How Did Bankruptcy Change In 2005 With the New Laws?

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) is the new bankruptcy laws enacted by Congress and effective October 17, 2005.  Although there are many changes within the act, the most talked about is the Means Test.  To reduce the number of people filing Chapter 7 bankruptcy, the new bankruptcy laws are established to look at the household income for the person filing bankruptcy compared to the median household income within the state the person resides.  For example, if a woman is married with two children, and she needs to file bankruptcy after the loss of her job, the new bankruptcy laws will look at the median household income for a family of four within the state she resides.  If the family’s income exceeds the median for the state, a Means Test must be performed to determine if she qualifies to file Chapter 7.  The Means Test is a fairly complex calculation of household income from the six months prior to the month of filing bankruptcy less some of the debtors actual expenses along with allowed deduction established along IRS guidelines.  Again, the purpose of the new law was to reduce the ease of filing Chapter 7 bankruptcy.  In many cases, if you do not qualify for Chapter 7 bankruptcy, you may qualify for Chapter 13 bankruptcy and still pay only a portion of your unsecured debts – credit cards, medical bill, personal loans, etc.