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How Bankruptcy Works Now



A man reading about how bankruptcy worksChanges to the bankruptcy code can affect anyone considering filing for bankruptcy. It’s important to be well-informed and educated on the process, how it works, who is eligible and what the implications for filing bankruptcy are. In October of 2005, a new national bankruptcy law went into effect; it changed the way that bankruptcy cases are filed, and decided, across the country. This new law brought with it a few extra steps that need to be taken by both debtor and attorney in a bankruptcy case.

Changes in Documentation

The first thing that changed with this new law was documentation. Now, more documentation is required by the debtor who is filing for bankruptcy. Debtors must offer a more comprehensive overview of their income and expenses. Along with this comprehensive overview, a statement of accuracy document must also be submitted. If the listed expenses exceed the allowance stated by the IRS, another document called a "special circumstances" document must be submitted. Filing takes a few extra steps with all of the new necessary documents, but it shows the debtor's financial struggles in much more detail, which is often used in their favor.

Required Counseling

People who wish to file for bankruptcy are now required, by law, to meet with a credit counseling agency on two occasions. Debtors must receive counseling from an approved agency both before and after filing their bankruptcy case. Requiring counseling is the easiest way to know that the debtor is well-informed regarding their finances and options. Counseling also offers debtors alternatives to bankruptcy in the event they haven’t been well informed about their options.

The Means Test

With the new law came the “means test,” which determines whether a person is eligible to file for Chapter 7 bankruptcy. Before the new law, a debtor could choose whether he or she wanted to for a Chapter 7 or Chapter 13 case. There are now a series of requirements and calculations that determine what Chapter the debtor falls under. To qualify for Chapter 7 bankruptcy, a debtor must fit a the requirements after assessment of family size, household income, expenses and even inflation.


While these changes have made filing for bankruptcy a little more complex, an experienced bankruptcy lawyer can help you understand your options and how the bankruptcy process worked. Bankruptcy is still an incredible solution for relieving debts, but the assistance of an attorney is more helpful than ever.