New Bankruptcy Law
President Signs Bankruptcy Abuse Prevention, Consumer Protection Act...
On April 20, 2005, President Bush signed into law a new bankruptcy requirement that any person contemplating bankruptcy; must attend Credit Counseling at an approved non-profit credit counseling service prior to the filing of any bankruptcy petition. This new Bankruptcy Law came into effect October 17, 2005 and will be adopted in stages.
Bankruptcy Law Legislative History
The New Bankruptcy Law Reform Act of 1994
It was back in 1994 that a unprecedented new bankruptcy law changed the reality of personal bankruptcy in the United States forever. The Bankruptcy Reform Act of 1994 (Pub. L. No. 103-394, 108 Stat. 4106), initially drafted by political action committees funded by MBNA, Citibank, was strongly supported by the Financial Services Round Table (a special interest group comprised of 100 of the wealthiest financial institutions in the U.S.)
It seems that each and every subsequent year since the introduction of the the New Bankruptcy Law Reform Act of 1994, there have been additional reform proposals proliferated upon the calendar's of both the House of Representatives and the Senate, only to be consistently vetoed by President Clinton.
Since 2000, the affluence of political action committees have found Republican majorities eager to endorse the latest drafts of the Bankruptcy Abuse Prevention and Consumer Protection Act. It should be noted that this has been experience with strong support of President Bush.
See our 25 Changes to Personal Bankruptcy Law to learn the intricacies of this new bankruptcy law legislation, and how they may affect you!
Effective Date of the New Bankruptcy Laws:
As stated above, the Republican majority in the Senate passed the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (Senate Bill 256) on 03-11-05. Although all Democrat Senators voted against Senate Bill 256, the Republican majority in the House of Representatives ratified Senate Bill 256 and advanced the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 on 04-14-2005. Additionally, there were several Democrats that did endorse ratification.
President George W. Bush enthusiastically signed the proposed new bankruptcy laws on 04-20-05. According to the provisions within Senate Bill 256, the new bankruptcy law amendments became effective 180 days after presidential approval.
The new bankruptcy law became effective 10-17-05.
New Bankruptcy Law Provisions
Virtually all financial providers and institutions praise the new bankruptcy laws. They have been touted as the re-establishment of financial prudence. Supporters of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 also claim the traditional Chapter 7 discharge threatened the ability of some of the largest financial institutions to maintain a stable national banking system.
Detractors of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 have pointed to statistical data that demonstrates that bankruptcy filings are primarily a result of financial emergency, brought on by situations such as injury, sickness, divorce and the loss of primary income. They contend that bankruptcy is not a situation commonly brought on by reckless spending. They've openly questioned the need to bolster creditor rights, and they appear to have a case considering that earnings produced by historically high credit card rates and late fees continue to produce record profits for lenders.
Here are just a few of the more controversial amendments included with this most recent of new bankruptcy laws:
New Laws affecting Chapter 7 Bankruptcy
- No debtor may file Chapter 7 personal bankruptcy according to new bankruptcy laws governing discharge, if earning in excess of $100/mo. in disposable income, so long as the debtor owes total claims and liabilities below a $24,000 threshold. This is based on the newly defined disposable income test.
- No individual debtor may file Chapter 7 bankruptcy as provided by the new bankruptcy laws, if earning in excess of $166/mo. disposable income if total debts and liabilities are above the $24,000 threshold. Past versions of the Bankruptcy Code permitted almost all debtors to file personal Chapter 7 without regard to net income or total claims.
- The new bankruptcy law creates a rebuttable presumption of "bad faith" against all Chapter 7 debtors, that, in order to avoid sanctions and dismissals, must be overcome as a condition precedent for discharge.
See our 25 Changes to Personal Bankruptcy Law to learn the intricacies of this new bankruptcy law legislation.
New Laws affecting Chapter 13 Bankruptcy
- It used to be that Judges determine a reasonable living standard on a case by case basis when filing for personal Chapter 13 bankruptcy, but no longer. Under the new law, a reasonable living standard is imposes based on a National Standard for all debtors.
- Today, in Chapter 13, all debtors, regardless of their individual circumstance or need, are restricted to scheduled monthly living allowances.
- Previous Bankruptcy Code provisions allowed judges to accommodate for things like disabilities, incapacity, safety needs, and large variations in regional costs of living, but not any more.
- New bankruptcy laws eliminate was is known as "Cram Down". All debtors filing for Chapter 13 bankruptcy must repay the full balance due on secured notes if they want to retain collateral. This includes things such as auto loans, consumer credit for appliances, and a whole lot more (collateral retention used to be allowed if repaying actual value for collateral, with the remaining balance deemed unsecured and subject to discharge at the end of the plan).
- Chapter 13 cases where the individual is earning more than the median income for their state of residency must propose a 5 year financial plan unless all claims and liabilities are repaid in less time (it used to be that three year Chapter 13 plans were allowed even when repaying as little as 10% of total liabilities and actual collateral value for secured claims)..
It used to be that individual debtors would pay at least the value of their non exempt assets, but in practice, a Trustee recommended to the court, approval or denial of the amount of the monthly plan. Confirmation and discharge of obligations beyond the capability of an individual was allowed in partial plans. This meant that discharge could be obtained in as little as three years, with the amount of monthly payments being dependent (in part) on a financial analysis conducted by trustees and the judicial philosophy of judges in evaluating each case.
Judicial discretion is further limited by these new bankruptcy laws in that they impose automatic penalties and sanctions if debtors allege any fact absent "substantial justification". Rather than leaving it up to the discretion of the Judge, common mistakes and unintentional errors are not necessarily excused. This penalty clause is unique to new bankruptcy law, and does not apply equally to creditors.
Our wonderful and New US Bankruptcy Laws also impose automatic penalties and sanctions against any attorney representing a debtor if alleging any fact absent "substantial justification". Of course once again, there is no equal penalty or sanction imposed when creditor misrepresents the facts.
Of course, this new bankruptcy law requires that any person contemplating bankruptcy; must attend Credit Counseling at an approved non-profit credit counseling service prior to the filing of any bankruptcy petition.
Required Credit Counselors
The redit counselors required by these most recent changes to US Bankruptcy Law will examine your current circumstances, amount of debt, identify debt problems, attempt to negotiate a manageable debt load with your creditors, and if possible help you avoid filing for bankruptcy protection by entering you into a debt repayment program.
As of October 17, 2005 people with incomes above a certain level (State median) will be ordered to pay credit card charges, medical bills and other unsecured debt under a 3 to 5 year court-ordered bankruptcy repayment plan.
Read the President's address regarding the Bankruptcy Abuse Prevention and Consumer Protection Act, and the New US Bankruptcy Law.
