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Bankruptcy Law: New Rules Affect Your Eligibility

In April 2005, President George W. Bush signed a new bankruptcy law into effect that may affect you and your personal finances. The Bankruptcy Abuse Prevention and Consumer Protection Act was championed by large banks and lending institutions to officially make it more difficult for consumers and businesses to declare bankruptcy. With more Americans drowning in debt, these lobby groups successfully argued that major changes to the bankruptcy law needed to be made.

These changes are quite complicated but here is a snapshot of what they may mean for you and/or your business:

You now have to take mean ... (more)

Bankruptcy Law: New Rules Affect Your Eligibility

In April 2005, President George W. Bush signed a new bankruptcy law into effect that may affect you and your personal finances. The Bankruptcy Abuse Prevention and Consumer Protection Act was championed by large banks and lending institutions to officially make it more difficult for consumers and businesses to declare bankruptcy. With more Americans drowning in debt, these lobby groups successfully argued that major changes to the bankruptcy law needed to be made.

These changes are quite complicated but here is a snapshot of what they may mean for you and/or your business:

You now have to take means test in order to fund a Chapter 13. This is to assess whether you in fact have enough disposable income to do. The law also makes Chapter 13s less attractive to debtors because it extends the payment plans to five years from three.

The law increases the amount of paperwork required to file for bankruptcy, and debtors must now go through mandatory credit counseling or financial education.

It allows creditors to pursue remedies without the permission of a court in certain circumstances.

It makes it easier for banks and other lenders who received preferred payments of less than $5,000 from a debtor to avoid repaying that payment.

The new bankruptcy law seems to be working. One year after President Bush signed the bill, MSN Money Central reported that bankruptcy filings had plunged by 38 percent, a 10-year low.

The new law remains controversial, however. Several Democrats and the Green Party opposed it because they felt it tipped the balance too much in favor big banks and other lenders. In fact, several major credit card companies spent millions of dollars lobbying to have the new bankruptcy law passed.

Special exemptions were placed in the new law for certain victims of Hurricane Katrina who were simply unable to pay their debts due to the disaster. Furthermore, the Justice Department said it would relax the new, stricter rules for Chapter 7 for victims of natural disasters.

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