On April 14, 2005, Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (S.256), also known as the Bankruptcy Reform Act (or the Act), which amended Title 11 of the United States Code. On April 20, 2005, President Bush signed the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 into law which addresses many areas of Bankruptcy including Consumer Bankruptcy filings, Commercial Bankruptcy filings, and Chapter 12 family farmer reorganization. While the Act has received a lot of media attention for its consumer provisions, it does contain several sections that also affect business bankruptcy filings.
The changes in the law were expected to make it much more difficult for consumers to file for bankruptcy and much harder to eliminate certain types of debts. These changes to the bankruptcy laws became fully effective on October 17, 2005 and since that time there have been many people who are under the wrong impression that bankruptcy relief is no longer available since the changes to the law took effect. In fact, the new bankruptcy laws have had little effect on most people and in some cases, the new laws are even more favorable then they were before.
If you have questions regarding more detailed or specific changes in the New Bankruptcy Law see Changes to the Personal Bankruptcy Law or Changes to the Commercial Bankruptcy Law or contact The Law Offices of R.J.Atkinson,LLC for a free initial consultation to answer your questions about Changes in the New Bankruptcy Law. Whether you’re in Houston, San Antonio, Austin, or Dallas, we may be able to assist in providing answers about the Changes in The New Bankruptcy Law and your legal options under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.
The following is a brief overview of the Major Provisions of the Bankruptcy Abuse Prevention and Consumer Protection Act of as they relate to Consumer Bankruptcy, Commercial Bankruptcy, and Family Farmer Reorganization / Agricultural Bankruptcy.
Probably the most significant change of law under The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 establishes a new bankruptcy means test that determines whether a debtor is eligible for Chapter 7 Bankruptcy relief, which generally discharges all unsecured debts, or whether a debtor must file under Chapter 13 Bankruptcy, which requires debtors to repay certain creditors in installments over a period of three to five years. The intent of the change is to attempt to compel debtors who are able to repay some or at least a portion of their debts to do so. A Chapter 7 Bankruptcy case will be converted to Chapter 13 Bankruptcy if the debtor can pay the lesser of (1) $10,000 or (2) the greater of (a) 25 percent of unsecured, non-priority debt or (b) $6,000. A debtor can take positions to rebut the bankruptcy means test by demonstrating "special circumstances," and certain "safe harbor" exemptions that may apply.
Major Changes in Consumer Bankruptcy include:
- Mandatory credit counseling - All consumer Debtors must undergo credit counseling within 180 days of the petition filing date, and must complete a personal financial management education course approved by the Bankruptcy Court and/or United States Trustee’s Office before they can obtain a discharge.
- Time between Bankruptcy Filings lengthened - A Debtor who receives a Chapter 7 Bankruptcy discharge cannot receive another Chapter 7 Bankruptcy discharge for eight years (changed from six years under the previous law). A debtor cannot receive a Chapter 13 discharge within four years of a Chapter 7, 11, or 12 discharge, or within two years of a prior Chapter 13 discharge.
- Debtor's disclosure duties modified - In addition to all documentation mandatory under the previous law, debtors must now submit copies of tax returns, payroll stubs, and certain other documents with the bankruptcy petition.
- Creditor notification duty - All Debtors must now send effective notice to creditors upon the filing of a bankruptcy petition. Creditors who do not receive such notices are not subject to penalties for violations of the automatic stay.
- Chapter 13 five-year payment plan expanded - Chapter 13 Bankruptcy Debtors with disposable income or income over the Texas State median must make payments over a five-year period, generally increasing the total amount they must repay. Debtors with income that is less than the Texas State median will pay over a three-year period.
- Chapter 13 plan payment deductions allowed - A Chapter 13 debtor can deduct from plan payments the costs of health insurance, domestic support obligations, expenses to operate a business, and charitable contributions of up to 15 percent of gross income.
- New 10th priority created for DUI/DWI liability - Any liabilities incurred in connection with operating a motor vehicle while under the influence of alcohol or drugs now have tenth priority among unsecured debts, and are non-dischargeable.
- Secured loan payment continuation required - Chapter 13 Bankruptcy debtors must continue to make secured loan payments as originally obligated to do so. Debtors must remit such payments to the bankruptcy trustee to be held until confirmation or denial of a Chapter 13 payment plan.
- Retirement savings exemption broadened - Up to one million $1,000,000.00 held in tax exempt retirement accounts (including IRAs) are exempted. This cap can be increased if "the interests of justice so require." Prior to the changes in the law, only ERISA qualified pension plans were untouchable by creditors.
- Exemption for education savings - Up to $5,000 per beneficiary held in education savings accounts are exempted, subject to certain IRS requirements.
- State homestead exemption limits - Debtors who can choose a state homestead exemption over the federal exemption are bound by a prior state of residence for two years after moving to a more generous state. Further, the debtor can't claim more than $125,000 until he or she has resided in the new state for three years and four months.
- Residential leases exempted from automatic stay - Landlords can now bypass the automatic stay and initiate or continue eviction proceedings.
- Non-dischargeable consumer debts expanded - Non-dischargeable debts now include state and local taxes. Federal taxes were non-dischargeable prior to the Act.
- Presumption of non-dischargeability limits expanded - Charges for "luxury goods and services" in excess of $500.00 made within 90 days preceding a bankruptcy filing, and any cash advances in excess of $750.00 made within 70 days of a bankruptcy filing, are presumed to be non-dischargeable. Under the old law the limits were $1,150/60 days.
- Domestic support obligations are given top priority - Alimony, maintenance, and child support obligations have first priority among unsecured debts, are non-dischargeable, and are not subject to the automatic stay. Chapters 11, 12, and 13 discharges are contingent on full payment of any and all such obligations
- Loans secured with personal property reaffirmation/surrender required - Chapter 7 Bankruptcy debtors now have 45 days after the petition filing date to reaffirm or redeem loans secured with personal property, or surrender the property. If the Chapter 7 Bankruptcy debtor fails to do so, the case is automatically dismissed.
Major Provisions in Commercial Bankruptcy include:
- Expedited Chapter 11 created for small businesses - Businesses with less than $2 million in debts can file an expedited form of Chapter 11 reorganization.
- Real Estate Owners & Investors - unexpired leases on non-residential real estate will automatically be deemed “rejected” if a debtor doesn’t file a motion to assume or reject the lease within 120 days after the commencement of the Chapter 11 Bankruptcy case. The Bankruptcy Court may extend the period, for no more than 90 days, for cause. Any other extensions are only permitted with the lessor’s consent, and a lessor’s ability to recover administrative expenses from the debtor’s estate that assumes a commercial lease and later rejects it is limited to all monetary obligations due under the lease, two years following the date of actual turnover of the leased premises.
- Chapter 11 exclusivity period shortened - A Chapter 11 debtor has only 18 months to propose a reorganization plan before creditors are allowed to propose their own plans. Prior to the Act, creditors were barred from making proposals indefinitely due to the debtor's ability to obtain extensions.
- Taxing Authority Remedies - There are several provisions affecting the tax liability of all debtors and bankruptcy estates, as well as a taxing authorities’ ability to assert priority claims and seek other remedies. Other changes require that a disclosure statement supporting a proposed plan of reorganization include a broader discussion of Tax consequences and liability issues and adds an exception to the automatic stay empowering Taxing Authorities to offset any Tax refunds owed to debtors against certain unpaid prepetition Taxes.
- Chapter 12 now made permanent - Chapter 12 family farmer bankruptcy reorganization has now been made permanent, and is extended to include family commercial fishing operations and aquaculture.
- Chapter 12 eligibility debt limit is raised - Family farmers must have aggregate debts of less than $3.37 million, of which 50 percent must arise from farming operations, in order to be eligible to file under Chapter 12 Bankruptcy. This figure is indexed for inflation. Prior to October 17,2005 the limits were $1.5 million/80 percent, and these pre-Act rules still apply to family commercial fishing operations.
Attorney Compliance Provisions
Under the New Law bankruptcy attorneys are required to make reasonable inquiries in order to confirm that information provided to the Bankruptcy Court. 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" Attorneys must disclose to the public tin 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 as written contract with the debtor and disclose that an attorney is not necessary to file bankruptcy, among other disclosures.
If you have questions regarding more detailed or specific changes in the New Bankruptcy Law see Changes to the Personal Bankruptcy Law or Changes to the Commercial Bankruptcy Law or contact The Law Offices of R.J.Atkinson,LLC at 800-436-9056 for a free initial consultation to answer your questions about Changes in the New Bankruptcy Law. Whether you’re in Houston, San Antonio, Austin, or Dallas, we may be able to assist you in filing for Bankruptcy Debt relief under The New Bankruptcy Law. Don’t lose everything. Call the The Law Offices of R.J.Atkinson,LLC at 800-436-9056 today.
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