New Bankruptcy Laws - What Should Be Done To Avoid Bankruptcy

If you have considered filing for bankruptcy, the new bankruptcy law will affect how your debts are handled. The law is mostly negative for consumers as they will have to repay most of their debts even with bankruptcy. As a result, most consumers opt for bankruptcy alternatives like debt settlement, debt consolidation, and credit counseling.

The following information outlines the major changes that occurred with this new bankruptcy reform act.

President Bush's Bankruptcy Abuse Prevention and Consumer Protection Act went into effect on October 17, 2005. This new law makes it more difficult to cancel your debts under Chapter 7 Bankruptcy protection. Instead, most consumers will find themselves filing for Chapter 13 Bankruptcy protection and paying back their creditors over a five year period under a court-written repayment plan. This has resulted in consumers looking for a bankruptcy alternative in most cases.

Here are some of the major changes that will affect how consumers choose to file for bankruptcy under the new law:
Chapter 7, Chapter 13 or a Bankruptcy Alternative?
To be able to qualify for protection under Chapter 7 bankruptcy, consumers will have to take a means test. The means test determines if your household falls above or below the median income in the state where you reside. There is also a calculation of assets and total debt which affects a consumer's qualifying ability. Those who do not pass the means test for Chapter 7 protection will alternately have to file under Chapter 13 and pay back their creditors.

The major intent of the bankruptcy reform is to require people who can afford to make some payments towards their debt, to pay, while still affording them the right to have the rest of their debt erased. It's a way of protecting creditors from losing too much money from people deciding to file for bankruptcy and being pardoned on all of their debts.

Credit Counseling

Anyone filing for bankruptcy under the new law will be required to go through mandatory credit counseling. Be careful before choosing a credit counselor as this field is filled with companies ready to take your money but not provide services.

You can find a legitimate credit counselor for a bankruptcy program by checking their rating with the Better Business Bureau. Also, if they are certified by the National Foundation of Credit Counselors or the Association of Independent Consumer Credit Counseling Agencies and have a not-for-profit status, then they are legitimate.

To learn more about Debt Counselor programs and how they can help you, you can visit Debt Free Counselor's page.