New Bankruptcy Law

Recent industry trends and studies in consumer finance have ushered the US government to amend old laws and write new laws. Such amendments and new laws allow federal government units to better monitor and serve its constituents. By knowing the financial practices of contemporary Americans, their fiscal needs will be better understood – translating to the establishment of appropriate services and programs to address these issues by the US government. Thus, the bankruptcy law has recently undergone amendment in 2005. Amendments are necessary for the bankruptcy law to function efficiently in the new millennium. This is now commonly known as the New Bankruptcy Law.

The new bankruptcy law signifies a major restructuring of the American bankruptcy system. The amendment was undertaken due to widespread abuse of filing financial bankruptcy. Issuers of credit cards helped pass the new bankruptcy laws by spending quite a fortune, together with numerous private lending institutions. Many changes were made to achieve clarity in the understanding of bankruptcy both in Chapter 7 and Chapter 13 sense. Screening processes have also been appended. Credit counseling is now required with the new bankruptcy laws. In such case, with the new bankruptcy law, before one can file bankruptcy, he must undergo credit counseling with financial management companies that are accredited by US Trustee’s Office.

New 2005 bankruptcy laws also establish restrictions on eligibility for Chapter 7-level bankruptcy. Chapter 7 bankruptcy is of the liquidation type. Much of filer’s property is sold to pay off as much of the debt incurred as possible. Filers are not left with absolutely nothing, however, as they are given enough resources to make a fresh start possible. If these strict criteria in bankruptcy necessitated by the new laws are not met, filers will have to settle with reorganization bankruptcy, more commonly known as Chapter 13 bankruptcy.

Chapter 13 bankruptcy is of the reformation variety. This means that the filer is offered a practical payment plan which he will have very little problem handling. The payment plan is usually stretched over a period of three to five years. The new Chapter 7 bankruptcy law applies two new filters, the income test and the means test. If a filer’s income falls within or below the median, he can file for Chapter 7, if not he has to pass the means test. This will determine whether a Chapter 13 payment plan will be manageable for the bankruptcy filer. More information on these new bankruptcy law amendments is available in public libraries and on the internet. A lawyer or a legal help officer could also help explain the new bankruptcy laws to concerned individuals.