Thinking of Filing Bankruptcy? What You Should Know Beforehand

The Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) was signed into law by President Bush on April 20, 2005 (Public Law No. 109-8). Generally, the Act was effective 180 days after the date of enactment, but does not include bankruptcy cases filed prior to the effective date of October 17, 2005.

While emergency petitions can still be filed, debtors are now required to take Credit Counseling prior to filing a petition.
Credit counseling can be done online or via telephone. A list of qualifed counseling agencies is available at www.ujdoj.gov .
Prior to receiving a discharge, debtors must also take a Financial Management class and be current with all outside obligations. Failure to abide by the terms will result in no discharge being issued by the court.

In addition, a new "Means Test" is imposed. This will determine whether a debtor qualifies to file a Chapter 7 bankruptcy or not. If not qualified, the debtor has the option of 'converting' to a Chapter 13 (repayment plan), or having the case dismissed. This is at the discretion of the debtor, and the conversion is not automatic. The 'Means Test' is based upon income, less allowable National, Local, and IRS living standards. Excessive expenses can always be taken before the bankruptcy judge, but should be documented as to the need, and amounts paid in the past (i.e. special needs child and special schooling required; major illness and medical bills/no health insurance, dietary needs requiring special foods or medications, etc).

There has been a new section added, 11 USC Section 1308, which provides that debtors must be current or become current with federal income tax return filings. Failure to due so, within the specified timeframes, may be cause for dismissal of the case.

The time between bankruptcy filings has been extended; for the most part, this means no Chapter 20 cases (filed a Chapter 7 to reduce unsecured debt, and immediately file a Chapter 13 to pay the non-dischargeable debts thru a payment plan).

If a Domestic Support Order was in effect prior to the petition date (child support or alimony), debtors will no longer receive their federal income tax refunds; it will be credited to the support obligation, if there are no secured or priority tax debts.

You should also be aware that there are now document and/or petition preparers soliciting business to prepare your petition, plan, schedules, and statement of financial affairs. These individuals or companies are now required to have court approval, and must disclose certain facts, as well as charge a reasonable fee for their services. If in doubt, contact your trustee's office, or the US Trustee.

Filing bankruptcy should not be taken lightly. It will have a major impact on your life for years to come. You should first try to work with your creditors, and consult a Credit Counseling Agency. Most cities have these agengies for no, or low cost charges. If you intend on hiring a document preparer, or an attorney, be sure to check their credentials. Ask for references, if available.