If you have tried several options to repay your debts but have failed in all of them, then you can file a bankruptcy to get rid of your dues. Bankruptcy is a legal procedure that allows a debtor to get rid of debt obligations either by liquidating or reorganizing the debts. There have been some changes in the bankruptcy laws since October 2005.
Bankruptcy Laws 2005
The eligibility requirements have become quite strict under the new bankruptcy laws that came into effect on October 17, 2005. Previously, a debtor could decide whether to file Chapter 7 or Chapter 13, and most of them opted for Chapter 7 bankruptcy. Under the new rules, a debtor needs to satisfy certain eligibility criteria in order to file a Chapter 7 bankruptcy.
Eligibility requirements for filing Chapter 7
The eligibility criteria for filing Chapter 7 bankruptcy are given below.
- Credit counseling: You cannot file a bankruptcy unless you have received a counseling session from a counseling agency (that is approved by the US Trustee’s office) within a period of 180 days prior to the date of filing the petition. Instead of meeting a counselor face-to-face, you can also go for a counseling session over the phone or internet. The purpose of this session is to give you an idea about whether you really need to file a bankruptcy or a repayment plan is suitable for you.
- Income limit: Under the bankruptcy laws 2005, your income is also taken into consideration in order figure out whether or not you can file a Chapter 7 bankruptcy. You need to check whether or not your current monthly income is either equal or less than the median income for a household (of your size) in your state. If it is less or equal, then you can file Chapter 7. However, if your income is more than your state’s median income, then you’ll have to pass “The means test” in order to file Chapter 7.
- The means test: This test helps to determine whether or not you have enough disposable income so that you can make the required payments if you file a Chapter 13 bankruptcy. There is a formula that exempts certain expenses (such as, food, rent, etc.) in order to determine whether or not you can pay at least 25% of your unsecured debts.
Even if your income is below the average income of your state but you can afford to pay 25% of your unsecured debts, then you may file Chapter 7. However, the bankruptcy court may still ask you to file Chapter 13.
The bankruptcy laws 2005 also impose certain requirements on the bankruptcy attorneys. They need to personally vouch for the accuracy of the information that is supplied by their clients. A bankruptcy attorney may have to pay fine or fees if certain information about his/her client’s case is found to be inaccurate.
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