisions to the Bankruptcy Code Made It Tougher to File Bankruptcy 

After an eight year long battle funded by the banking and credit card industries, who contributed more than $40 million to federal election campaigns during this period, The United States Bankruptcy Code was amended in October, 2005 and made it more difficult for people to file bankruptcy.  Now, people contemplating bankruptcy must complete a credit counseling course within a specific period of time before or after filing bankruptcy.

In addition, debtors who earn more than the median income earned in their state must pass a means test in order to file Chapter 7 bankruptcy.  If the debtor earns more than the median income in his or her state, secured debt and necessities (alimony, child support, living expenses, etc.) are subtracted from the debtor's monthly income to determine what is left over for repayment of unsecured debt.  If it is determined that a debtor can pay the lesser of $10,000 over a 60 month period ($100 per month) or 25 percent of his debt, which must be at least $6,000, then he must file Chapter 13 bankruptcy and repay some or all of his unsecured debt over a five year period.  If the debtor does not pass the means test, he can file Chapter 7 just as with the old law and have much or all of his unsecured debt erased.

Debtors will be required to pay for credit counseling at an approved credit counseling organization.  Those contemplating filing bankruptcy must obtain a briefing about credit counseling services not more than 180 days before filing bankruptcy.  The banking and credit card industries wanted this provision included to encourage those contemplating bankruptcy to sign up for credit counseling instead.  This provision applies to everyone regardless of whether or not they earn at least the median income in their state.

Will there be additional revisions to the bankruptcy code in the near future?  No one knows for sure, but it depends mainly on whether Americans elect democrats or republicans to Congress.  Democrats tend to promote legislation favoring debtors and consumers while republicans tend to back the creditors, credit card companies, etc.  If either party should ever get control of both the House and the Senate, there could be significant new legislation passed.
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By the way, although the revisions to the bankruptcy code did make it tougher to file bankruptcy, they did not prevent that many people from filing Chapter 7 bankruptcy.  In fact, more people filed bankruptcy after the economy collapsed in 2009 than at any time before the legislation was passed in 2005.

In short, as long as a person complies with the bankruptcy revisions and obtains credit counseling in the six months preceding filing bankruptcy, he or she is likely to qualify for Chapter 7 bankruptcy.  However, bankruptcy candidates must also meet income requirements.  That is the next topic.

Next Topic:  Bankruptcy Means Test