New Bankruptcy Law May Make It Harder for Some People to Erase Their Debts

Major Changes of the New Law
If you're thinking of filing for bankruptcy, it may be harder to erase your debts than you think. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 made big changes to bankruptcy law, making it more difficult for some people to erase debts by filing for bankruptcy. These changes were prompted by years of complaints by banks and other financial services companies who believe that the banktuptcy laws have been abused by gamblers, compulsive shoppers, and others.
Opponents of the new law claim that the changes will fall hardest on low-income families, single mothers, minorities, and the elderly, and will take away the protection that was once available for those with unmanageable debt burdens due to job loss or medical bills.

Some of the features of the new law include:


Your income must be below the median income for families the size of yours in your state or you'll be required to go through a bankruptcy means test to see if you qualify for debt forgiveness (Chapter 7).
If the court believes that you have $100 or more per month in disposable income that you could apply towards your debt repayment after allowances for child support, food, housing,and related expenses, you'll be pushed into a repayment plan under Chapter 13, which requires repayment of some debts, instead of qualifying for Chapter 7, where most debts are forgiven.

There's also less flexibility in determining what's reasonable for housing and food allowances. IRS guidelines will be used, which are approximately $200 a month for food and less than $800 a month for housing and utilities. Active duty military, low-income veterans, and people with serious medical conditions can receive special treatment under the new income test.

Under the new bankrutpcy law, you must take credit counseling courses within 180 days of filing for bankruptcy.

The new bankrutpcy law makes child support a priority over other debts.

The state you live in allows you to protect part of the equity of your home from creditors. The new bankruptcy law overrules the unlimited homestead exemptions in some states that allow rich people to file for bankruptcy while keeping their mansions. Under the new law, if you bought your house less than three years and four months before filing for banktuptcy, the exemption for your house is limited to $125,000 regardless of your state's law.

Credit card billing statements now must include information on how long it would take to pay off your credit card balance at a certain interest rate if you make only the minimum payments.
The new bankruptcy law also includes changes affecting businesses who file for bankruptcy.