Bankruptcy is Still Available

February 2007

All the fuss when the law changed in 2005 left many people with the idea that there is no more bankruptcy for people. That's not true. The new law has made it more complicated and burdensome but it hasn't eliminated bankruptcy altogether.

The biggest change is that the new law has imposed limits on who may file a Chapter 7 bankruptcy, the kind where there is no repayment plan. That kind of bankruptcy is now limited to people who earn below the median income for a family of the same size in their state.

There are exceptions. People who make the same or above the median income for a family of the same size in their state may still be able to file a Chapter 7 depending on many other factors - for example, where they live, what they're paying in secured debt such as mortgages and car payments and what they might pay for certain special expenses.

If this sounds complicated, it is. It's now pretty well impossible to figure out if a person can file a Chapter 7 without lots of information and very serious number-crunching.

Those who aren't eligible to file a Chapter 7 may instead want to file a Chapter 13. That's the payback kind of bankruptcy, where you pay to the court what you don't need to live on for three to five years. The new law forces more people into the five year plan.

But the good news is that many people can still file for bankruptcy protection. If you think you might need to do this, I suggest you consult with an experienced bankruptcy attorney in your area. Don't expect to get free advice on the phone. Under the new law, no attorney can properly advise you without knowing all the details.

You should make an appointment, and bring with you your most recent tax return and pay stubs from the last several months. You should also be prepared to provide information on your debts, especially any secured ones, such as a car payment or mortgage. The lawyer will need to know the monthly payments and how many more months you're obligated on those loans. This is just the beginning, but it should give the attorney an idea of what your options may be.

If you've read this far on my website, you're probably in serious financial trouble. Despite the drastic rewrite of the law, bankruptcy may still be the best choice for you.

Good luck.