ARRANGE AN APPOINTMENT
Upon reading the newspapers and listening to TV announcers, it would be easy to conclude that bankruptcy is no longer an option for the needy debtor. However, many news reports have not told the full story about the bankruptcy reform or its impact on the number of bankruptcy filings. Even following the October 17, 2005 enactment of the bankruptcy reform known as “Bankruptcy Abuse Prevention and Consumer Protection Act of 2005,” (“BAPCPA”) most individuals are still eligible for Chapter 7 bankruptcy relief. Contrary to some reports, post BAPCPA, people who have amassed consumer debt for personal, family or household purposes are still allowed to financially get a fresh start. Sometimes, this is achieved through a Chapter 7 bankruptcy where most debts are discharged, and sometimes, this is achieved through a Chapter 13 repayment plan, where all or part of the debts are repaid with future earnings over a three to five year period. If an individual has amassed non consumer debt, i.e., debt not primarily for personal, family or household purposes, individual bankruptcies remain substantially unaffected by the new bankruptcy laws. Further, there are virtually no changes in the new bankruptcy law which would impact a Chapter 7 business bankruptcy.
The most substantial change to individual consumer bankruptcies, post BAPCPA, is a new investigation into the individual’s finances to determine if they can afford to pay creditors. If they can, based on a set formula known as the “means test,” they will not be able to file a Chapter 7 bankruptcy, but instead will need to file a Chapter 13 bankruptcy. The “means test” is designed to force people who can afford to pay some of their creditors to do so rather than discharge all of their debt in a Chapter 7. The “means test” compares the debtor’s excess monthly income to the amount of unsecured debt to determine how much a debtor could repay to creditors if he were in a Chapter 13. Because this calculation is hypothetical, and does not necessarily reflect the debtor’s true financial condition, a debtor who appears to be able to repay the minimum portion of his debt but who, in reality, cannot, may be permitted to stay in a Chapter 7 case. Unfortunately, the “means test” is more complicated than can be explained well here. However, 95% of debtors will not be affected by the means test.
As far as the number of Chapter 7 bankruptcies filed during the first quarter of 2006 in the Southern District of Florida is concerned, the numbers are dramatically down, but not without explanation. Prior to the enactment of BAPCPA, there was a tremendous increase in the number of Chapter 7 bankruptcy filings. In fact, in the three month period preceding October 17, 2005, there were 17,972 Chapter 7 bankruptcy filings in the Southern District of Florida, as compared to 5,031 filings for the same period of time in 2004. Essentially, it appears that a large percentage of those who filed bankruptcy before the enactment of BAPCPA, under normal circumstances, would have waited and probably filed in the first quarter of 2006 or later.
So, for those of you who were of the belief that bankruptcy was dead, rest assured that it is not. Although there are post BAPCPA changes, bankruptcy is still a viable option for debtors.
