It seems that more and more people are struggling to pay their bills these days. Bankruptcy is one option that you should consider if your situation is severe enough. However, many people are under the impression that they can no longer file for bankruptcy due to recent changes in bankruptcy law.
It's true that there have been some changes to the bankruptcy code, but it doesn't mean that you can no longer declare bankruptcy. I've spoken to a number of people who were surprised to find out that bankruptcy was still a viable option for their situation.
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The new bankruptcy law is known as the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. Yes, I know that's a mouthful. You don't have to know every detail of the bankruptcy code - you can leave that up to your lawyer. What you need to know is that this law makes declaring bankruptcy a more involved process, but most people who would have been eligible before will continue to be eligible.
Perhaps the biggest change is the so called bankruptcy means test. The purpose of this test is to determine whether you can reasonably be expected to pay your debts off without bankruptcy. If your income is below the median income for your state, you don't even have to worry about this test.
However, if your income is higher than the median for your state, then you'll have to go through a more intense process. You'll have to provide documentation of your income and expenses to show that you really can't afford to pay your bills. Otherwise, you might have to settle for chapter 13 bankruptcy in which you agree to a repayment plan instead of simply wiping out your debts.
The goal of a means test is to make sure that people who make more money are not taking the easy way out by declaring bankruptcy. Other changes include mandatory credit counseling and financial management courses. Essentially, Congress, along with your creditors, wants you to do your best to prevent any financial disasters in the future.
You also must make your federal income tax returns available to your creditors if they desire it. Again, the goal is to prove that you're unable to pay your bills with your current income while being able to put food on table.
One more thing you should consider about the new bankruptcy law is the increase in lawyer fees. Because the law is more complex, it will probably require more work from your attorney. This could result in higher costs, which is why you should prepare as much as possible before entering a bankruptcy law office. The more you know beforehand, the less work your lawyer has to do.
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