How will the new bankruptcy law affect me?  That is a question we have heard a lot of people asking the past few months.  The fact is, there's not an easy answer to this question.  The law is not going to affect everyone the same way; it really depends on your circumstances. 

The first step in determining how it will affect you is knowing the key changes to the new bankruptcy law.  If you think that filing bankruptcy will be a quick and simple way to get out of debt, you will be in for a big surprise.  The fact is, filing for bankruptcy has never been quick or simple, and the new law doesn't change that. 

Before you can even think about filing, you must participate in a credit counseling session with an approved counselor at least six months prior to applying for bankruptcy.  Also, before the bankruptcy is discharged, you must complete an approved money management class at your expense.  That is, if you make it through the court process of filing bankruptcy, which will effect the most people.

Court Process

Before the new bankruptcy law, the court would determine if you were eligible to file for either chapter 7, the straight dismissal of debts, or chapter 13, the repayment plan.  The judge would look at your case individually, along with looking at past cases similar to yours, and determine whether or not you could file. 

Of course, the judge would also look at your individual personal circumstances and use that as a factor in the determination.  But under the new law, it is broken down simply into two mathematical tests(link) to determine if and for what type of bankruptcy you are eligible for.

Who's Affected?

Okay, so back to the original question.  How does it affect me?  If you are able to pay 25 percent of your unsecured debt, like your credit cards, and your income is above average for your state, then you'll have no luck in trying to file chapter 7.  Don't despair, the court may allow you to file chapter 13, though. 

What if your income is below average for your state but you can still afford to pay 25 percent of your unsecured debt?  You may be able to file chapter 7, as long as the court doesn't believe you are trying to abuse the system.

You may be saying that even though your income is above average for your state and you can afford to pay 25 percent of your unsecured debt, your personal circumstances are the reason why you have to file bankruptcy.  That would have worked under the new law, because the judge would have taken those personal circumstances into consideration.  But under the new law, you're out of luck.

There is some good news for a certain group of people under the new law. If you are an active-duty military, a low-income military veteran, or a person with a serious medical condition then the laws allows for special accommodations in the mathematical tests.

Chapter 13 Bankruptcy

You may be saying right now that you don't want to file chapter 7, you are planning to file chapter 13.  How does the new law affect me?  Before, the court would determine what you can afford to pay based on what you and the court deem to be reasonable and necessary expenses. 

Now, the court is going to use a set of living standards derived by the IRS that determines what is reasonable to pay for food, rent, and other expenses.  This will determine how much of your income you will have to pay on your debts. 

Once again, it takes the human reasoning factor out of the bankruptcy equation.  If you feel the IRS living standards are unreasonable in your case, you must ask for a hearing from a judge to contest them.

Child Support

Also under the new law, top priority will be given to a spouse's claim for child support over the creditor's claim for your money.

It Affects Everyone

There isn't an easy answer on to how you will be affected.  The only definite answer is it will affect everyone.  If you're a person who is borderline in trying to decide whether or not to file, you need to take a hard look at the new law. 

For those people who truly need to file bankruptcy to get their life back on track, this law will not make it that much harder to file.  For those people who are filing over a small amount, you had better be ready for a long climb up-hill.