Background

• Chapter 7 and Chapter 13 are the possible avenues for filing personal bankruptcy. Chapter 7 normally provides a discharge of debts for those who are unable to repay even a portion of their debt. Chapter 13 provides a payment plan of up to five years for debtors who have disposable income to repay some or all of their debt. Most of the provisions of the Bankruptcy Act affect personal, or consumer, bankruptcy.
  
  

History

• Republican Sen. Chuck Grassley of Iowa introduced the legislation on Feb. 7, 2005. Versions of the Bankruptcy Act had failed to pass seven previous times. Banks and credit card companies lobbied heavily in favor of the legislation. After it passed both houses of Congress, President George Bush signed the Bankruptcy Act into law April 20, 2005, and the legislation became effective Oct. 17, 2005.
  
  

Features

• Perhaps the most substantial addition to bankruptcy law via the Bankruptcy Act is the means test, which helps decide whether consumers filing bankruptcy are eligible for Chapter 7 or for Chapter 13. The means test determines whether the debtor's income is less than the median income for his household size in his state; if it is, the debtor automatically qualifies for Chapter 7. If not, the debtor must determine the amount of his disposable income that is available to repay some debts that would normally be discharged in Chapter 7. If the disposable income available for debt repayment over a five-year period is $10,000 or more, then the debtor is not eligible for Chapter 7 and must file Chapter 13 instead. If it's less than $10,000, the debtor can still file Chapter 7.
  
  

Prevention/Solution

• The Bankruptcy Act has several other provisions designed to prevent abuse of the bankruptcy system. It requires debtors to provide the court a certificate from an approved agency showing they underwent credit counseling and completed a budget. Debtors must also take an additional credit counseling course after filing but before discharge of their debts.
  
  

Time Frame

• Another regulation to prevent abuse lengthens the time period consumers must wait between multiple filings. The required time between Chapter 7 filings is extended from six to eight years. The time frame is intended to curb serial or repeat filings. According to CCH Inc., a provider of information on tax and business law, repeated filing for bankruptcy creates a presumption of bad faith against the filer.