New Bankruptcy Law Makes It More Difficult To Go Bankrupt
Below is a MRR and PLR article in category Finance -> subcategory Wealth Building.
New Bankruptcy Law Increases Difficulty of Filing for Bankruptcy
Summary:
Disclaimer: This article is for informational purposes only and does not constitute legal advice. Please consult a lawyer for a comprehensive explanation.
The Bankruptcy Abuse Prevention and Consumer Protection Act took effect on October 17, 2005 (excluding a few provisions). This significant revision of the 1978 Bankruptcy Code addresses consumer bankruptcy in response to a rise in filings, emphasizing personal responsibility. Here’s an overview of the means test designed to move some debtors from Chapter 7 to Chapter 13.
Article:
Disclaimer: This article is for informational purposes only and does not constitute legal advice. Please consult a lawyer for a comprehensive explanation.
The Bankruptcy Abuse Prevention and Consumer Protection Act became effective on October 17, 2005 (with exceptions for some provisions). This amendment significantly revises the 1978 Bankruptcy Code, focusing primarily on consumer bankruptcy. It was enacted in response to the increasing number of bankruptcy filings and emphasizes a concept of heightened personal responsibility. Below is a brief explanation of the means test, which aims to transition some debtors from Chapter 7 to Chapter 13:
Many debtors prefer discharging their debts under Chapter 7 rather than entering a repayment plan under Chapter 13. However, for those capable of repaying, this process is now less automatic. Previously, "substantial abuse" had to be identified to bar a debtor from Chapter 7 relief. The new law reduces this standard to "abuse," with one act sufficing. An assumption of abuse arises if debtors are deemed to have the means to contribute to Chapter 13. The means test applies to debtors whose net monthly income exceeds their state’s median income.
Means Test Criteria:
1. If a debtor’s net monthly income after deductions is at least $166.67, they are presumed ineligible for Chapter 7 relief.
2. If a debtor’s net monthly income is at least $100 and they can repay at least one-fourth of their unsecured debt over five years, they are also presumed ineligible for Chapter 7.
In essence, debtors filing under Chapter 7 must contribute as much as possible under Chapter 13 if they can afford it, unless they can prove that filing under Chapter 7 is not abusive. The term "presumed" means it is assumed true unless proven otherwise, shifting the burden to the debtor to prove there is no abuse, rather than on the government to establish "substantial abuse" as before.
You can find the original non-AI version of this article here: New Bankruptcy Law Makes It More Difficult To Go Bankrupt.
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