Important changes were made to bankruptcy law by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA). This law set stricter eligibility standards, limited how frequently you can file, made more types of debts nondischargeable, and changed how and when creditors can collect on certain debts. These changes affect common ideas about bankruptcy and impact those seeking a "fresh start."

Eligibility: Chapter 7 or Chapter 13?

Chapter 7 bankruptcy involves the sale of your assets, excluding property exempt from your creditors' claims. The sales proceeds are paid to your creditors, and the court discharges you from further responsibility for your debts (note that some debts don't qualify for discharge). This is the "fresh start" afforded a debtor. Chapter 13 bankruptcy involves an adjustment of your debts with a repayment plan to allow you to catch up on your debts over several years.

Chapter 7 Eligibility

The eligibility criteria for obtaining Chapter 7 relief was changed by BAPCPA. A bankruptcy court can dismiss a debtor's case when the debts are mostly consumer debts and relief under Chapter 7 would be abusive. If your current monthly income is more than your state's median, a means test is applied to determine whether use of Chapter 7 is presumptively abusive. A bankruptcy court will presume abuse if your current monthly income over five years, not counting certain allowable expenses, is more than $10,950, or 25% of certain unsecured debts (this amount has to be at least $6,575).

If your petition is "presumptively abusive" you're allowed to counter the presumption by showing special circumstances support extra expenses or adjustments to your monthly income. If you can't rebut the presumption, your case will either be converted to a Chapter 13 bankruptcy, or it will be dismissed.

Chapter 13 Relief

In a Chapter 13 bankruptcy, BAPCPA requires that your disposable income, which is key in determining your Chapter 13 plan, be calculated based on Internal Revenue Service collection standards. Previously, the judge had discretion in determining your living expenses and your disposable income. Your plan may extend to five years if your gross income is more than the state median income. Current law may affect how your car loan is treated in a Chapter 13 plan. There may be an issue if you're "upside down" and owe more than the car is worth. If your car loan was used to buy the car and the purchase was within about two and a half years of when you filed for bankruptcy, the debt can't be reduced to the value of the car. If the loan was made more than 910 days before you filed, it's possible to reduce the loan to the value of the car.

Repeat Filings for Bankruptcy

You can't file for bankruptcy as often as allowed in the past. If you've previously filed for Chapter 7 bankruptcy, you'll have to wait eight years before filing another Chapter 7 case. You must wait four years before filing for Chapter 13 bankruptcy. If you've previously filed under Chapter 13, you have to wait six years before filing a new Chapter 7 case, and two years to file another Chapter 13 case. You can't file for bankruptcy if you've had a petition dismissed within the last six months because of your willful failure to follow a court's orders or to appear before the court.

Other Considerations

Credit counseling is now a requirement if you want to file for bankruptcy. You'll have to complete an approved counseling course within 180 before you file. A debtor education course is also required before your discharge is granted.

There are also limitations on the automatic stay, which is the mechanism in bankruptcy that halts your creditors from collection efforts pending resolution of your bankruptcy case. The automatic stay won't apply to efforts to collect back child support or if you failed to include debts on the schedule or list of your debts.

More types of debts are nondischargeable than in the past. For example, student loans from private lenders, debts for luxury goods if you made the purchases shortly before filing, and certain tax obligations.

Seeking bankruptcy relief often involves considering and weighing a number of issues, and a bankruptcy lawyer in your area can help you make the best choices for your situation.

Questions for Your Attorney

• I have several different types of consumer debts including mortgage, car and student loans, as well as child support obligations. Is bankruptcy the best option for me, and if so which type?
• I had a Chapter 7 bankruptcy five years ago, but now I'm married and my spouse and I have joint debts. How does my prior bankruptcy affect our eligibility for bankruptcy relief now?
• Much of my debt is for student loans, child support, and mortgage debt for a home that's worth much less than the loan balance. Can bankruptcy still offer me the "fresh start" as intended by the law?

Related Resources on Lawyers.com^sm

- Bankrutpcy Worksheet by State
- Chapter 13 Bankruptcy Tax Tool
- Debt Solvency and Bankruptcy Video
- Debts You Cannot Discharge in Bankruptcy
- Property Exemptions in Bankruptcy
- Find a Bankruptcy Law lawyer in your area
- Visit the Bankruptcy Law message boards for more help