Bankruptcy Laws

Bankruptcy laws were developed to help those debtors who found themselves in monetary troubles to severe to resolve through repayment. Some bankruptcy laws are designed to help the individual while other legislation best provides for a business which has come into hard times.

Bankruptcy Abuse Prevention and Consumer Protection Act of 2005

One of the major bankruptcy laws affecting those considering filing is the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) passed into legislation during 2005. Because some Americans were filing bankruptcy, disposing of their debt via bankruptcy, abusing credit again and then filing bankruptcy as a habitual cycle, this legislation was designed to stop this practice. It also makes it harder for some people to qualify for certain types of bankruptcy.

Chapter 7 bankruptcy is the type of case in which most debts are discharged without repayment. Under the BAPCPA legislation, an individual or business must perform a means test to learn if they are qualified for Chapter 7 bankruptcy. This test applies to all entities filing for bankruptcy that had income above the median amount of their state during the six months prior to submitting their case. Those who have income below the median are qualified for Chapter 7 automatically. DMI is calculated by listing the monthly income from all sources and subtracting expenses for taxes and other approved expenses required to live as well as subtracting priority debts such as primary home mortgage, child support and alimony. If the DMI is found to be above $100, then Chapter 13 must be filed while DMIs under $100 allow filing under Chapter 7.

BAPCPA also requires anyone seeking debt discharge by filing under the bankruptcy laws to meet several other requirements. Credit counseling from an approved nonprofit agency must be attended prior to filing bankruptcy. Also, anyone entering into bankruptcy under the bankruptcy laws covering Chapter 7, Chapter 11, or Chapter 13 also are required to complete a course in managing personal finances after filing their case and it must be completed before any debts are discharged.

The bankruptcy laws under BAPCPA changes are quite complex. It is rare that an individual not trained in the law can file their own case. It is best to seek counsel from an attorney with recent bankruptcy experience. While you may save some money in lawyer fees by turning to a paralegal, the complexity of most bankruptcy cases and the fact that a small error can result in the case being rejected or having an outcome you might not like, seek professional legal counsel even if later in the case you work with the firm's paralegal staff during the paperwork phase.

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Bankruptcy Fees

Bankruptcy law establishes that certain fees must be filed in order to have a case considered by the court. These fees are in addition to any costs incurred by seeking the advice of legal counsel and are simply related to filing paperwork with the court. With the establishment of BAPCPA, all fees were increased. However, anyone earning 150% or less of the federal poverty level can request to have these fees waived.

Homestead Exemption Bankruptcy Laws

Current bankruptcy laws permit residents of some states to protect their primary residence's value from creditors by exempting the value. This is limited in numerous ways. For example, if the debtor has been convicted of certain crimes or has resided in the home less than 40 months, only $125,000 may be exempted. There is also a residency-required waiting period. This residency requirement period prevents people from moving assets so they can file in a state where the bankruptcy laws are more favorable in this area. Remember, this exemption is only available in certain state, so be sure to check with your lawyer to learn if you qualify for this exemption.

Bankruptcy Laws Requiring Repayment of Debt

Chapter 13 bankruptcy laws require some debts be repaid to the creditors by submitting payments per a court-approved schedule to the trustee. While some debts or portions of debts may be discharged without repayment, if the filer's means test indicates they are capable of repaying some of their debts, a three to five year repayment plan is developed.

Bankruptcy Laws Regarding Debt Acquired After Filing for Bankruptcy

If a person or business has filed for bankruptcy and then uses credit, such as a credit card, to make purchases, they may be challenged by the entity to which that debt is owed or even by any entity which has extended credit. The reason for this bankruptcy law is that using credit after stating via in a bankruptcy case that the debts owed can not be repaid, then use of credit is considered to be knowingly incurring debt without ability or intention or repayment.