The decision to file for bankruptcy is never an easy one to make. Seeing as it can affect not just your life but that of your family, it's important to be certain you're choosing the right type of bankruptcy, at the right time. Due to the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, a few changes were made to the established bankruptcy laws, and common procedure may be a little different than what you already know. Here's a short outline regarding the laws, how they changed, and how these factors will affect you.
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Proof of Income / Tax Returns: Those wishing to file either a Chapter 7 or 13 bankruptcy have to show proof of income by way of the previous year's tax returns. If the taxes are overdue, the bankruptcy cannot be filed until they're paid.
Mandatory Education: The new laws require that the majority of filers attend and complete a credit counseling course. This must be provided by a government-approved institution or instructor, and again, must occur before the initial petition. In addition, debtors must attend a financial management education program. This occurs after the bankruptcy has been processed but the debt has not yet been discharged.
Priority: While most of one's debts may be to credit card companies or other financial institutions, re-payment schedules now place a priority on child support and alimony payments. These shall be paid, either in full or in part, before all other creditors.
Chapter 7's Strict Eligibility: All filers will have their eligibility measured by a 'means test'. This test is based on a formula that takes into account your expenses, amount of debt and income, which is compared to the state median income.
Less Comprehensive 'Automatic Stay': The reach of the automatic stay, which serves to keep creditors at bay as soon as your petition is filed, has been shortened slightly. License suspensions, eviction actions and active court proceedings for child support are no longer stopped or delayed in the automatic stay.
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