Under the 2005 changes to the bankruptcy rules, the first step in figuring out whether you can file under Chapter 7 is to measure your “current monthly income” against the median income for a family of your size in your state. This is called the “means test.” A qualified Kansas City bankruptcy lawyer will be aware of the requirements and can help you. If your income is less than or equal to the median, you can file for Chapter 7. Importantly, if your debts are primarily business related, the means test may not apply to your ability to file Chapter 7.
If your income is more than the median, you must pass the “means test” in order to file for Chapter 7. The purpose of the means test is to ascertain whether you have enough disposable income, after subtracting certain allowed expenses and required debt payments, to repay at least a portion of your unsecured debts over a five-year repayment period.
Since October 17, 2005, credit counseling from a government-approved organization is also required within six months before filing for bankruptcy. The credit counseling organizations advise consumers on managing money and debts and developing a budget. Under the new Rules, the credit counseling organization can charge a reasonable fee for its services. An experienced Kansas City bankruptcy attorney can ascertain whether a consumer is entitled to a waived fee if he or she cannot afford to pay. Fees for credit counseling are usually around $55, however, and may depend on the types of services received. Once the applicant has completed the required counseling, the agency will usually provide to the attorney a “certificate as proof,” which the attorney is required to file when the bankruptcy is filed.
Some argue that the means test has excluded many debtors from filing Chapter 7 bankruptcy, which discharges unsecured debts, and forces them into Chapter 13 bankruptcy, which allows time to catch up on debts and can allow some, if not all, debts to be discharged.
According to The Kansas City Star, Donald P. Morgan, a research officer at the New York Fed, is “99 percent confident” that the bankruptcy reform act of 2005 is a primary cause of the nationwide foreclosure crisis and free-falling home prices. Morgan and other researchers say that the tougher requirements imposed by the bankruptcy reform act have caused an increase in the number of homeowners who default on their mortgages or walk away from their homes rather than filing bankruptcy.