A new bankruptcy law went into effect October 17, 2005. The new law makes it more difficult for consumers to file bankruptcy. The current law will manipulate the way consumers intend to file for bankruptcy.

Chapter 7 bankruptcy liquidates and distributes your assets to creditors. Many of your remaining debts are cancelled, providing you with a "fresh start." Chapter 13 bankruptcy puts you on a repayment plan of up to 5 years. Debts not addressed by the repayment plan don't have to be paid. Consumer advocates contend that the new law favors the credit card industry. Lawmakers in favor of the new law claim it prevents abuse of bankruptcy laws. Last year 1.1 million people filed for Chapter 7 bankruptcy. Twenty-eight percent of last year's Chapter 7 filings were businesses. Also, in 2004, there were 445,574 Chapter 13 bankruptcies filed.

The major intent of the bankruptcy reform is to make people who can afford to repay at least some of their debts, make these payments while still giving them an opportunity to erase a part of their debt. The new law will force more people to file bankruptcy under Chapter 13.

New Requirements

• Credit Counseling: Under the new law, six months prior to applying for bankruptcy, you must meet with a credit counselor for a ninety-minute session. This counseling session is designed to give you an idea of whether you really need to file bankruptcy or not. Maybe there is another plan you can consider to get you back on your feet.

  Counseling is required even if you think the plan your counselor came up with is not feasible for you. You will have to submit a certificate showing you completed the counseling before you can file. The credit counselor must be an approved counselor within your judicial district. Approved credit counseling agencies can be found at www.usdoj.gov/ust. Click "Credit Counseling and Debtor Education."

• Money Management: Before your bankruptcy case is over and your debts are discharged, you must learn personal financial management by attending a money management class. You must submit proof to the court that the requirement has been fulfilled before you can receive a bankruptcy discharge wiping out your debts. The classes you attend are at your own expense.
• Qualify by Test: A judge used to hold the power to wipe a slate clean and qualify a person for Chapter 7 bankruptcy. No more. Under the new law, your qualifying for a Chapter 7 bankruptcy will mean putting your income to a test. A two-part means test. The two-part test will determine:
  1. Can you afford to pay 25% of your "non priority unsecured debt" such as credit card bills? If the answer is no, Chapter 7 can be filed. If the answer is yes then:
  2. Is your current income above the State of Georgia's median income? Your current income is considered your average income over the last 6 months before you file. If your income is below Georgia's median income, you may be allowed to file for Chapter 7. If your income is above the state's median, you may be able to file for Chapter 13. You can find Georgia's median income table at the web site of the United States Trustee, www.usdoj.gov/ust. Click "Means Testing Information."
  If you can make the case that yours is a "special circumstance" and a situation beyond your control forced you to file bankruptcy -and the court agrees, you may be allowed to file for Chapter 7 bankruptcy even if you don't technically qualify. The U.S. Trustee which enforces bankruptcy laws under the Department of Justice advised courts to treat survivors of Hurricane Katrina as a "special circumstance" so they will be allowed a fresh start under Chapter 7.
• What Can You Pay? The old bankruptcy law used to allow the court to determine what you could pay if you filed for Chapter 13 bankruptcy. The new law requires the court to apply what you can afford to pay by living standards derived by the Internal Revenue Service. The IRS stringently regulates the reasonable cost for food, shelter, and other expenses, and will conclude how much you have available to pay your debts.
• State Exemptions: The old law used to require your residency for at least 3 months. If you have not been a resident in Georgia for 2 years, you will have to use the exemptions available from the state in which you used to live. The rule is similar for homestead exemptions, which determines how much equity you can keep when filing for Chapter 7 bankruptcy. The cap on homestead exemption is $125,000. You must have acquired the home at least 40 months prior to filing bankruptcy.
• Your Lawyer is Liable for You: Lawyers may be harder to find and more expensive. Lawyers must personally vouch for the accuracy of all information you give to them. Under the new law, if information about a client's bankruptcy case is inaccurate, your lawyer may be subject to various fees and fines. Consumers may have paid a bankruptcy lawyer between $1,500 and $3,500 to take their case. Since attorneys will have to spend even more time verifying their client's bankruptcy cases, they will charge accordingly.