The "New" Bankruptcy: How Changes in the Law Affect Your Filing

On October 17, 2005, changes were made to the United States Bankruptcy laws. Most of the changes were made to require those with incomes above a certain threshold to repay their creditors rather than discharging their debts.

Below is a quick overview of some of the most important changes in these Bankruptcy laws. (Note that the information below highlights selected changes in the law; other changes were also made by the new legislation.)

Chapter 7 and Chapter 13 Filing Restrictions

- In Chapter 7 cases, a debtor cannot re-file a subsequent chapter 7 case for eight years -- increased from six year. A debtor must now wait 8 years between Chapter 7 cases.

- A Chapter 13 debtor is barred from receiving a discharge if the debtor has received a discharge--

(1) in a chapter 7 case during the 4-year period preceding the date of the order for relief under the chapter 13 laws, or

(2) in chapter 13 case during the 2-year period preceding the date of such order.

Debtor's Duties

Filing requirements expanded: Unless the court orders otherwise, the new law requires all debtors to file with the court:

o evidence of payments (e.g. pay stubs) received from any employer within 60 days before the date of the filing of the case;

o an itemized statement of net monthly income; and

o a statement disclosing any anticipated increase in income or expenses reasonably expected during the 12-month period after the petition date;

If an individual Chapter 7 or Chapter 13 debtor fails to file all of this information within 45 days after the petition filing date, the case will be automatically dismissed effective on the 46th day.

Tax returns: The debtor must now file certain tax returns with the trustee and other tax returns with the court. The law now requires the debtor to file with the trustee seven days before the first date set for the first meeting of creditors a copy of the debtor's Federal income tax return or a transcript of same for the most recent tax year ending immediately before the petition date. Failure to provide either the trustee with the tax return will result in dismissal of the debtor's case unless the debtor is able to demonstrate that the failure was due to circumstances beyond the debtor's control.

Miscellaneous filing requirements: The new laws require an individual debtor to file: a credit counseling certificate describing the services provided to the debtor along with a copy of the debt repayment plan, if any, developed through the agency; a record of the debtor's interest in a state tuition program or education individual retirement account; in chapter 13 cases, an annual statement of income and expenditures

Mandatory Credit Counseling

The law now requires individual debtors to receive a credit counseling briefing from an approved agency during the 180-day period before the petition date. The debtor may receive the briefing in either an individual or group format. The briefing may be conducted by telephone or over the internet. The briefing must outline the debtor's opportunities for credit counseling and assist the debtor in performing a budget analysis. In most case, a list of approved credit counseling agencies will be posted on each bankruptcy court's website along with a hard copy available at the clerk's office.

A debtor that fails to obtain credit counseling is not be eligible to file bankruptcy unless the debtor resides in a district where the U.S. Trustee or bankruptcy administrator has determined that approved agencies are not reasonably able to provide counseling services to additional individuals.

Debtor Education

Before a chapter 7 debtor receives his or her discharge from the court, he or she must complete a second or post-petition instructional course on personal financial management. A similar bar to the Chapter 13 discharge is provided in the new law. The instructional course must provide debtors with "learning materials and teaching methodologies designed to assist debtors in understanding personal financial management ...."

Automatic Stay; Automatic Dismissals

Domestic relations exceptions: The law was amended to exclude from the automatic stay (i.e. the provision of the bankruptcy law that prohibits certain creditors from pursuing the collection of their debts during the bankruptcy case) certain actions concerning child support or domestic relations matters. With the change in the law, action can be taken after the filing of a bankruptcy petition concerning child custody, visitation and domestic violence and divorce proceedings except to the extent that they seek to divide property that is property of the estate. To assist in the collection of amounts due for domestic support obligations, the law now permits the withholding of income that is property of the estate for the payment of domestic support obligations, as well, as the withholding of the debtor's drivers license or a professional license.

The law also allows the interception of a tax refund and the reporting of overdue child support.

Pension loan exception: The change in law now permits the withholding of income from a debtor's wages to repay a loan from an ERISA qualified pension plan sponsored by the debtor's employer.

Eviction actions: A landlord can now continue with an eviction against a debtor tenant, in certain situations, when the landlord has obtained a judgment prior to the filing of the case. However, the debtor/tenant may have the right to "cure" the default in the lease.

Avoidance of Transfers to Self-Settled Trusts

The bankruptcy trustee can now avoid any transfer of property that was made on or within 10 years before the petition date if the debtor made the transfer to a self-settled trust, the debtor is the beneficiary of the trust, and the debtor made the transfer "with actual intent to hinder, delay or defraud any entity to which the debtor was or became, on or after the date that such transfer was made, indebted."

Exclusions from Property of the Estate

Money paid to an education retirement account or state tuition credit account at least 365 days prior to the petition date is NOT property of the bankruptcy estate (meaning that it is outside the bankruptcy court's reach and cannot, therefore, be taken by the trustee) if the funds are designated for the benefit of the debtor's child, stepchild, grandchild or step-grandchild is not an asset of the estate. There is a $5,000 limit placed on funds contributed "not earlier than 720 days nor later than 365 days" before the filing date.

Also excluded from property of the estate are wages withheld by an employer for payment as contribution to ERISA-qualified retirement plans, deferred compensation plans, tax-deferred annuities, and health insurance plans. These wages cannot be "recaptured" by the trustee. The exclusion is for "any amount" withheld from wages.

Exemptions

Residency requirement: The residency requirement that must be met before the debtor can file his or her case in a particular court was changed -- a debtor reside in a state for a period of 730 days (2 years) prior to filing bankruptcy under that state's exemption laws. If the debtor's domicile has been located in more than a single state during the 730 day time period, the law now requires that the governing exemption law will be the state in which the debtor's domicile was located for 180 days immediately preceding the 730 day period "or for a longer portion of such 180 day period than in any other place." This precludes a debtor moving from one state to another to take advantage of that state's more favorable exemption rules.

Homestead exemption: The federal homestead exemption is now limited to $18,450.00. State laws can have different homestead exemptions. If the debtor elects state exemptions, the new law limits the debtor's homestead exemption to $125,000.00 if the debtor's interest was acquired during the 3 1/3 year period preceding the petition date. But this $125,000.00 cap does not apply if: (1) the debtor acquired the homestead interest from the debtor's previous residence; (2) the debtor's previous residence and current residence are located in the same state; and (3) the debtor acquired the previous residence prior to the beginning of the 3 1/3 year period.

Dischargeability

Credit card debts: The new law now states that consumer debts owed to a single creditor for more than $500 for luxury goods incurred within 90 days of filing and cash advances for more than $750 within 70 days of filing are presumed to be non-dischargeable. Luxury goods are defined to exclude goods and services reasonably necessary for support or maintenance.

Student loan debts: The law now expands the definition of student loans to include qualified educational loans as defined under he Internal Revenue Code.

Priority -- The Order in which Creditors are Paid

Domestic support and child support obligations were moved higher on the payment priority list -- meaning that they will, most likely, be paid before other creditors are paid from the bankruptcy estate. The first priority on the payment of creditors from the sale of the assets of the estate is for unsecured claims for domestic support obligations owed to the debtor, a child of the debtor, and governmental units. The law added a tenth priority for claims for death or personal injury incurred by the debtor while driving under the influence of drugs or alcohol.

Means Testing

In Chapter 7 cases, the debtors must prepare a "means test" that lists income and expenses. If the income exceeds the expenses by a certain amount, the bankruptcy court is now required to presume abuse exists -- which means the case will be dismissed or converted to a Chapter 13 case.

While not a "means test" in Chapter 13 cases, the new law was changed to provide that if the "current monthly income" of the debtor and the debtor's spouse combined when multiplied by 12 is not less than the applicable state median family income, the chapter 13 plan may not provide for payments over a period that is longer than five years. If the combined current monthly income of the debtor and the debtor's spouse when multiplied by 12 is less than the applicable state median family income, the plan may not provide for payments over a period that is longer than three years unless the court approves a longer time period that does not exceed five years.

Reaffirmation Agreements

To be enforceable, a reaffirmation agreement must: (1) be made before the granting of the discharge; (2) the debtor must receive an extensive set of new disclosures; (3) the agreement must be filed with the court along with an attorney declaration, if applicable; (4) the debtor must not rescind the agreement prior to discharge or within 60 days after the agreement is filed; (5) §524(d) must be fully complied with; and (6) if the debtor is not represented by an attorney, the court must approve the agreement. Further, for the reaffirmation agreement to be enforceable, the new law provides that the debtor must receive expanded disclosures either at or before the time the debtor signs the reaffirmation agreement.

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Ohio Bankruptcy Laws

Bankruptcy laws are designed to give debtors a fresh financial start. Ohio, like most other states, has its own bankruptcy laws. Ohio bankruptcy laws are specifically designed for Ohio citizens. The law primarily includes the federal statutory law contained in Title 11 of the United States Code. However, bankruptcy cases in Ohio follow the state's bankruptcy laws, not federal bankruptcy laws.

The two courts in Ohio engaged in bankruptcy cases are federal bankruptcy courts that follow Ohio law. They are Ohio Northern Bankruptcy Court and Ohio Southern Bankruptcy Court. Ohio bankruptcy law forms can be downloaded or accessed directly from a form provider. The form to be selected depends on whether the debtor files a Chapter 7 bankruptcy or a Chapter 13 bankruptcy.

Exemptions based on Ohio bankruptcy laws help protect exempted properties from creditors. Properties exempted by Ohio bankruptcy laws include a residence up to $5,000, one automobile of up to $1,000, cash up to $400, a cooking range and refrigerator totaling up to $600, personal injury awards up to $5,000, death benefits up to $5,000, household goods and furniture for $1,500, jewelry up to $3,500, tools of trade up to $750, wild card and personal properties up to $400, as well as all pension and education plans. Ohio bankruptcy laws also allow exemptions on health aids, alimony and child support aids, property of business partnerships, ERISA-qualified benefits, retirement benefits, firefighters' and police officers' death benefits, group life insurance policy benefits, and seal and office registers.

The new Ohio bankruptcy law that took effect April 20, 2005, states that the value of the state homestead exemption is reduced by any addition to the value by disposition of non-exempt property during the ten years prior to the bankruptcy filing. Federal supplemental exemptions can be used in conjunction with Ohio exemptions. If one is not a permanent citizen of Ohio or has changed states frequently in the course of the past five years, one does not follow Ohio bankruptcy laws. Instead, the law of the state where one spent most of these years becomes operational.

Bankruptcy Laws provides detailed information on Bankruptcy Laws, New Bankruptcy Laws, Chapter 7 Bankruptcy Laws, Chapter 13 Bankruptcy Laws and more. Bankruptcy Laws is affiliated with New York Bankruptcy Lawyers.

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Florida Bankruptcy Laws

Bankruptcy law is the area of federal law that deals with the handling of bankrupt persons or businesses. Florida bankruptcy laws explain the federal bankruptcy process and common issues pertaining to residents of Florida.

According to Florida bankruptcy law, a permanent resident of Florida can file bankruptcy in a Florida bankruptcy court. Florida has three bankruptcy courts, one in every bankruptcy district. They are Florida middle bankruptcy court, Florida northern bankruptcy court, and Florida southern bankruptcy court. All counties in Florida come under one of these bankruptcy courts. Bankruptcy has to be filed in the district of residence.

Most bankruptcy claims are personal claims that come under Chapter 7 and 13 of the federal bankruptcy law. Chapter 7 is also named liquidation or straight bankruptcy. Chapter 13 bankruptcy is known as a wage-earner plan. When a Chapter 7 or Chapter 13 bankruptcy is filed, a trustee takes all the non-exempt property and sells it for the benefit of the creditors. But exempted property cannot be taken. Florida bankruptcy laws make determinations regarding non-exempt and exempt property. If Florida bankruptcy laws render a person ineligible for any exemption, he is allowed to choose federal exemptions.

Florida bankruptcy laws deviate from the federal bankruptcy law mainly with regard to exempted property. Properties that can be exempted are included in the Florida bankruptcy exemptions chart. One can exempt any property that falls into any of the categories in the chart, up to the dollar amount listed. Florida bankruptcy laws allow liberal bankruptcy exemptions. Homestead (160 acres outside a municipality and ½ acre within a municipality), insurance, motor vehicle ($1,000), personal properties ($1,000), a portion of wages, life insurance policies, unemployment compensation benefits, disability benefits, pension and retirement funds, education funds, and health aid interest are among those exempted.

The new Florida bankruptcy law, effective from October 17, 2005, makes filing bankruptcy cases more complicated. It incorporates impediments to filing bankruptcy, new court rules, new forms, and additional work for debtors and attorneys. According to the new Florida bankruptcy law, the Florida exemption law is applicable to your bankruptcy only if you have resided for two years in Florida, immediately prior to the filing date. If not, in order to get exemption, most of the 180 days prior to those two years should be spent in Florida.

Bankruptcy may be the only solution for extreme financial hardship. At the end of the bankruptcy proceedings, the court discharges the borrower from the debts. The bankrupt person can start all over again with a clean financial slate, but a record of bankruptcy will remain on his credit profile for up to ten years.

Bankruptcy Laws provides detailed information on Bankruptcy Laws, New Bankruptcy Laws, Chapter 7 Bankruptcy Laws, Chapter 13 Bankruptcy Laws and more. Bankruptcy Laws is affiliated with New York Bankruptcy Lawyers.

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"Reformed" Personal Bankruptcy Law of 2005, Now Broken, Should Urgently Be Truly Reformed This Time

Time, once again, to reform the new 2005 reformed bankruptcy laws, and to reform the new reformed Chapter 7 bankruptcy? Or even the Chapter 13? On October 17 2005, amidst the highly charged atmospherics of high drama, robust promises and expectation, the new bankruptcy law, the Bankruptcy Abuse and Consumer Protection Act or BAPCPA, which had been enacted by Congress largely at the prodding of the Credit and financial industries, among other special interests, was promptly put into effect. Generally called the "reform" bankruptcy law, the law had been touted as something of a bankruptcy cure-all that was going to fix a "broken" bankruptcy system in America, most especially, reverse or drastically reduce the high volume of bankruptcy filings and the increased use of bankruptcy by American consumers in resolving their debt problem. The overarching, dominant argument and premise expressed by the banking and financial industry advocates and supporters of the reform law, and by its sponsors in the Congress, was that the growth in bankruptcy was due to "fraudulent bankruptcy filings" by consumers and the "excessive generosity" of the old bankruptcy system which, it was said, encouraged "abuse" and allowed a great many number of debtors to repudiate debts that they could quite well pay, at least in part.

A Congressional Research Service (CRS) report on the matter summarizing the "Legislative Goals of [the] Consumer Reform," summed it up this way:

"The high volume of consumer bankruptcy filings during the 1990's fuels the argument that the current law is too lenient, i.e., 'debtor-friendly' bankruptcy. Proponents of consumer bankruptcy reform cite many reasons in its support. The legislation is intended, among other things, to make filing more difficult and thereby thwart "bankruptcies of convenience"; to revive the social "stigma" of a bankruptcy filing; to prevent bankruptcy from being utilized as a financial planning tool; to determine who can pay their indebtedness and to ensure that they do; to lower consumer credit interest rates; and, to maximize the distribution to both secured and unsecured creditors. To effect these goals, the proposals implement a "means test" to determine consumer debtors' eligibility to file under chapter 7."

That was in October 2005 that the new law came into effect. Fast forward to today in March 2009, however, only less than 4 years after the passage of the new rules of the 2005 BAPCPA law that toughened the system for bankruptcy filing and made it far more costly (it more than doubled the legal fees charged by attorneys for bankruptcy filing) for debtors to file for bankruptcy. And we find that American debtors, once again, are fast returning to the same rate of bankruptcy filing as the pre-2005 levels. And the informed expert projections are that we'll land right back pretty soon at the same old "square one" in bankruptcy filing - back to the old "bad" high pre-2005 bankruptcy filing levels which the 2005 "reform" law just enactment by Congress was meant to cure and reverse. For the month of February 2009, for example, there were over 103,000 bankruptcy filings nationally. Spread over the 19 business days of February 2009, the filing rate is 5,433 filings per day - which represents a 22.0% jump over the January 2009 filing rate, and a year-over-year increase of 29.9% as compared to February 2008. In deed, by some expert predictions, the nation will register a rate of 1.4 million bankruptcy filings for the current 2009 calendar year.

Clearly, the "reformed" BAPCPA law has woefully failed in its avowed fundamental mission and purpose - discouraging American debtors from using the bankruptcy system in settling their debt problems by making the process tougher and more expensive and hassle-filled, and reversing the escalating or high volume trend in bankruptcy filings.

WHY THE 2005 LAW FAILED

The fundamental reason why the 2005 law has come crashing down so soon, can be traced directly to one basic reason: the whole BAPCPA scheme had been based on a premise that is badly flawed, in deed false, and totally unsupported by facts or evidence or research, but based largely on mere raw emotions and ideological thinking. Essentially, Congress, while conspicuously discounting the independent research-based evidence of scholars such as Harvard's Elizabeth Warren and others (see, for example, Sullivan, Teresa A., Elizabeth Warren, and Jay Lawrence Westbrook. As We Forgive Our Debtors. New York, Oxford University Press, 1989), ultimately bought the more emotional argument of the banking and financial industries that rampant "fraud and abuse" was to blame for the high volume of consumer filing, and that to stem that tide the law needed to be made more stringent so as to curb "bankruptcy of convenience" by debtors.

That fundamental premise happens to have been totally false and grossly in error, however. At the heart of it, the notion that most American debtors file bankruptcy because though they really have the means to pay up their debts, they just do not wish to pay and merely want to cheat to get out of their debt obligation, is directly contradicted by so many studies and emperical evidence on the subject. But, even more closely today, it is directly contradicted by current events. Americans have, again, turned around and resumed flocking to the Bankruptcy courts in record numbers precisely today at a time of clearly serious national economic downturn, joblessness, financial distress and depression, for a great deal of them. Why? Because they wish to or love to cheat? Clearly, NOT that! Clearly, the 2005 reform law failed woefully to take into account the central role that the overall health and soundness of the "fundamentals," or, even more accurately, the lack of it, involved in the nation's as well as an individual debtor's economic and financial condition - his employment, overall financial obligations, etc - could often play in whether or not the debtor ultimately pays back his or her debt.

"After October, 2007 [marking the two years anniversary after the new 2005 law], there was very little 'inventory)'' of consumers ready to file for bankruptcy relief," explains Etaoin Shrdlu, one analyst on the subject, writing in Credit Slips, an online bankruptcy forum. "The Code [the bankruptcy law] changed, but the economic factors leading to bankruptcy have not. If anything, they're getting worse. [That's why] I think that within the next couple of years we'll be back at the same filing levels we had in 2003 and 2004."

Elizabeth Warren, the Harvard Law School professor and author of several books on bankruptcy, probably sums up the point best, this way:

"The credit industry did its best to drive up the cost of filing [for bankruptcy] but when families are in enough trouble they will fight their way through the paper ticket and higher attorneys' fees to get help," adding that "The word is now leaking out [once again] that the bankruptcy courts are open for business."

In sum, today, as we now see, the 2005 bankruptcy law is clearly badly flawed, if broken, right from the beginning. Congress, it's now obvious, needs urgently to completely redo this law to truly reform the egregious flaws of the 2005 "reformed" law - this time correctly, we hope.

Among many other important considerations that the new, truly "reformed" law must include, perhaps the most critical of them all is this: AFFORDABILITY OF BANKRUPTCY; finding low-cost bankruptcy. Whereas the 2005 law sought to arbitrarily restrict or exclude qualified bankruptcy candidates from filing for bankruptcy largely based on false premises by making it more difficult and expensive for them to file, such new law should provide effective mechanism that enables virtually EVERY honest American debtor, once clearly economically unable to meet the debt obligations but overburdened with debt and otherwise qualified, to have low-cost bankruptcy filings. Even finding non-lawyer pro se alternative to lawyer. American debtors should never be forced to have to forfeit their sacred constitutional right to bankruptcy as Americans, to seek the relief of bankruptcy from their debt burden and get the rehabilitative fresh start that bankruptcy offers for a life after debt - AFFORDABLY.

Benjamin Anosike, Ph.D., has been dubbed by experts and reviewers of his many books, manuals and body of work, which deal largely on self-help law issues, as "the man who almost literally wrote the book on the use of self-help law methods" by America's consumers in doing their own routine legal chores - in uncontested divorce, will-making, simple probate, settlement of a dead person's estate, simple no-asset bankruptcy, incorporation, etc. A pioneer and intellectual and moral leader of the 1970s-based "you do your own law" movement and a lifelong vehement advocate and veteran of historical battles for the right of the American consumers to perform their own tasks in the area of routine legal matters, Anosike was one of the pioneers who fought and survived (along with many others of courage) the lawyers' and organized bar's stiff war of the 1970s and '80s against American consumers and entrepreneurs who merely sought, then, to use, write, distribute or sell law-related self-help books and kits for non-lawyers to do their own law, upon the lawyers' claim then of such matters being purportedly "unauthorized practice of law" or "practicing law without a license" Anosike holds graduate degrees in labor economics and management and a Ph.D. in jurisprudence. Characterized by a review of the American Library Association's Booklist Journal as "probably the most prolific author in the field of legal self-help today," Dr Anosike is the author of over 26 books and manuals (and countless number of articles) on various topics of American law, including 4 volumes on personal and business bankruptcy filing, in a lifetime of dedication. For more on the subject matter discussed in this article, or on how to get a low-cost, affordable bankruptcy filing, or the author's other books and manuals, visit this site: www.Afford-Bankruptcy.Com

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