Filing for bankruptcy has always been a tedious process and many people find it overwhelming. Part of the reason for this is that people just don't know enough about the process. Over the years there have been several changes to the bankruptcy laws that can greatly affect a person's financial situation. These law changes came about in order to better protect those seeking bankruptcy protection as well as prevent abuse of the system.
Changes To Qualification Standards
In the past, qualifying for bankruptcy was, in a sense, unregulated. People were able to qualify for Chapter 7 debt elimination if it was determined that their debt burden was too large in comparison to the amount of income earned. With such loose guidelines for qualification, many people who could have afforded to repay some of their debts, were able to have their debts erased without any cost to them. Ultimately, paying off debts is the responsibility of the borrower and needing help versus a complete bailout are two completely different issues.
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In 2005, the bankruptcy law changes set forth new regulations for how a filer qualifies for Chapter 7 versus a Chapter 13 repayment plan. Filers now must pass a "means test", which determines if the filers income is less than the median income in their state of residence. If the income is less than the median income of the state, the filer may file for Chapter 7; whereas, if the income is greater than the median income of the state, the filer can only qualify for Chapter 13 bankruptcy. The idea is to weed out those that have some ability to repay their debts, no matter how small a monthly payment.
Changes To Requirements
The bankruptcy process is highly structured and requires numerous steps of compliance on the part of the filer. Changes to the law now require that anyone filing for bankruptcy protection attend and complete a debtor education course. The course is a government-approved financial management program designed to teach filers about budgeting, smart money management, debt relief plans and how to use credit wisely. The idea is to provide filers the tools necessary to regain control over their finances to prevent the need for bankruptcy in the future.
Changes To The Benefits
Bankruptcy offers many benefits other than debt relief such as protection from creditors, evictions and legal actions for child support or divorce. An automatic stay is an order that prohibits creditors from contacting a filer once they have filed for bankruptcy. In the past, everyone was automatically protected under this order once they filed their petition. The new laws have restricted the automatic stay protection to that of credit collections only. Filing no longer stops evictions or legal actions for child support or divorce.
A qualified bankruptcy attorney can review the financial situation of anyone considering filing and advise them on the best way to proceed. Bankruptcy isn't always the best answer for everyone and the changes in the laws could affect the outcome of a case.
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