You may be wondering if the new bankruptcy laws will prevent you from filing. In some situations, the new bankruptcy laws may make it harder for certain people to file Chapter 7. The new law specifically targets high income earners, and requires these individuals to pass a “means test” before qualifying to file Chapter 7. If specific criteria are not met, borrowers cannot file Chapter 7 bankruptcy and must, instead, file under Chapter 13.
Restricted eligibility for Chapter 7 bankruptcy is one of the biggest changes. According to the new bankruptcy laws, the first step to determining whether you can file for Chapter 7 is to calculate your total monthly household income. This figure must be compared against the median household income in your state. If your household income is more than the state median, you must pass the “means test” before qualifying to file Chapter 7.
The “means test” is designed to determine whether you have enough disposable income (after deducting certain allowed expenses and debt payments) to make payments under a Chapter 13 bankruptcy plan. To pass the means test, you must subtract certain allowed expenses and debt payments from your monthly income. If the remaining income after this calculation is below a certain level, then you can file under Chapter 7. If not, you will be required to file Chapter 13.
If you are planning to file Chapter 13, it’s unlikely that the new bankruptcy laws will prevent you from filing. Very little has changed regarding the process for filing Chapter 13. Another aspect of the new bankruptcy laws is the required credit counseling. For both chapters of bankruptcy, all borrowers are required to undergo mandatory credit counseling before filing a bankruptcy petition. You are required to complete counseling even if a repayment plan isn’t possible for you.
During counseling, a repayment plan may be proposed – however, you are not obligated to follow the proposed plan. You will, however, be required to submit the repayment plan to the bankruptcy court along with a certificate showing you completed the counseling. The completion certificate must be submitted before you can file for bankruptcy. Fortunately, the new bankruptcy laws do not require the credit counseling to be completed in person. You are allowed to complete the mandatory credit counseling over the telephone or online.