Bankruptcy is Alive and
A. Bankruptcy is a
right guaranteed by Federal law. The 2005 Bankruptcy Reform
Legislation has placed some roadblocks in the way of you
filing either a Chapter 7 or 13 bankruptcy BUT
has not eliminated your right to do so. Under the
old law you needed but to find that you were unable to pay
your debts to be able to file a Chapter 7 or 13 bankruptcy.
DON'T BELIEVE THE HYPE! Under
both the old law and new law in a Chapter 7 you will be able
to discharge (WIPE OUT) all your unsecured debts (credit
cards, doctor bills, etc). But under the new
law you have to pass two tests to qualify to file either
The first test is called a "means
test" and the second one has no name under the
legislation but can be called the "credit
Both of these tests follow the motto of the bankruptcy
process: 'bankruptcy is for those people
who cannot pay their bills, not for those who merely don't
want to pay their bills".
The "Means Test"
requires you to supply to us six months of income from various
sources and your anticipated budget. With
this information our office will calculate your family's gross
income for one year and then compare such income to the median
income of households in your state and community of residence.
If your household income is greater than such median income
you will be permitted to do only a Chapter 13 bankruptcy in
which you would be required to pay some or all of your debts
over a period of five years.
If your household income is less than such median income,
for the most part, whether you will be able to file a
Chapter 7 or 13 is going to be controlled by the
This explanation of the "means test" is very
simplistic, so don't assume that you do not automatically
qualify for a Chapter 7. Surprisingly, even if
your household income is quite high, you have a very good
chance to qualify for a Chapter 7. While congress
attempted to drastically limit the availability of Chapter
7's, what they really did was make it more complex and
expensive to obtain. Estimates by
various organizations to which I belong indicate that there
will be only about seven to ten percent (7% to 10%) fewer
Chapter 7 bankruptcies filed under the new law.
The "Credit Counseling Test"
is not what you may have heard of.
This is nothing more than a one or two hour session with an
approved "counseling" organization where you provide
your income and realistic expenses. If under their
guidelines you have any realistic ability to pay all of your
debts (except mortgages on real estate) within a short period
of time (generally three to five years) then you would not be
issued a certificate of "impossibility" and would
not be allowed to file either a Chapter 7 or 13 bankruptcy.
Most people will be able to pass this test. If you
are viewing this web site, you probably do not have the
ability to handle your debts in a realistic period of time.