In the past, filing for bankruptcy was not an overly difficult task. You simply provided the court with a list of your incomings and outgoings as well as a list of your creditors and you were basically classed as bankrupt. However, the new law that came into place in 2005 has put a stop to many bankruptcy filings. These days it is much harder to be considered to be bankrupt and you have to basically jump through hoops to prove that you cannot afford to repay your debts.
Why New Bankruptcy Laws Were Introduced
The new bankruptcy law that came into play in 2005 was introduced to stop serial filers and fraudsters from avoiding their debts. There were many people who continuously filed for bankruptcy just to avoid paying back money that they owed. They took out loans knowing that they could not afford them and then they filed for bankruptcy to get out of paying them back. Obviously this was a major problem for lenders and that is why the government introduced the Bankruptcy Abuse Protection and Consumer Protection Act 2005.
President Bush signed the new law and it came into effect in April 2005. It now means that you will have to go to a lot of trouble to prove that you cannot pay back the money that you owe.
Credit counselling is a new requirement needed by the court. You may be told to undergo credit counselling for up to six months before you file for bankruptcy. This is to ensure that even with professional help you cannot afford to pay back your debts. The credit counsellor will look at all possible alternatives before they recommend bankruptcy. If bankruptcy is found to be the only alternative then they will sign a certificate which you will need to present to the court.
You will also have to take a Means Test which basically shows whether you are currently earning enough to pay off the debt. If it is found through the test that you do have money to pay off your debts in instalments then you will be instructed to apply for Chapter 13 bankruptcy instead where a repayment plan will be created. The new changes in the law only affect Chapter 7 filers.
Overall the new changes do make it more difficult to file for Chapter 7 bankruptcy. However this can only be a good thing for both consumers and creditors. Bankruptcy should only ever be used as a last resort and by getting credit counselling you may be able to find an easier way out of your debt which will not have such a negative impact on your life as bankruptcy would.
