Bankruptcies are increasing!

Congress made it harder for anyone to walk away from the debt they created. There were 1.6 million personal bankruptcies reported in 2004. Those numbers have dropped dramatically but are on the rise again because of the problems in the housing sector. The experts believe we will finish out this year at well over 1 million filings.

The Bankruptcy Abuse Prevention & Consumer Protection Act of 2005 was a major reform of the bankruptcy system.

There are two types of personal bankruptcy, chapter 7 which, in essence, wipes out your debt and chapter 13 which requires you to set up a repayment plan.

Here are some of the key changes for filing Chapter 7:

Mandatory Credit Counseling: as a debtor you will required to take an approved course six months prior to filing.

Proof of Income Eligibility: Your monthly income must be below the median income for Massachusetts and you can find those figures at the census bureau’s website. Massachusetts’ median income is high compared to other states. For a single wage earner its $52,814 and when both of you are working its $93,931. So if you make more you will be required to file chapter 13.

If your current income is above the median income level and you can afford to pay at least $100 month you must file chapter 13 where you will enter into a 5 year repayment plan and pay back at least $6,000 of the debt you owe.

You will need your tax return for proof of income. Your attorney must certify your financial statements and will be held responsible if the statements are false.

With the old law if you filed for bankruptcy you were entitled to certain protections from creditors. Some of these protections went away. Bankruptcy will no longer stop eviction actions, driver’s license suspension or divorce proceedings.

Under the new law obligations associated with a divorce such as child support or alimony will take priority over any other creditor and I believe that is a good change.

And whether you are filing chapter 7 or chapter 13 you will be required to participate in another financial management program before the debt is officially discharged. All of this financial education I think is a very good thing. But I think we need to educate consumers long before they get themselves into debt.

One more thing:

A book out there to help: Surviving Personal Bankruptcy by Nora Raum

Websites with information:  BankruptcyInformation.com   Bankruptcy-Law.FreeAdvice.com     FTC.gov    USCourts.gov