Federal and State Bankruptcy Laws in Massachusetts

federal and massachusetts bankruptcy laws

In 2005, Congress launched an update of federal bankruptcy laws and dubbed it ‘The Bankruptcy Reform Act’.

The updated laws offered protection to both parties from potential fraud. In addition, the laws also worked to educate individuals struggling with financial issues in an effort to prevent future bankruptcy filings for personal debt relief.

The bankruptcy laws are ever-changing. Keeping up-to-date is imperative which is why you should always seek skilled legal assistance to help you navigate the intricacies.

If you are thinking about filing bankruptcy then you should familiarize yourself with the following aspects and changes.

Some of the Federal and Massachusetts laws include: 

Financial Credit Counseling Course – Individuals filing bankruptcy must undergo two debtor education courses. One must be taken before the petition is filed and the other one after the creditor hearing. The financial credit counseling courses are mandatory. If you fail to take the courses, then the case is dismissed.

Involuntary Chapter Change – Counseling is provided which outlines both Chapter 7 and Chapter 13 bankruptcies.  However, once the court examines your petition, they may find that you would be better suited to a Chapter 13 (debt reorganization) and change the Chapter accordingly. Your attorney will discuss your options if this occurs.

Massachusetts Median Income Requirement – A means test is undertaken to determine who qualifies for Chapter 7. Only certain people are required to take a means test. If you make more than the medium income (dictated by your family size) then you must take a means test. However, those who make less than the median income do not face a means test (May 1, 2017).

  • Family of one: $61,102
  • Family of two: $76,414
  • Family of three: $93,755
  • Family of four: $113,651
  • Add $8,400 for each additional family member.

Passing the means test – If you pass the means test, but exceed the average state-level of income you will qualify for a Chapter 13. The law requires you to pay back a portion of your debts in either a three or five-year bankruptcy plan.

Those who take a means test may not qualify for Chapter 7, but this is not written in stone. Variables do exist such as the number of secured debt payments, marital status, medical problems, and county of residence. All things are factored into the means test.

Those who pass a means test will also face the circumstances test under Section 707(b)(3) of the Bankruptcy Code. The test is basically your ability to pay and is often required even for those who fall below the median income numbers. If you pass the means test but make more than the state level of income, then you will qualify for a Chapter 13.

Homestead exemption – Currently the home exemption law is capped at $136,875. You must have acquired your home four or more years prior to filing for bankruptcy to qualify for this exemption. Due to the economy, many homes have dropped 25% or more in equity value causing many to qualify for this exemption.

Massachusetts Homestead Exemption – In Massachusetts, residents have an option to use a homestead exemption. If you have up to $500,000 of equity in your home, this exemption may help you in a different way than filing for bankruptcy.  Please contact us for questions regarding this exemption.

Always Consult an Attorney, Bankruptcy Laws Can Be Confusing

Bankruptcy laws are confusing and ever-changing. It is important that you understand both federal and Massachusetts laws. At Oberhauser Law, we offer years of success assisting clients in all aspects of the bankruptcy process. Please contact our office to schedule a free consultation to learn more.