It used to be that you could simply file for bankruptcy if you got into too much financial trouble. Or at least that was the mindset of many consumers in the U.S.

Despite the 2005 changes in bankruptcy law, many consumers still think that if all else fails, they can simply file for bankruptcy. That isn't always the case now.

It seems as if there were simply too many people getting out of debt by filing bankruptcy. Many lenders and banks began to complain about the systematic abuse of bankruptcy by gamblers, compulsive shoppers and others.

So last October, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 went into effect. There were some big changes for consumers contemplating bankruptcy. You need to be aware of these changes in deciding whether or not to file for bankruptcy.

If your income isn't below the median income for families the same size of yours in your state, you'll be required to go through a bankruptcy test to see if you qualify to file for debt forgiveness, also known as Chapter 7 bankruptcy. If the court sees that you have $100 or more a month in extra income that you could use towards your debt repayment after paying for your living expenses, you might have to file for Chapter 13, which requires repayment of some of your debts.

The IRS guidelines on housing and food allowances will be used in looking at your spending. Approximately $200 is allowed for food and less than $800 is allotted for housing and utilities. Those with serious medical conditions, active military and low-income veterans may be able to receive special treatment under the new income test.

If you've heard rumors about credit counseling being required, you've heard the truth. Part of the new law allows for education to prevent you from facing this situation again. You must take credit counseling courses within 180 days of filing for bankruptcy.

You don't have to worry about your children. The law has made your child support payments a priority over your other debts. Part of your home equity may also be protected from creditors. If you bought your house three years and four months before filing for bankruptcy, the limit for your exemption is $125,000. This overrules the unlimited homestead exemptions found in some states.

There are also changes affecting businesses who file for bankruptcy. While it's never your first choice, sometimes filing for bankruptcy is the only choice. Know that these laws protect you as well as your creditors. You don't want to file for bankruptcy unless absolutely necessary. With these laws and the tests, you will see how you are really doing.

Make sure that you look at all of your options before considering bankruptcy. Talk to a well-qualified bankruptcy lawyer when considering your options. Don't go to one of the "$55 bankruptcy" ads for your finances. After all, you get what you pay for.

Bankruptcy has been a growing trend throughout the country over the last decade. Chances are, you know several people that have had to file for bankruptcy. Remember, it's designed for one thing -- to help people when they need help. There's nothing wrong with asking for help.

Martin Lukac, represents http://www.RateEmpire.com, a finance web-company specializing in real estate/mortgage market. We specialize in daily updates, rate predictions, mortgage rates and more. Find low home loan mortgage interest rates from hundreds of mortgage companies! Visit http://www.RateEmpire.com today.

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