2005 Bankruptcy Law Overhaul

The 2005 overhaul of U.S. bankruptcy laws by Congress have spread a great deal of misconception, even to this day. When Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act, a sweeping reform to the bankruptcy system, it made it more difficult for some people to file a Chapter 7 bankruptcy as well as other changes.

Chapter 7 Eligibility

One of the most important changes in this legislation was the requirement that debtors pass a “means test” to file for Chapter 7 bankruptcy. Under the means test, your monthly income (averaged over the past 6 months) must be less than the median income in your state for a household of your size to file for Chapter 7. If your income is above this median income limit and, after certain exemptions for necessary expenses, you can afford to pay even $100 per month toward your debt, you are not eligible for a Chapter 7 and must proceed with a Chapter 13 bankruptcy.

Proof of Income through Federal Tax Returns

This law also requires that you show proof of income in a Chapter 7 or Chapter 13 bankruptcy by providing your most recent federal income tax return. If you have not paid taxes for the previous year, you will need to file before you can proceed with bankruptcy.

Credit Counseling Requirement

The bankruptcy overhaul requires that most people undergo government-approved credit counseling before filing for bankruptcy. Once your bankruptcy proceedings are complete and before debt is discharged, you must also participate in a financial management education course.

Credit counseling is required regardless of your situation or debt load. You will need to provide a certificate that shows you completed credit counseling to file for bankruptcy, although you may be able to complete counseling after filing in some cases, such as if you are filing an emergency bankruptcy with a bare-bones petition.

Chapter 13 Filers May Need to Pay More

Under the old bankruptcy rules, people filing for Chapter 13 bankruptcy were required to devote all disposable income to the repayment plan after living expenses. The new law has the same requirement, but disposable income is calculated using allowed — not actual — expenses according to the IRS if the filer’s income is higher than the state median. These expenses are subtracted not from the filer’s actual earnings every month, but from the average monthly income in the six months before you file.

Some Protections Eliminated

Filing for bankruptcy puts the automatic stay court injunction in effect immediately to give you protection from many legal actions, including foreclosure and wage garnishment. The 2005 law took away some of these protections. Today, bankruptcy does not delay or stop any eviction actions against you.

Contact a Bankruptcy Lawyer in Las Vegas

Bankruptcy law can be very complex and it’s easy to make a mistake that has serious consequences for your bankruptcy case. A Nevada bankruptcy attorney can answer any questions you may have about filing for bankruptcy. Contact the Vegas BK today for a free consultation with a bankruptcy lawyer in Las Vegas to explore your options.