The eighth time was the charm. After eight years of trying, Congress has passed the Bankruptcy Reform Act in 2005.  This is a bill that our elected representatives have been working on in one form or another since 1996!  It was mainly sponsored by the credit card companies, credit unions and banks. (Surprise!)

You have to love politics; everyone has a special interest.  As Confusious says, "You can please some of the people some of the time, but you can never please all of the people all of the time."  The credit card companies and banks spent record amounts of money lobbying for this bill.

The new law tightens up the requirements for filing bankruptcy and limits the effect of some state statutes on property exemptions.  President Bush signed the bill into law on April 20, 2005 and it became effective on October 17, 2005.  The 6 month delay was necessary so that the lawyers and judges could go back to school to learn the changes.

Main changes:

Consumer Tests: In order to file Bankruptcy, you will have to pass at least three tests.  First, you will be required to prove that you attempted Consumer Credit Counseling before resorting to bankruptcy.  Second, you will be required to show that your current (and future) income and expenses are not in excess of the IRS guidelines.  Finally, to get a discharge, you will have to take a consumer education course on finance and budgeting.  If you fail to take any of the tests, you do not a get a discharge of your debts.

Filing requirements: Included with the paperwork for the Court when you file a bankruptcy, you will be required to provide copies of your paystubs for the 60 days immediately prior to the filing, a copy of your two most recent tax returns (state and federal), and a valuation of all of your property including things like furniture, stereos and jewelry.  Most of this information is already required, but soon it will be available for almost anyone to see. Copies of these documents must be provided to any creditor who asks for it.

Budgeting: If any of your expenses are out of line with the IRS guidelines or if your income is too large resulting in "disposible" income at the end of the month, then you must file a Chapter 13 budget plan lasting FIVE years. This may have a hidden benefit as you can be allowed to pay certain debts in smaller installments over a longer period of time.

Exemptions: There are some new limits on what you can keep through the course of a bankruptcy case.   In an attempt to keep bankrupt corporate executives from moving to Florida or Texas to hide assets, there are now limits on exemptions for newly acquired real estate and personal property.


Since so many of the rules have changed, the Courts have to re-think many of the provisions that have been settled for years. In addition, Trustees and attorneys cannot assume that what was formerly ture still is. There are hidden gems for Debtors that can be used to advantage IF you have the right person steering you case AND you remain open-minded enough to follow the direction.