Personal Bankruptcy
The most significant changes brought about by the new bankruptcy laws pertain primarily to personal bankruptcies under chapters 7 and 13. Prior to the introduction of these laws, debtors had the option of filing for chapter 7 or chapter 13 bankruptcy. In order to ascertain which type of bankruptcy they are eligible for, however, they are now required to undergo certain tests.
Means Test
In this regard, the debtor must first pass a Means Test prior to registering for bankruptcy. This criterion evaluates the debtor's entire income from all sources. Then, the fundamental expenses of the debtor are evaluated. These are the expenses the debtor cannot survive without, such as food, clothing, housing, etc. Now, the quantity of essential expenses is deducted from the debtor's gross income to determine the debtor's remaining net income. According to the new bankruptcy laws, if the debtor's net income is greater than the state's median income, the debtor is eligible to file for bankruptcy under chapter 13, which allows the debtor to continue business operations while making debt repayments according to the bankruptcy court's suggested repayment plan.
Credit Counseling
In addition, the new bankruptcy laws mandate that debtors undergo credit counseling at least six months before filing a petition with the court. Credit counseling services must be obtained from a government-approved agency. The primary purpose of adding this phase is to evaluate the debtor's actual financial situation. The credit counseling agency will investigate the debtor's finances and attempt to assist them in operating their business profitably. Only if the credit counseling agency determines that the debtor is unable to operate their business profitably can the debtor file for Chapter 7 bankruptcy.
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