Before 2005, anyone could apply for bankruptcy and get their debts erased, if a judge ruled in their favor. That led to some people abusing the system by filing bankruptcy when they actually had enough money to pay their debts. But all of that changed when the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) was signed into law on April 20, 2005. Bankruptcy applicants now had to comply with a different set of rules.

Pre-filing credit counseling is required.

Under BAPCPA, applicants are required to go through credit counseling in a government-approved program before they can apply for bankruptcy. This credit counseling must usually occur within the 180 days preceding the filing. In this way, the court can be assured that the filer has made all efforts possible to resolve debts outside of bankruptcy. A credit counseling agency is required to do at least three things:

  • make a thorough evaluation of your financial situation.
  • discuss bankruptcy alternatives.
  • help you create a personal budget plan.

A means test is required.

Before BAPCPA, there were no income requirements. Now, under BAPCPA, bankruptcy filers must provide their last year’s tax return to show proof of income and must pass certain eligibility requirements in order to qualify for Chapter 7.

  • Their income must be lower than the median income level in their state.
  • After all eligible living expenses have been deducted, they must have less than $100 per month to put toward their debt.

If you need help determining your eligibility, a bankruptcy attorney is an excellent resource.

The automatic stay has more exceptions.

An automatic stay is the debtor’s protection from being contacted or sued by creditors. However, the exceptions to this rule have been expanded. A debtor can no longer obtain protection against eviction, legal actions for child support, suspension of a driver’s license, or divorce proceedings. Additionally, if the debtor did not provide adequate notice of the bankruptcy, a creditor is protected from penalties for violating the stay.

Post-filing debtor education is required.

After filing a bankruptcy, but before debts have been discharged, bankruptcy filers must undergo financial management education. The course must be approved by the government and will likely cover at least the following topics:

  • how to create a budget.
  • how to use credit responsibly.
  • how to manage money.

Bankruptcy should never be taken lightly. The BAPCPA was put into effect because of the many abuses that were occurring in bankruptcy court. So if you’re facing a financial black hole, one of the first calls you should make is to a bankruptcy lawyer. With all the new rules, bankruptcy law is more precise and more complex. You don’t want to end up on the wrong side of the law.