An increase in the number of natural disasters in the United States has led to more bankruptcy filings over the past few years. Consequences of natural disasters, such as lost assets, homes, and jobs, can force many people into bankruptcy that otherwise would not have had to file. After Hurricane Katrina, in October 2005, the U.S. Justice Department Trustee Program lifted some of the more restrictive requirements of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), to take into account hardships experienced by victims of hurricanes in the Gulf Coast area. This Act was signed into law just months before the hurricane, but Congress realized that victims of disasters would need exceptions to some of the new requirements of the BAPCPA.
The most restrictive requirement that BAPCPA introduced to bankruptcy law was the Chapter 7 means test. Consumers are subject to the means test if they earn, on average, more than the median income in their state. After their average income is determined, a series of deductions are made to determine their income-to-debt ratio. If they do not have a high enough debt, they will not be allowed to file for Chapter 7 liquidation, they will instead have the option of filing for Chapter 13 restructuring. Under the disaster victim exception to the new law, courts may also take into account special circumstances when calculating the means test, like expense increase, income loss, and other adverse effects of a natural disaster.
Congress also relaxed the document requirements, as well as the attendance requirements at creditors meetings for people who have recently become a victim of a natural disaster. If the person is otherwise eligible for bankruptcy, but is not able to provide certain required documents like a statement of income, or is not able to attend the required creditors meetings, the effects of the disaster will be taken into consideration, and these factors will not necessarily be grounds for dismissal. The U.S. Trustee will also not raise or support reasonable venue objections made by a debtor, and the credit counseling requirement under BAPCPA may be waived. Finally, the requirements for Chapter 11 bankruptcy were relaxed for small businesses under the disaster victims exceptions. The U.S. Trustee will now take the adverse effect of the natural disaster into consideration during the entire filing process, and not immediately dismiss the petition if the debtor is unable to meet the strict filing requirements.
If you have been a victim of natural disaster, and it has had detrimental financial affects on your life, bankruptcy may be the right option for you. While bankruptcy will stay on your credit for seven to ten years, it will also get creditors of your back, and help allow you to rebuild your finances. If you decide to move forward with a bankruptcy filing, it's in your best interest to consult with a bankruptcy attorney in your state as soon as possible.