2005 - CHANGES IN THE BANKRUPTCY LAWS

Bankruptcy is a very complicated interplay of several laws and should not be undertaken without adequate representation.  Do not use document preparers or attorneys who do not practice bankruptcy law full time.  Most bankruptcy lawyers offer free or very low cost initial consultations.

APRIL 20, 2005 - AFTER AN OVER-WHELMING VOTE BY BOTH HOUSES OF CONGRESS THE PRESIDENT SIGNED THE BANKRUPTCY LAW.  "This is a day that will live in infamy as the day that Congress decided that the greedy banking industry is more important than the middle and low income families, which include most single parents, elderly, unemployed, or underemployed, or those with medical debts.  Shame on them!  They even have the audacity to call this new law the "Bankruptcy Abuse Prevention and Consumer Protection Act of 2005".  The only real abuse going on in the bankruptcy system is that suffered on the general public by the credit card and banking industry."  Diane L. Drain.

Bankruptcy Judge Frank Monroe showed his complete disgust for Congress and their new law in In re Sosa, 2005 WL 3627817 (Bankr. W.D. Tex. 12/22/05). "The Congress of the United States of America passed and the President of the United States of America signed into law the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (the "Act"). It became fully effective on October 17, 2005. Those responsible for the passing of the Act did all in their power to avoid the proffered input from sitting United States Bankruptcy Judges, various professors of bankruptcy law at distinguished universities, and many professional associations filled with the best of the bankruptcy lawyers in the country as to the perceived flaws in the Act. This is because the parties pushing the passage of the Act had their own agenda. It was apparently an agenda to make more money off the backs of the consumers in this country. It is not surprising, therefore, that the Act has been highly criticized across the country. In this writer's opinion, to call the Act a "consumer protection" Act is the grossest of misnomers."

The good news, if you can call it that, according to Christine Dugas of USA Today, citing a survey from the National Association of Consumer Bankruptcy Attorneys, at least 97 percent of those who could file for chapter 7 bankruptcy protection before the law changed are still able to file chapter 7 today.  For most consumers who live from paycheck to paycheck the major changes will be increased time to fill out the forms, additional costs for two new education classes and increased legal fees.  The basic changes are:

 ◙  Two educational requirements

  1. A person filing Chapter 7 bankruptcy will have to take an approved Credit Counseling Course before he or she files. Your bankruptcy lawyer can set this up for you. In some cases the course can be taken over the Internet.

  2. An approved Financial Management Course will have to be completed before you can be discharged. Your bankruptcy lawyer can set this up for you.

◙  Child support and alimony or maintenance, now called "Domestic Support Obligations", have become a primary focus for the new law.  Anyone filing for bankruptcy, who is behind on domestic support obligations, needs to understand that any property they own can be seized and sold to pay these past due obligations.  Make sure to disclose this to your bankruptcy attorney to determine the best option.

◙  If your family income is below the median for your state, then you should be able to file a Chapter 7: You can check to see if your income is below the median income for your state: State Median Incomes

◙  Income above the median for your state? Remember, if your income is slightly over the state's median income you may still be able to file Chapter 7. Your bankruptcy lawyer will be able to make this calculation and also advise on allowable expenses you can use in the calculation.

Creditors Who Lobbied for BAPCPA May Suffer the Most for It  Tuesday, March 21, 2006 print this article

The March American Bankruptcy Institute Journal includes an interesting analysis of the way BAPCPA may be hurting the very industry that fought so long to see it passed. Henry E. Hildebrand, III, a Chapter 13 Trustee from Tennessee, points out that while more consumers may be filing under Chapter 13 (as the law’s proponents intended), those Chapter 13 filings are often not translating into any payments at all to secured creditors.

That’s because the new system for determining disposable income is dependent on a formulaic application that doesn’t necessarily have a basis in reality. For instance, because “current monthly income” is not current monthly income, but rather based on income over a six month period, it is possible that the debtor’s actual income is significantly higher than the “current monthly income” on which the Chapter 13 calculations are based. And then, of course, the debtor may also have additional income that is statutorily excluded, such as child support and social security income.

Additionally, since the old system wherein the Trustee could examine expenses for reasonableness on a case-by-case basis has given way to statutorily permitted expenses, many debtors end up with no disposable income—on paper, anyway.

Hildebrand suggests that the consumer credit industry, after years of lobbying for this kind of reform, may turn out to be BAPCPA’s biggest victims.

◙  Checklist of Key Changes

  1. From the Alaska Bankruptcy Court (law applies to all 50 states): Table of Guides and Links Regarding the New Law.  Addresses Means test, automatic dismissals, new chapter 13 requirements, tax returns, automatic stay- lease issues, credit and financial management, reaffirmation and preferred addresses.
     

  2. From FindLaw for the Public

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, a major reform of the bankruptcy system, was passed by Congress and signed into law by President Bush in April 2005. Changes instituted by this new law took effect on October 17, 2005. Below are some of the key changes that came about as a result of this new bankruptcy law.

As of October 17, 2005, before filing for bankruptcy most applicants must now undergo credit counseling in a government-approved program. You can get more information on the procedure for pre-filing credit counseling (and a list of approved credit counseling agencies) from the U.S. Trustee Program (a component of the Department of Justice responsible for overseeing the administration of bankruptcy cases).

Under the new law, bankruptcy applicants who wish to file under Chapter 7 must meet certain eligibility requirements under a "means test."

Under the "means test," if your current monthly income is less than the median income in your state, you can file for bankruptcy under Chapter 7. But if your current monthly income is above the median income in your state, and you can afford to pay $100 per month toward paying off your debt, you cannot file under Chapter 7 and must proceed under Chapter 13 (more on Chapter 13 below). Whether you can afford to pay $100 per month (or $6,000 over a five-year period) is based on a formula that includes your monthly income, your expenses, and the total amount of your debt. Get more information on means testing from the U.S. Trustee Program (a component of the Department of Justice responsible for overseeing the administration of bankruptcy cases).

Under the new bankruptcy law, people wishing to file bankruptcy under Chapter 7 or Chapter 13 must show proof of their income by providing federal tax returns from the last tax year. If a bankruptcy filer has not paid taxes for the previous tax year, he or she must do so before the bankruptcy can proceed.

As discussed above, if a bankruptcy applicant is ineligible for filing under Chapter 7 based on the "means test," he or she must file under Chapter 13 instead. There are a number of major differences between Chapter 7 and Chapter 13 bankruptcy, but the main distinction is that under Chapter 13, the debtor enters into a five-year repayment plan in which he or she must pay a certain amount of money to creditors, based on a strict expenses-to-income formula. For a detailed look, see Chart: Comparing Chapter 7 and Chapter 13.

People who file for bankruptcy have traditionally been entitled to certain immediate protections from creditors and others -- including most debt collection and lawsuit actions. These protections are part of what is called the "automatic stay" effect of a bankruptcy filing, because many potential legal actions against the filer are stopped (known as "stayed" in legal terms). But, under the new bankruptcy law which took effect in October 2005, some of these protections have been eliminated. For example, filing for bankruptcy no longer delays or stops eviction actions, driver's license suspensions, legal actions for child support, or divorce proceedings.

Bankruptcy laws provide a system of re-payment priority for people and companies that are owed money (called "creditors"). Under the new bankruptcy law, among the changes in creditor priority is that people who are owed unpaid child support and alimony (i.e. the bankruptcy filer's family members) take priority over any other creditor.

After the conclusion of bankruptcy proceedings, but before any debt can be discharged, bankruptcy debtors must participate in a government-approved financial management education program. You can get more information on the procedure for financial management education (and a list of approved debtor education providers) from the U.S. Trustee Program (a component of the Department of Justice responsible for overseeing the administration of bankruptcy cases).

◙  Click for Bankruptcy Reform Act notes and links for Bankruptcy Attorneys.

Note to my clients: April of 2005 ushers in the implementation of a new series of laws that will be applied to the filing of most bankruptcies.  When any new law goes into effect it takes years to work out the kinks.  Unfortunately, thousands and thousands of innocent folks will be sacrificed in order to work out those kinks.  The following is a basic review of the policies and possible changes.  Always seek legal advice regarding your personal situation.  It is even more important when the law is in a complete upheaval, as it is now.

Why new law?  Because the $30 billion dollar a year credit card industry is greedy and because members of the Congress have been paid millions of dollars to pass this law.  Creditors are calling this "the best law money can buy".  The credit card industry does not believe they should be responsible for extending credit to people that cannot afford it, are not working, are under the age of 18, or are dead.  Then the customer becomes ill or unemployed the credit card company refuses to work with customers.  Instead, they abuse the law by calling at all times of the day and night; using foul language and abusive attitudes to hassle the customer.  They continue with this outright war until they shame the customer into sending the money that should have been used to pay the mortgage.  Shame on them!

What can you do - challenge everyone you know to use their credit cards for their own benefit and not that of the credit card industry.  Use cards with zero interest rate and the close the card when the rate increases.  Use cards with cash or plane fair rebates.  Never carry a balance on the card so that you pay interest.  Pay the cards off each month (for those cards with interest).  When you receive junk mail - mail the empty pre-stamped envelope back to the sender. The credit card and banking industry have decided that they can buy their own laws.  It may take years to put balance back into the system between the mammoth banking industry and the consumer; but we all must start now in order to make a difference.

 

USEFUL REFORM ACT LINKS (thanks to The Consumer Bankruptcy Letter, Bankruptcymedia.com):

SUMMARY OF CONSUMER BANKRUPTCY PROVISIONS OF REFORM ACT BY HON. EUGENE R. WEDOFF
http://www.abiworld.org/pdfs/s256/mainpoints11.pdf

ISSUES & ANSWERS RE: BAPCPA
http://www.bankruptcybooks.com/peer_review_-_guide_to_pra.html#Anchorissues

NEWS AND UPDATES ABOUT THE REFORM ACT
http://bankruptcymedia.com/bkfinder/bankruptcyreformnews.html

INTERIM OFFICIAL RULES
http://www.uscourts.gov/rules/BK_Interim_Rules_Redline.pdf

NEW AND REVISED BANKRUPTCY FORMS
http://www.uscourts.gov/rules/new_and_revised_official_forms.html

CENSUS FIGURES FOR MEDIAN INCOMES
http://www.usdoj.gov:80/ust/eo/bapcpa/bci_data/median_income_table.htm

IRS COLLECTION STANDARDS
http://www.usdoj.gov:80/ust/eo/bapcpa/meanstesting.htm#irsdata

LIST OF APPROVED CREDIT COUNSELING AGENCIES
http://www.usdoj.gov/ust/eo/bapcpa/ccde/cc_approved.htm

LIST OF APPROVED FINANCIAL MANAGEMENT COURSE AGENCIES
http://www.usdoj.gov:80/ust/eo/bapcpa/ccde/de_approved.htm

STATE EXEMPTIONS
http://www.bankruptcyaction.com/bankruptcyexemptions.htm

LISTING OF CHAPTER 13 ADMINISTRATIVE EXPENSE %
http://www.usdoj.gov:80/ust/eo/bapcpa/mt/ch13_exp_mult.htm

NOTICE OF DOMESTIC SUPPORT AGENCIES
http://www.usdoj.gov:80/ust/eo/bapcpa/ds/index.htm

ONLINE INSTANT HOME VALUATION BY BANK OF AMERICA
http://www.bankofamerica.com/loansandhomes/index.cfm?template=hc_home_worth

CALCULATE LOOKBACK OR LOOKFORWARD DATES ONLINE
http://www.timeanddate.com/date/dateadd.html