Most Americans have a vague idea that bankruptcy law has changed, but do not realize what the specific changes will mean.  The press has reported that bankruptcy courts are seeing an increase in the filing of bankruptcies by individuals as the October 17 date nears. 

Some of the specific changes include a new means test for the filing of a Chapter 7 bankruptcy.  The Chapter 7 bankruptcy is perhaps the most common filing for individual consumers.  The Chapter 7 bankruptcy will allow the debtor to completely discharge their non-exempt debts and leave the debtor with “a clean slate.”  Under the new bankruptcy provisions, debtors whose incomes are greater than the median income for the State of Nevada (at this moment $59,000 for a family of 4) will have to pass a means test and will probably be forced into a Chapter 13 bankruptcy. 

Under Chapter 13, debtors are required to repay their creditors under an approved repayment plan.  Under the new provisions, debtors must use their entire remaining disposable income to repay creditors over a five-year period.  For example, if a debtor has a monthly income of $2,000 and has monthly expenses of $1,200, the remaining $800 is disposable income and the entire $800 must be paid to creditors.

Before a debtor can file a bankruptcy, the debtor must attend a credit counseling course from a credit counselor that is certified by the bankruptcy court.  Before the final discharge of debts in a Chapter 7 and before the end of the repayment plan in a Chapter 13, the debtor must also attend a financial management course. 

Changes have been made in how an individual’s income is determined and how an individual’s monthly expenses are calculated.  This could effect whether or not an individual can file a Chapter 7 bankruptcy or will have to file a Chapter 13 bankruptcy.  This can also effect the calculation of the amount of disposable income available under a Chapter 13.  The monthly expenses may not be the debtor’s actual expenses, but may instead be the IRS standard expenses.    

Changes have also been made to the homestead exemption.  Under the new laws, a debtor will have to have been a resident of Nevada for two years before s/he can use the Nevada homestead exemption.  If the debtor hasn’t been a resident of Nevada for more than two years, the debtor may have to use the homestead exemption of the state from which s/he moved.  The previous home state may have a more restrictive homestead exemption than Nevada.  This particular provision of the bankruptcy laws went into effect immediately and is being used now.