For many years, there were longstanding rules for Chapter 7 bankruptcy that governed what a debtor could expect by filing for Chapter 7 bankruptcy protection. The "automatic stay" and the liquidation of assets has always been a staple of Chapter 7, but there were certain additions made to the Chapter 7 laws through the Bankruptcy Abuse Prevention and Consumer Protection Act that went into effect in October 2005. The changes were brought about mostly by credit agencies who felt they were being taken advantage of by certain Chapter 7 bankruptcy laws.
The addition of the "means test" to the bankruptcy proceedings was one of the more important changes that were brought about by the new laws. The "means test" requires debtors who have a current income that is higher than the state's median income to be subject to an income test to determine exactly how much they can afford to pay back to creditors once bankruptcy is filed for. Through the "means test," a debtor is not able to abuse the system that is set up by U.S. bankruptcy laws which allow people in severe financial duress the opportunity to get themselves financially healthy once again.
The 2005 Chapter 7 bankruptcy law revisions also required anyone filing Chapter 7 or Chapter 13 bankruptcy to attend meetings with credit counselors within 180 days before the debtor ultimately filed for bankruptcy protection. The federal government believed that this would educate people on exactly what they were getting themselves into when they filed for bankruptcy. The counseling services also were instituted to help debtors understand how they got themselves into debt so they do not make the same mistake a second time. In theory, credit counseling is not only meant to prevent future financial crisis amongst the general public, it is also providing the necessary outlet to answer all of a debtor's bankruptcy questions.
The different exemptions that could be made for debtors were also amended to keep people from abusing a system that was set up to protect people from overwhelming debt. The first change in exemption said that a debtor who filed for bankruptcy, and subsequently moved to a different state, would now be subject to the new state's particular provisions regarding the rights of someone filing Chapter 7. The new exemptions also changed the maximum value that a debtor could add to their house prior to filing for bankruptcy. Anything that added $125,000, or more, of value to the house within 3 years and 4 months before bankruptcy was filed for could not be included on a list of possible exemptions.
Those filing for bankruptcy also became more restricted in terms of what they could and could not claim in terms of household liens. Most notably, the reduction of electronics to one singular piece of each kind of electronic was instituted, while works of art, jewelry that was worth more than $500, and vehicles all were excluded from the term "household goods." These revisions were meant to specifically keep people from trying to keep as much of their property as possible even though they were required to liquidate all of their valuable assets.
