|
|
Bankruptcy Reform Act
Consumers looking for a fresh start by declaring
bankruptcy face tougher tests to get their debts erased.
While financial institutions said previous laws made it
too easy for the unscrupulous to walk away from
legitimate debts, consumer advocates and bankruptcy
attorneys claim the bill hurts thousands of Americans
whose only crime was losing their jobs or running up big
medical bills.
Here are the key changes in the Bankruptcy Abuse
Prevention and Consumer Protection Act of 2005:
You'll have to meet specific income requirements to be
eligible for Chapter 7 bankruptcy status, which
essentially clears off most of your debts.
If your income exceeds your state's annual household median (for
example, $46,590 in Illinois; $38,819 in Florida and
$53,935 in Connecticut) and you can make payments of at
least $100 a month for a period of five years, you'll be
forced to seek Chapter 13 status, which restructures
your debts but does not erase them. The idea is to keep
reckless spenders from using bankruptcy as a means of
dodging financial responsibility. Personal bankruptcy
filings peaked at 1.62 million in 2003 (there were 1.56
million non-business filings in 2004).Chapter 7 filings
represented about 71 percent of all non-business filings
in 2004, according to the American Bankruptcy Institute.
Consumers looking to have their debts wiped out under
Chapter 7 status should be able to prove they were
legitimately overwhelmed and unable to pay back what
they owe. Bankruptcy attorneys said new filing
requirements mean more paperwork and potential court
time, which can mean higher fees. And attorneys filling
out bankruptcy petitions under the proposed reforms
could be held liable for fraud if their clients withhold
information and assets in hopes of qualifying for
Chapter 7 status.
Internal Revenue Service standards for living expenses
will determine monthly spending guidelines for food,
housing, clothing, personal care and transportation under the new law.
Any remaining funds would be considered money you could use to pay down your debts.
The IRS guidelines state that $640 a month would be a
reasonable amount to spend on food for a family of four
with a gross monthly income of $3,334 to $4,166. Housing
allowances vary by county.
You'll have to go through credit counseling at least 6
months before filing for bankruptcy.
And you can't get your case discharged from bankruptcy court until you
complete a personal financial management course. That
could cost you money--$25 to $50 a month--that you don't
have. Charge more than $500 worth of goods or services that
the court decides are luxuries on a single credit card
within 90 days of filing for bankruptcy and you'll be on
the hook for the entire bill under the law. The same
goes for taking out more than $750 worth of cash
advances within 70 days. Chapter 13 filers with auto loans are responsible for
repaying the entire balance with interest, if the car
was purchased within 2.5 years of filing for bankruptcy.
Chapter 13 bankruptcy now outlines payments for five
years.
25 Changes to Personal Bankruptcy Law:
1. Means Test for Chapter 7 Eligibility.
The trustee or any creditor can bring a motion to
dismiss if the debtor's income is greater than the state
median income. Abuse is presumed if the debtor's current
monthly income (as determined by an average of the
previous 6 months) less secured payments divided by 60,
less priority debts divided by 60, less the allowed
expenses permitted by the IRS, less certain other
allowed expenses, is greater than $100 per month of a
Chapter 13 plan. Debtors who meet this new standard
would be shifted to 5-year repayment plan in Chapter 13.
If a debtor's income falls below the state median, the
court may still find abuse but the creditors do not have
the standing to file the motion. In determining whether
the median threshold has been reached, the law looks at
the number of people in the debtor's household (which
the census bureau defines to be all the people occupying
a dwelling unit) compared to census figures adjusted by
the CPI. The presumption of abuse may only be rebutted
by demonstrating "special circumstances that justify
additional expenses or adjustments of current monthly
income."
2. Mandatory Credit Counseling.
No individual may be a debtor under title 11 unless they
have, within 180 days prior to filing, received credit
counseling from an "approved nonprofit budget and credit
counseling agency", either in an individual or group
briefing. Said counseling agencies are to be approved by
the U.S. Trustee. (There are exceptions where there is
an emergency and the person could not receive counseling
within five days, or where the U.S. Trustee has
determined that the approved agencies are not adequate
to provide the required counseling.) If a
debt-management plan is developed, it must be filed with
the court.
3. Limit on Auto Lien-stripping in Chapter 13.
A Chapter 13 plan must provide that a secured creditor
retain its lien until the payment of the entire debt,
not just the secured portion, where the creditor holds a
security interest in a motor vehicle purchased within
910 days of the filing.
4. Mandatory Debtor Education.
The court may not grant a Chapter 13 discharge unless
the debtor has completed an education course in personal
financial management as approved by the U.S. Trustee. A
debtor can be denied discharge if the debtor fails to
complete the course.
5. Scope of Discharge.
Debts owed to a single creditor totaling more than $500
for luxury goods incurred within 90 days of filing are
presumed non-dischargeable; cash advances of $750 within
70 days are similarly treated.
6. Serial Filings.
A discharge will not be granted in Chapter 13 if the
debtor obtained a discharge in Chapter 7, 11 or 12
within the 4 years prior to the date of filing of the
pending case, or in a Chapter 13 case filed within 2
years of the pending case. This provision, though, does
not prevent the debtor from filing a Chapter 13 case and
receiving the benefits of the stay, including the
ability to cure arrearages on secured claims over a
period of time.
7. Time between Discharge.
A Chapter 7 debtor cannot receive a discharge if a prior
discharge was received within 8 years (of the new
filing.
8. Homestead Exemption.
Debtors may elect state exemptions in the state in which
they have lived for the 730 days prior to the
bankruptcy. If they have moved during that 730-day
period, the state exemptions are those for the state in
which they lived the majority of the time for the 180
days before the 730-day period. Regardless of the level
of state exemptions, the debtor may only exempt up to
$125,000 of interest in a homestead that was acquired
within the 1,215-day period prior to the filing, but the
calculation of that amount does not include any equity
that has been rolled over during that period from one
house to another within the same state. For those who
have violated securities laws or engaged in certain
criminal conduct, the cap is $125,000, notwithstanding a
higher State law allowance. To the extent the homestead
was obtained through fraudulent conversion of nonexempt
assets during the 10-year period before the filing, the
exemption is reduced by the amount attributed to the
fraud.
9. Reaffirmations.
Section 524 now contains extensive new disclosures
detailing the rights that the debtor has and specifying
the amount of debt reaffirmed, rates of interest, when
payments will begin, filing requirements with the court,
the right to rescind and a certification that the
agreement does not impose an undue hardship on the
debtor. Such agreements are presumed to create a
hardship if the debtor's expenses, including the
reaffirmed debt, exceed income. If there is such a
presumption, the debtor must explain to the court why it
can nevertheless still afford to satisfy the debt (but
no such requirement applies if the reaffirmed debt is
owed to a credit union). The disclosure requirements are
satisfied if "given in good faith." A creditor can
accept payments under a noncompliant reaffirmation as
long as the creditor "believes in good faith" that the
agreement is effective.
10. Limit on Automatic Stay.
The law limits the application of the stay or provides
that it does not go into effect, in certain
circumstances, where there are serial filings under
circumstances that would indicate bad faith or abusive
filings. The stay terminates after 30 days if there is a
filing by an individual in Chapter 7, 11 or 13 (but not
Chapter 12) within 1 year after the prior case (under
any Chapter) was dismissed (except for a case re-filed
in another chapter after a dismissal of a Chapter 7 case
based on the means test). A party in interest (including
the debtor) may move to extend the stay and show that
the filing is in good faith. A case is presumed to be in
bad faith for this purpose if more than one case was
pending in Chapters 7, 11 or 13 (again, not in Chapter
12) and at least one such case was dismissed for failure
to file required documents without substantial excuse,
to provide adequate protection or to complete a plan,
and there is no showing that the debtor's financial
situation has changed so as to allow a final discharge
or completion of a plan. If two or more cases under any
Chapter were dismissed during the prior year, the
automatic stay does not go into effect at all until the
court so orders after a hearing and a demonstration that
the filing was made in good faith. The same bad-faith
factors noted above are also applicable to this
determination. The law also provides that the stay will
terminate if the debtor does not timely file (within 30
days after the petition date) its statement of intent
with respect to property subject to a security interest.
The court may extend the stay upon the motion of the
trustee if the property is of value to the estate and
adequate protection is afforded to the creditor.
11. Notice to Creditors.
Notice to be given by a debtor to creditors must be to
the address designated by the creditor, either in
communications to the debtor or by the creditor's
preferred address as provided to the court. Such notice
to creditors must include account numbers.
12. Duration of Chapter 13 Plans.
If the Chapter 13 debtor's income is greater than the
state median income, the plan proposed must be for 5
years. On the anniversary date of a confirmed plan, a
debtor must file a new statement of income and expenses.
13. Dismissal for Failure to file Documents and Schedules.
In addition to the list of creditors, schedules of
assets and liabilities, income and expenses, debtors
must provide: certificate of credit counseling; evidence
of payment from employers, if any, received 60 days
before filing; statement of monthly net income and any
anticipated increase in income of expenses after filing;
tax returns or transcripts for the most recent tax year;
tax returns filed during the case including tax returns
for prior years that had not been filed when the cases
began; and a photo ID, among other items. Failure to
provide the documents within 45 days after the petition
has been filed (with a possibility of a 45-day
extension) results in automatic dismissal of the case
after the time period has passed.
14. Attorney Verification Required.
Attorneys must make "reasonable inquiry to verify that
the information contained" in petitions and schedules
are "well grounded in fact." "The signature of an
attorney on the petition shall constitute a
certification that the attorney has no knowledge after
an inquiry that the information in the schedules filed
with such petitions is incorrect".
15. Disposable-income Test in Individual Chapter 11 Case.
Property of the estate includes all property "that the
debtor acquires after the commencement of the case but
before the case is closed, dismissed or converted" and
"earnings from services performed by the debtor after
the commencement of the case but before the case is
closed, dismissed or converted." The plan must commit
the debtor's disposable income for the 5-year plan period.
16. Debtor's Statement of Intent.
The Debtor must perform a statement of intent as to
secured property within 30 days after the date set for
the first creditors' meeting. Failure to either redeem
the property or reaffirm the debt within 45 days after
the meeting results in termination of the automatic stay
and allows the creditor to exercise whatever remedies it
has under applicable non-bankruptcy law, subject to a
request by the trustee to extend the stay upon providing
adequate protection to the creditor.
17. Domestic Support Obligations.
Support obligations are a first priority, but the
administrative costs of a trustee are paid ahead of the
support costs to the extent that the trustee is
administering assets that can be used to pay support
costs. To the extent such support claims have been
assigned to or are directly recoverable by a
governmental entity, such claims are subordinated to the
support of claims that are not assigned. The stay does
not apply to the payment of a domestic support
obligation from property that is not property of the
estate or to the enforcement of a wage-withholding order
under a judicial or administrative order, or statute,
including obligations accruing from both before and
after the filing. Failure to remain current on support
claims is grounds for conversion or dismissal of a case,
the debtor must be current on post-petition obligations
in order to confirm a plan, the plan must provide for
priority payment or support debts (with a limited cram-
down available for claims assigned to or owed directly
to a governmental unit), and the debtor may not obtain a
discharge unless such obligations are paid in accordance
with the terms of the plan.
18. Superdischarge in Chapter 13 Reduced.
Debts for trust fund taxes, taxes for which returns were
never filed or filed late (within two years of the
petition date), taxes for which the debtor made a
fraudulent return or evaded taxes, fraud and false
statements, unscheduled debt, defalcation by a
fiduciary, domestic-support payments, student loans,
drunk-driving injuries, criminal restitution, and fines
and civil restitutions or damages rewarded for willful
or malicious personal actions causing personal injury or
death are now excepted from discharge.
19. Attorneys as "Debt Relief Agencies".
Attorneys must disclose to the public in advertising
that "we help people file for relief under the
Bankruptcy Code." They cannot advise a debtor to incur
more debt in contemplation of bankruptcy. They must
disclose all their costs, enter into a written contract
with the debtor and disclose that an attorney is not
necessary to file bankruptcy, among other disclosures.
20. Asset-protection Trusts.
A trustee can avoid the debtor's transfer in an interest
in property made within 10 years of the filing if the
transfer was made to a self-settled trust or similar
device by the debtor for the benefit of the debtor and
the transfer was made with the actual intent to hinder,
delay or defraud any creditor.
21. "Ride-through" Prohibited.
The "fourth option" in Chapter 7 cases authorized by
some circuits, to retain secured property without
reaffirmation by continuing payments (installment
redemption), is no longer allowed. The requirements to
file the intention and timely perform it apply to any
debt secured by property of the estate and that failure
to comply terminates the automatic stay.
22. Changes in Treatment of Taxes.
Taxes related to a fraudulent return or that the debtor
attempted to evade are made non- dischargeable in
Chapter 11. The debtor is required to pay administrative
tax claims whether or not the government files a
"request." The law requires periodic cash payments of
priority tax under Chapter 11 over not more than five
years from the petition date and, in any event, under
terms not less favorable than those accorded to the most
preferred unsecured non-priority creditors (excluding
"nuisance" claim payments). The rate of interest on tax
claims is the rate specified under applicable
non-bankruptcy law.
23. Eviction Proceedings.
The stay will not prevent or halt a detainer action if
the debtor failed to pay rent after filing.
24. Tax Returns Mandatory.
The debtor must provide a copy of his or her latest tax return or a transcript at
least 7 days before the meeting of creditors or the case
"shall" be dismissed. Said information must also be
provided to any creditor who requests it. All tax
returns must be filed for a plan to be confirmed in
Chapter 13. The debtor must file all returns from 4
years prior to the Chapter 13 filing.
25. Nondischargeability of Student Loans Expanded.
Student loan nondischargeability is extended to
for-profit and nongovernmental entities.
Click Here For Bankruptcy Dictionary Providing
Definitions for Most Terms
|
|
|
Home |
Debt Reduction |
Debt Consolidation |
Debt Settlement |
Bankruptcy Reform |
Chapter 7 |
Personal Websites Links |
More Links
c2008
Debt Less 4ever .com Getting out of Debt Resources and Debt Relief Information
CLICK HERE ABOUT INCLUDING YOUR BANNER OR TEXT LINK ON THIS SITE
debt consolidation, debt management, debt settlement, debt reduction, debt relief, debt counseling, debt help, credit counseling, debt freedom, credit repair,
credit help, debt elimination, credit restoration, debt recovery, debt cures, bankruptcy information, bankruptcy laws, chapter 7, chapter 7 bankruptcy,
chapter 7 bankruptcy information, chapter 7 bankruptcy rules
|
|