THE (NOT SO) NEW BANKRUPTCY LAW OF 2005
The "new" bankruptcy law went into effect on October 17, 2005. We passed the seven year
aniversary mark living with this law and still many aspects of it are unclear. Despite what you may hear, bankruptcy
is definitely still available for those who need help.
The law changes made the paperwork is more
cumbersome for most people and there are more requirements to complete if you want to file for bankruptcy.
It is harder to fill out the paperwork because there are more details required, more documentation you must provide, and
certain steps that you have to take. If you don't get it right there are harsh consequences including not
having your case accepted, your discharge denied, or even criminal charges if circumstances are bad enough (but that is rare,
especially if you are honest).
With the 2005 bankruptcy changes, the means test was added to try
to impose stricter measures on whether or not someone is eligible to file a Chapter 7, which wipes out most general unsecured
debts like credit cards, signature loans and medical bills and is over in a few months.
In the means test,
income and expense deductions are part of a complicated formula that may limit whether or not Chapter 7 or Chapter
13 is available. The most complicated aspect of it is that it often makes no sense.
added a requirement for a special bankruptcy approved credit counseling course that is required to be taken in the 180
days before your case is filed. The course isn't hard and you don't need to take the course
before you talk to an attorney. It is a fast course that takes a couple of hours, and there are companies that
offer it over the phone, in person and over the internet. Many bankruptcy attorneys prefer to work
with particular companies. If bankruptcy is recommended to you by an attorney, they will probably recommend that
you work with the one they prefer.
As an attorney who concentrates on bankruptcy law, I will discuss
your bankruptcy options to help you decide if bankruptcy is right for you and if so, how to proceed. If bankruptcy
isn't a good option for you, I try to explain why and any other things that I know of that may benefit you more.
The President signed the the 2005 Bankruptcy Act
on April 20th, 2005 and it went into full effect for cases filed on or after October 17, 2005.
important thing to remember is that much of the "old" bankruptcy laws are still there, but the "new" law
made some of the most significant changes in many years, and added some burdensome requirements. Like bankruptcy attorneys
across the country, I am trying to make sense of this legislation. Unfortunately, the law is poorly written and many
of the aspects are difficult to understand. This means that no one knows exactly what some of the provisions of the new
law mean, and it changes all the time as judges across the country try to interpret the new portions of the Bankruptcy
Code. Once the local judges issue opinions, the higher courts may adopt those rulings, or issue their own interpretations.
The higher the court, the more certain attorneys are that the interpretation will be the one to follow. One part of the country
(or state) may follow different interpretations until the courts above them decide how the law is applied. This process
takes years, and in the meantime bankruptcy attorneys everywhere are doing their best to keep up with the most recent court
rulings that apply to their clients.
Please read further on this page for information about this law.
New clients -- If you want to talk to me about your situation and/or setting up an appointment - click the button
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The New Law
The first thing to know is that Bankruptcy is still available to help
protect people in financial need, even though it has gone through a major change.
For eight years, the credit card industry pushed for new bankruptcy laws, and thanks to their
intense lobbying efforts and high political contributions, they succeeded. The changes make it harder
for consumers to file bankruptcy and have eliminated some of the benefits of prior law.
The Bill is called the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005
... who wouldn't support that? We all want to stop abuse and protect consumers, don't we? So do the Senators
and Representatives who have taken the word of the credit card companies who pushed this law and whose high paid lobbyists
worked so hard to pass it. Just reading the title makes it sound like something we should all
The problem with this new law is that it won't stop fraud and it doesn't
protect consumers. I think it should be called the Bankruptcy Prevention and Fraud on Consumers Bill
because makes it harder for lower and middle class workers who are already being beaten down by high interest rates, high
housing costs, job losses, divorce and/or medical bills. In my opinion, this is a tool of lenders trying
to squeeze more money out of already strapped families and individuals.
The Bankruptcy Reform Act of 2005 include provisions which will make it harder
for most people to file bankruptcy. It involves more paperwork for everyone, and many of the changes just don't make
a lot of sense.
Attorneys are required to provide additional disclosures, including disclosures that must
be given to you at the start of any assistance to you. You may find that attorneys won't talk to you on the phone
anymore, even to answer simple questions because of the required disclosures. You may be asked to come in to receive
those notices before the attorney will answer any of your questions. But a consultation should provide you with
the answers you need about YOUR situation, and to see if bankruptcy will help you, so meeting with an attorney to find out
what your rights are is often a very good idea anyway.
Our Senators and Congressman didn't listen to the people who know the system best - bankruptcy
judges, law professors, and lawyers who represent both sides (debtors and creditors). Many people opposed the new
law as being harsh, unbalanced and overreaching. It will punish the majority of people who are honest
and in financial trouble, for alleged bankruptcy abuse by a small minority.
The law is hard on consumers and provide additional hurdles to jump. Attorneys are learning to apply the law and make sure that clients are getting the best treatment possible under
the new laws.
Even though the law was passed in order to have more people to file Chapter 13 cases to
repay some of their debts, it makes Chapter 13 harder. Provisions in the current Chapter 13 laws have
been changes so it is not as beneficial as before, but there are still many benefits to filing. Chapter 7 is subject
to stricter guidelines and more paperwork, but many people are still eligible for Chapter 7 under the new law.
Most bankruptcy lawyers are honest and care about their clients, and help them file
correct and accurate documents. If documents are filed incorrectly, the new law makes it more difficult to fix problems
due to incorrectly filed or dismissed cases, if you are able to fix them at all. Most attorneys only recommend bankruptcy
if it is a good option, and they work hard to do the job right. This makes the whole system work better as well
as protecting good honest people.
Now, more than ever, you need an experienced attorney to guide you through the bankruptcy
Credit Counseling Requirement
People who want to file for bankruptcy must complete a Bankruptcy Court
Approved Credit Counseling Course (not just any credit counselor) before being allowed to file (except
in very rare emergency situations). This is not a big hurdle, and bankruptcy lawyers will guide you through the process
and may have a preferred company, so pick your bankruptcy attorney first, then take your credit counseling session.
Programs are approved by the local bankruptcy court system. You must go through an approved program,
not just any credit counseling company, before filing your case and within the 180 days prior to filing. This course
doesn't take very long, usually two hours or less, and courses are available from approved companies on the Internet 24/7,
by phone or in person. A second course must be completed after filing in order to receive a discharge of debts. Companies
are advertising hoping to pick up some fees from potential bankruptcy debtors, but if you are thinking about filing for
bankruptcy, you can see an attorney first. The bankruptcy lawyer will guide you to the proper course.
While you do have to complete the course and receive a certificate of completion before you can file a
bankruptcy case, you don't want a credit counselor giving you legal advice - and any good one won't. All good bankruptcy attorneys
can and will discuss whether or not bankruptcy is right for you, or not, and give you information about the required credit
counseling programs. A second financial education course is required in order to receive a bankruptcy discharge, but that
is taken after filing and your attorney will give you information about the course and how to take it.
Your attorney will make sure that you complete any required counseling courses through an approved course
provider. You may be able to complete the program from your attorney's office or your home, over the Internet, by phone or
in person. The bankruptcy courses are different from what credit counselors traditionally did, because it is
an educational course. Most people contact credit counselors to set up a "debt management program." Debt management programs
(or DMP) are repayment plans where the company takes money from you, and supposedly helps negotiate your debts to lower amounts
or interest rates. The bankruptcy courses are educational programs to advise you about financial issues, budgeting,
etc. but you do not have to pay into a debt management program before filing for bankruptcy. (For more information about
Credit Counseling and the differences between traditional and bankruptcy counseling, please see my answers under FAQs.)
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For more information go to
Bankruptcy Law Network).
more information go to
National Association of Consumer Bankruptcy Attorneys).
For more information go to