How the New Bankruptcy Law Will Affect Consumers

President Bush signed the new Bankruptcy Bill April 20, 2005. The overall effect of the Bill is that it will make it harder for individuals to “wipe-out” their existing debts. More individuals will be forced into the “repayment” type of bankruptcy in which an individual pays back, over a period of 3 to 5 years, a percentage of what he owes to his creditors. Among the most important highlights of the new bill are the following:

1) Individuals will be ineligible for bankruptcy relief under any Chapter of the Bankruptcy Code unless, within 180 days of filing their case, they received “an individual or group briefing from a nonprofit budget and credit counseling agency” (credit counseling).

2) Fewer individuals will qualify for Chapter 7 bankruptcy (fresh start), and will, instead, be forced into Chapter 13 bankruptcy. Only Debtors whose household income is below their state’s median will be permitted to file under Chapter 7. Under a “means test”, if you have more than $100 per month left after paying approved monthly household expenses, you will be forced into a Chapter 13. The approved monthly expenses are specified under standards of the Internal Revenue Service and spell out what is a reasonable amount to pay for food, clothing, transportation, etc…

3) Debtors must, within 7 days of the creditor meeting, provide the Trustee with the most recent tax returns filed prior to the filing of the bankruptcy case. If an individual fails to file all of the information required within 45 days after filing the bankruptcy petition, the case must be dismissed on the 46th day. Debtors can also be required, upon request of the trustee or a party in interest, to file an annual financial statement showing income and expenditures during the year.

4) Homestead exemptions will be capped at $125,000 in some circumstances, meaning that it will be harder for Consumers to shield assets by moving to states such as Texas or Florida and buying an expensive house.

5) Debtors will be required to pay all charges made to credit cards for “luxury goods” ($500 or more) that were made within 90 days prior to filing bankruptcy.

6) Vehicles purchased within 2 ½ years prior to filing of the bankruptcy case will no longer be “stripped down” (allowing rewriting of the contract to give creditor today’s retail value at a lowered rate of interest), but will, rather, be given the full contract value and contract rate of interest.

The new bankruptcy provisions don’t take effect until October 17, 2005, so if you are curious as to whether or not bankruptcy could be an alternative for you, please contact our office immediately.

President Bush signed the new Bankruptcy Bill April 20, 2005. The overall effect of the Bill is that it will make it harder for individuals to “wipe-out” their existing debts. More individuals will be forced into the “repayment” type of bankruptcy in which an individual pays back, over a period of 3 to 5 years, a percentage of what he owes to his creditors. Among the most important highlights of the new bill are the following:

1. Individuals will be ineligible for bankruptcy relief under any Chapter of the Bankruptcy Code unless, within 180 days of filing their case, they received “an individual or group briefing from a nonprofit budget and credit counseling agency” (credit counseling).
   
2. Fewer individuals will qualify for Chapter 7 bankruptcy (fresh start), and will, instead, be forced into Chapter 13 bankruptcy. Only Debtors whose household income is below their state’s median will be permitted to file under Chapter 7. Under a “means test”, if you have more than $100 per month left after paying approved monthly household expenses, you will be forced into a Chapter 13. The approved monthly expenses are specified under standards of the Internal Revenue Service and spell out what is a reasonable amount to pay for food, clothing, transportation, etc…
   
3. Debtors must, within 7 days of the creditor meeting, provide the Trustee with the most recent tax returns filed prior to the filing of the bankruptcy case. If an individual fails to file all of the information required within 45 days after filing the bankruptcy petition, the case must be dismissed on the 46th day. Debtors can also be required, upon request of the trustee or a party in interest, to file an annual financial statement showing income and expenditures during the year.
   
4. Homestead exemptions will be capped at $125,000 in some circumstances, meaning that it will be harder for Consumers to shield assets by moving to states such as Texas or Florida and buying an expensive house.
   
5. Debtors will be required to pay all charges made to credit cards for “luxury goods” ($500 or more) that were made within 90 days prior to filing bankruptcy.
   
6. Vehicles purchased within 2 ½ years prior to filing of the bankruptcy case will no longer be “stripped down” (allowing rewriting of the contract to give creditor today’s retail value at a lowered rate of interest), but will, rather, be given the full contract value and contract rate of interest.
   

The new bankruptcy provisions don’t take effect until October 17, 2005, so if you are curious as to whether or not bankruptcy could be an alternative for you, please contact our office immediately.

The above article was supplied by Macey & Aleman.