Bankruptcy is Alive and Well 

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 bankruptcy..

The first test is called a "means test" and the second one has no name under the legislation but can be called the "credit counseling test".

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 pre-reform-legislation rules.

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.