In the simplest definition, an individual who declares bankruptcy means he or she affirms his financial incapacity to pay his debts. Once the bankruptcy is approved, the debtor is released from all his obligations to pay his creditors.

Many individuals who are stuck in a bad credit situation resort to bankruptcy to be free from their charges. But since the amendment of the bankruptcy law in 2005, those who wish to declare bankruptcy must first go through a set of requirements. This article aims to give you bankruptcy facts that you need to know before filing or before deciding to declare bankruptcy.

Requirements on Bankruptcy Filing A person who wants to file for bankruptcy must first go through a credit counseling course with a government accredited credit counseling agency before submitting his application. This is a big difference because in the past years, anyone can simply file and wait for approval.

Today, you need to take up credit counseling at least six months before filing. In addition, the credit counseling agency would be the one to decide whether or not bankruptcy is recommended in your case.

What is the purpose of this new rule? It is to lessen the bankruptcy cases filed by people who just want to escape from their responsibilities. By going through a credit counseling course, other alternatives can be taken to help a person pay back his creditors and get out of debt without the need for bankruptcy.

Bankruptcy and Bankruptcy Attorneys Another major change is that a bankruptcy applicant must hire a bankruptcy attorney to help him prepare all the documents. Lawyers are given the obligation to fill out all the documents required by the state with accurate bankruptcy information.

Furthermore, lawyers are now accountable for the accuracy and correctness of the information provided in the documents. With this added task and responsibility, many bankruptcy attorneys have also raised charges for their services.

Chapter 7 or 13? What if you are qualified to file for bankruptcy after completing the credit counseling course? Can you choose the type of bankruptcy to file? Before the new law has been passed, a bankruptcy applicant decides whether he’s filing for a chapter 7 or chapter 13 bankruptcy. Most applicants choose a Chapter 7 because it discharges the debtor from all debts while a Chapter 13 puts a debtor under a repayment plan.

Since the new law was approved, a debtor must now submit to the “income means test” or an income calculation test to determine which chapter of bankruptcy he will qualify for. If your income falls below the state’s requirement, you have proven your inability to pay your debts and therefore, you’ll be eligible for a chapter 7.

On the other hand, if your income is above the standard requirement, you will have to submit to a five-year repayment program. During this period, a certain percentage of your monthly income will be automatically deducted from your account and this sum will be given to your creditor as repayment for your debts.

Yes, the new law has imposed limitations and restrictions for those who want to file for bankruptcy. The good thing about it is that people are given the chance to find other alternatives to their debt problem with the help of credit counseling. In most cases, these alternatives are better than immediately resorting to bankruptcy.