The New Bankruptcy Law Means Testing - new
Consumers Face Testing Requirements Pre-filing for Bankruptcy
Recent changes to bankruptcy laws vary the ways an individual can file for bankruptcy. What happens now? What happens if you didn’t file for bankruptcy before the laws were put into place but need to now?
The new bankruptcy laws raise requirements for individuals to qualify for applying for bankruptcy discharge in extended debt situations. However, like always, bankruptcy attorneys have found a way to manage new debt laws and still get any individual seeking to file for bankruptcy the right of passage.
Consumers undergo a test to qualify for bankruptcy proceedings as a result of reform.
Congress implemented guidelines for individual filing for bankruptcy cases in an effort to hinder abuse of bankruptcy laws in eliminating outstanding debt. These guidelines comprise the “bankruptcy means test”. Consumers must perform this test pre-filing for bankruptcy under this new law. The guidelines for the test encompass a lot of aspects similar to filing for taxes.
The court delegates which type of bankruptcy a consumer will file for through the means test. Under this clause, filing for Chapter 7 bankruptcy is reserved for consumers absolutely in need of its services. Chapter 7 bankruptcies discharge in 90-120 days, eliminating all outstanding debt without repayment negotiations. Chapter 13 bankruptcies discharge over the course of 3-5 years while the consumer pays back debts owed through court ordered repayment terms.
The income means test serves a guideline in determining whether or not someone needs to file for Chapter 7 bankruptcy or if they can afford to file for Chapter 13 bankruptcy instead. Those affording Chapter 13 bankruptcy will end up paying back all of their outstanding debt over court ordered timelines. Creditors worked to reform the laws in such a way where more consumers would wind up paying down their debt over a extended period of time instead of immediately discharging it.
Consumers meet the guidelines of a Chapter 7 filing, if they make income below their state’s median income range. Some above the state’s median income will still be able to file for Chapter 7 bankruptcy but must file more forms than Chapter 13 and undergo a few more, complicated steps in the process of discharging all outstanding debts. Most consumers failing the income means test will most likely not be eligible to file for a Chapter 7 bankruptcy.
Tags: bankruptcy, bankruptcy law, Bankruptcy reform, chapter 13, chapter 7