The New Bankruptcy Law, the Means Test and You.

How does the 2005 bankruptcy law affect my chances in filing for bankruptcy?

The “new” law, entitled the Bankruptcy Abuse and Prevention Act of 2005, makes several significant changes to the prior law. The bottom line is that it makes it more difficult for consumers to file for personal bankruptcy in Massachusetts.

Nevertheless, out Middleton and Essex County clients have successfully filed for bankruptcy. An experienced bankruptcy attorney is more important than now, however.

Can I Still File for a Homestead and Keep my House?

Generally, yes. You have an automatic exemption under both state and federal law. However, if you have any significant equity in your home, you should get an experienced bankruptcy lawyer. You can exempt up to $500,000 if you do it right; you risk losing your home if you don’t.

What Are the Bankruptcy Law Changes?

First, there is the “Means Test.” The Means Test is designed to prevent high-income debtors from filing for chapter 7 bankruptcy. If you earn more than the median income you need to “pass” the test to qualify for bankruptcy. The Means Test can be complicated. We recommend anyone who files for bankruptcy to use an experienced attorney to be sure they will pass the test. Nevertheless, once you pass the Means Test, you should not have any problems with this issue before the Bankruptcy Court Trustee.

Second, the time between when a consumer may file for personal bankruptcy protection, or a fresh start, was extended from six years to eight years. This does not matter to most folks, but for some aggressive entrepreneurs, or folks who were unemployed, this change in the law can be detrimental.

Third, there are “assumptions of abuse” with the US Trustee must examine. Your income and expenses are reviewed relative to your deductions.

Fourth, there are the credit counseling and the financial management class. The counseling class is designed to make you sure you need to file before you do file. Any guess as to what lobbying group put this in the law? The class takes an hour or so, has a nominal cost, and is required before we file. The second class is needed to get the discharge. It takes a similar amount of time and costs about the same. The classes have been found to be more “administrative” than instructive, but again, are necessary!

Finally, there are other new restrictions, requirements, duties required of attorneys. All the more reason to hire an experienced bankruptcy lawyer.

Attorney Houten Is An Experienced Bankruptcy Lawyer

As mentioned above, the new law has numerous requirements for the attorney. We have to check documents including your tax return, your bank statements, your deed and homestead. We have to forward some documents, on a timely basis, to the US Trustee’s office before the creditor hearing. We have to dot the I’s and cross the t’s before we file. Your exemptions need to be perfectly listed, with the correct law cited for you to keep your property exempt. Your homestead, for example, may need to be updated.

Timothy Houten has been representing folks in Essex County since 1983. Call him for a free consultation.