Bankruptcy Law Changes

With the advent of bankruptcy fraud, the government and lawmakers had to implement changes on the existing bankruptcy law. This is to better serve true bankrupt consumers and protect the state and lending institutions from any fraudulent claims bankruptcy filers may make. Bankruptcy fraud typically involves concealment of property, destruction of documents, or false declarations that could prove a bankrupt consumer otherwise. Bankruptcy fraud is a crime and is punishable law. This phenomenon heralded bankruptcy law changes.

Changes in bankruptcy laws are outlined here stating past and current conditions for convenient. The first aspect that was changed in 2005 is the eligibility for bankruptcy. In the past, debtors would choose whether to file Chapter 7 or Chapter 13 bankruptcy. A judge or trustee would put the claims under scrutiny, deciding whether the filer has enough disposable income to pay off his debts. If the filer was found to have committed substantial abuse, his case would be dismissed and then he could file Chapter 13. With the current bankruptcy law changes, the addition of a means test deters consumers planning on committing fraud. A median income is set and the test will determine where one’s disposable ranks. If it is below the median, he could file Chapter 7. If not, the only option is Chapter 13, unless disproving presumption of abuse is on the filer’s table.

New bankruptcy laws change the process by putting up barriers to filing bankruptcy. In the past, anyone could file a bankruptcy case and seek low-cost legal counsel due to stiff competition of attorneys. Now, consumers planning on going bankrupt will need credit counseling from any government accredited agency before getting started. Due to this, filing costs and even attorney fees have substantially increased.

Another bankruptcy law change is the clause on multiple bankruptcies. Before the bankruptcy law changes were implemented, consumers could file a Chapter 13 immediately succeeding a Chapter 7 bankruptcy. This is for any leftover debts that were not eliminated in the duration of the Chapter 7. Consumers could also file another Chapter 7 bankruptcy after 7 years from the original discharge. Now, bankruptcy law changes increased the interval between Chapter 7 bankruptcy declarations by 2 years, and a Chapter 13 may not be filed until 4 years after discharge from a Chapter 7.

The automatic stay is also affected in the bankruptcy laws’ rules and new changes. Previously, automatic stay effectively protected consumers against creditor harassment, demanding creditors to stop collection of payments in cash or property. Currently, the automatic stay is highly conditional and dependent on many circumstances, rendering the concept questionable. One of the most relevant benefits of filing bankruptcy may have been defiled by these bankruptcy law changes.