In April 2005, Congress made extensive changes in U.S. bankruptcy law and the "Bankruptcy Abuse Prevention and Consumer Protection Act of 2005" took effect from October 17, 2005. Earlier, bankruptcy was an easy option for a person with a large debt but the news laws have made filing for bankruptcy a painful and tedious process.
The most important change is that you no longer have the option of choosing whether you want to file for bankruptcy under Chapter 7 or Chapter 13. A means test would be conducted to find out your disposable income (by subtracting certain allowed expenses and required debt payments from your monthly income) and if the amount crosses a certain limit, you will not be eligible to file for Chapter 7 bankruptcy. You can file under Chapter 7 only if your disposable income is less than or equal to the median income of a household of your size in your state.
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Irrespective of whether you are filing for bankruptcy under Chapter 7 or Chapter 13, you are now required to undergo credit counseling with an agency approved by the United States Trustee's office. The counseling would indicate whether you really need to file for bankruptcy or whether an informal repayment plan would help you to settle your debts. This step is mandatory even when your financial situation clearly indicates that you have no option but to file for bankruptcy.
If the counseling agency is able to chart out a repayment plan, you will be required to submit the plan to the court, along with a certificate showing that you completed the counseling, before you can file for bankruptcy. You also need to undergo counseling towards the end of your bankruptcy case, to learn about personal financial management. Only after you submit proof to the court that you fulfilled this requirement, you will be allowed to get a bankruptcy discharge on your debts.
The new and complicated requirements while filing for bankruptcy under the changed laws have also ensured that filing for bankruptcy has become a very expensive and time-consuming process. Attorneys are now forced to devote more time towards analyzing individual cases and they charge exorbitant fees for this.
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