In just a few short weeks, President Bush’s Bankruptcy Abuse
Prevention and Consumer Protection Act will take effect. In a
nutshell, the new law, which goes into effect on October 17,
2005, makes it more difficult to cancel your debts under Chapter
7 Bankruptcy protection. Instead, consumers will find themselves
having to file for Chapter 13 Bankruptcy protection and paying
back their creditors over a five year period.

Here’s a look into some of the major changes that will affect
consumers choosing to file for bankruptcy after the new law goes
into effect -

Qualifying – Chapter 7 or Chapter 13?

To be able to qualify for protection under Chapter 7 bankruptcy,
consumers will have to face a means test. The means test
determines if your household falls above or below the median
income in the state where you reside. Those whose total is
greater than the state median income will not qualify to cancel
debts under Chapter 7 protection and will alternately have to
file under Chapter 13 and pay back your creditors.

The major intent of bankruptcy reform is to require people, who
can afford to make some payments towards their debt, to make
these payments, while still affording them the right to have the
rest of their debt erased.

The amount you have to pay back under Chapter 13 protection will
be greater because instead of a 3-year pay back period, that
time frame is now extended to five years – to ensure your
creditors get paid.

Credit Counseling

Anyone filing for bankruptcy under the new law will be required
to go through mandatory credit counseling. Be careful before
choosing a credit counselor as this field is filled with people
looking to line their pockets while emptying yours.

To find a trustworthy counselor, check to see if there are any
complaints against them or their organization filed with your
local Better Business Bureau. Secondly, find out if they are
certified by the National Foundation of Credit Counselors or the
Association of Independent Consumer Credit Counseling Agencies.
Finally, find out if they have not-for-profit status. Personally
I recommend Consumer Credit Counseling Services as they meet all
three of the above criteria. They can be reached at
1-800-888-2227 and can connect you with a local office.

The Cost Factor

Filing for Chapter 7 protection under the old laws normally cost
under $1,000. You should expect to pay more under the new laws
as filing fees have been increased by $60. Additionally, your
attorney will be required to double check all your financial
information which will take more of his or her time. Also there
is greater liability imposed on the lawyer which may cause their
liability insurance to increase, which gets passed on to their
clients in the form of higher fees. Under the new law, many are
expecting fees to increase between 25-50%.

Why Were the Laws Changed?

The bottom line is that major commercial creditors lobbied hard
for reform. Companies like CitiBank, MBNA, and other credit card
issuers actively contributed proposed amendments along with
generous financial support to reforming the bankruptcy laws -
and in their favor, according to many consumer protection groups.

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