Changes in Bankruptcy Laws
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Changes in Bankruptcy Laws

Bankruptcy laws don't tend to change very often, but small rules the effect an individual's filing may be much less steady.

Some of the most important recent changes occurred in 2005, when Congress made adjustments to bankruptcy laws in an effort to steer more people towards Chapter 13 bankruptcy.

Since then, minor changes to federal bankruptcy laws and other laws on the state level have also had an impact on bankruptcy. Some of the most important effects of the 2005 changes in bankruptcy laws are listed below.

Effects of Changes in Bankruptcy Laws

Recent adjustments to bankruptcy law did not change the basic structure of bankruptcy. Thus, bankruptcy is still designed to help people eliminate their debt problems.

However, the recent changes in bankruptcy laws may have some effects on certain filers. Important changes include:

  • Chapter 7 eligibility. Fewer people may now be eligible to file for Chapter 7 bankruptcy. Filers must pass a Chapter 7 means test, which compares the filer's household income to the median income for a similarly sized household in that state. These income figures for qualifying for Chapter 7 typically change once or twice every year, and big shifts in household income in each state may impact who can file for Chapter 7.
  • Counseling requirements. People who file for bankruptcy must now go through a debtor education course before filing, and a credit counseling before completing their bankruptcy. Many people believe these changes will help filers protect their finances after bankruptcy addresses their debt.
  • Residency rules. Changes were also made to the minimum amount of time people must reside in a state before filing bankruptcy there. A local bankruptcy lawyer may provide more information about these changes.

The overall effect of these bankruptcy law changes, especially the Chapter 7 restrictions, has been to guide more people towards Chapter 13 bankruptcy, which allows creditors to receive a partial repayment of the debts.

Chapter 13, also known as the "wage earner's plan," allows filers to create a debt repayment plan and pay off their debts over a more relaxed period of time. The Chapter 13 process usually lasts about 3 to 5 years.

How Often do Bankruptcy Laws Change?

Major overhauls of the bankruptcy code, such as the one seen in 2005, are uncommon. However, small amendments to address specific shortcomings of the current law are frequently proposed in Congress.

It is difficult to predict future changes in bankruptcy laws, because, like any federal law, it must pass both houses of Congress and by signed by the president to take effect. The 2005 law changes had been proposed in Congress nearly every year for a decade before finally finding enough support.

However, changes to state bankruptcy laws, which tend to be more volatile than federal ones, may also have a profound effect on bankruptcy filings.

In this ever-changing field of bankruptcy law, many people prefer to consult with a local bankruptcy lawyer in order to learn more information about the current state of the law.

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