New Bankruptcy Laws
Understanding new bankruptcy laws passed in 2005
Now, more than ever, the advice of a qualified bankruptcy attorney is essential to receive meaningful debt relief under the law. In the years leading up to the enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, partisan politics resulted in hot debates and drew sharp contrasts between 1) new privileges given to large corporations, while 2) the rights of average citizens continued in decline. Nevertheless, talented attorneys who specialize in represent small debtors will find way to maximize results for clients.
Summary of major changes provided by new bankruptcy laws
- All debtors must now be trained by accredited credit counselors before filing.
- The minimum time required to claim state exemptions, for new residents, was extended from 6 months to 2 years. Also, new federal caps limit the value of homestead exemptions, regardless of state intent.
- No one may file Chapter 7 if earning more than $100 per month disposable income, if total claims are below $24,000.
- No one may file Chapter 7 if earning more than $166 per month disposable income. if claims are equal to or above $24,000 or more. Previous law placed no income restrictions on qualification for Chapter 7 discharge.
- All Chapter 7 debtors are considered to file in "bad faith" with intent to abuse creditors until proving compliance with means testing restrictions, which in effect, disallow Chapter 7 for almost all individuals who maintain regular income or employment.
- All Chapter 13 debtors are limited to a new monthly living expense schedule (regardless of individual circumstance) according to the National Standards Living Allowances promulgated originally by the IRS for use when prosecuting tax evasion. Previously, judges were allowed judicial discretion to consider expenses deemed as "reasonable and necessary."
- New bankruptcy laws eliminate the "Cram Down" practice. Previously, Chapter 13 debtors were permitted, in partial plans, to discharge liability above actual collateral value upon the completion of the plan term.
- All Chapter 13 plans now last for 5 years. Previously, plans between 3 to 5 years were permissible.
- Creates mandatory penalties for debtors who assert facts, pleadings or requests without "substantial justification". Innocent errors are not excluded. Creditors are not subject to this provision.
- Creates mandatory penalties for attorneys who represent debtors who assert facts, pleadings or requests without "substantial justification". Innocent errors are not excluded. Attorneys who represent creditors are not subject to this provision.