Rocking the Bankruptcy Boat: Law is Creating Waves for Consumers

Bankruptcy is intended to provide a fresh start, after aiding a debtor out of a precarious financial situation. However, new research has determined that the rules implemented through the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), which expanded documentation, verification and reporting requirements, instead makes the process even more difficult.

Failure to comply with expanded and specific requirements, or filing with missing paperwork, can result in dismissal of a case. In addition, filing under the wrong bankruptcy chapter can result in unnecessary loss of property.

Effect of Changes to Consumer Bankruptcy System on Filers

Changes affecting filers include increased demands on paperwork requirements. If a filer cannot provide proper proof of income for the six months prior to filing, a judge may dismiss the case. This, among other increased filing demands, makes the necessity of legal counsel even more important to successful bankruptcy petitions.

In addition, there are many fees included in the process and BAPCPA has reportedly increased the cost of filing by approximately 55 percent.

In the Wake of Changes: Knowing When to File

Although the new rules have led to increased fees, bankruptcy can still provide a fresh start for consumers who desperately need one. Individuals contemplating filing for bankruptcy generally use one of two options: Chapter 7 or Chapter 13.

Chapter 7 is essentially a liquidation process, while Chapter 13 applies a court supervised repayment plan. According to the American Bankruptcy Institute, the decision often turns on the following factors:

  • Whether the debtor has a regular income
  • Status of the debtor's assets: exempt or not
  • Whether current on secured debt payments, like a mortgage
  • Whether current on tax obligations
  • Whether the debtor wants to keep any assets, like a car or home

The bankruptcy process, while often a positive chance for a fresh start, is not easy to navigate. If you are contemplating bankruptcy, speak with an experienced bankruptcy attorney in order to explore your legal options.