Overview of the Bankruptcy Abuse Prevention and Consumer Protection Act :: Financial Scams

New Bankruptcy Law Key Points

Here are key points, changes, and considerations. The bankruptcy laws were changed in 2005-2006, and much of the new law was pushed by credit grantors, finance companies, and shady politicians like Bob Ney of Ohio and lobbyist Jack Abramoff.

Here are some points to consider:

1 Means Test for Chapter 7 Eligibility: Under the new act, the U.S. Trustee, or any creditor, can bring a motion to dismiss a bankruptcy case if the debtor’s income is greater than the state’s median income. A debtor’s living expenses, including transportation and housing, are determined by what’s allowed under Internal Revenue Service rules. Under the old law, the debtor’s actual expenses were taken into account in determining who qualified to file for Chapter 7. Under the new law, abuse of the bankruptcy law is presumed if the debtor’s current monthly income, minus allowed deductions, is greater than $100. Debtors who meet this new standard would be put into a 5-year repayment plan under Chapter 13.

2 Mandatory Credit Counseling and Debtor Education: No individual debtor may file for bankruptcy unless he or she has received credit counseling from an agency approved by the U.S. Trustee within the past 180 days. The court may not grant discharge of a bankruptcy unless the debtor has completed an educational course approved by the Trustee in personal financial management and a debtor can be denied discharge if he fails to complete the course. The old law did not require any counseling or education.

3 Serial Filings: A Chapter 13 bankruptcy discharge will not be granted if the debtor obtained a discharge in Chapter 7, 11 or 12 in the four years before filing the current case. If the previous filing was a Chapter 13, the discharge must be more than two years prior to the pending Chapter 13 case.

4 Homestead Exemption: Under the new law, debtors must live in their state or residence for 730 days prior to taking local exemption. Any move during that two-year period means a debtor’s residency is deemed to be the state in which he or she spent most of the 180 days before that period. Nevada allows a $350,000 exemption.

5 Attorney Verification: Debtors’ attorneys must make a “reasonable inquiry” to confirm that the information given by their clients is accurate and truthful. Attorneys can be ordered to pay fees and penalties if the court decides they did not make reasonable verification efforts.

6 Mandatory Tax Return Filings: These are required under the new law. The debtor must provide a copy of his or her most recent tax return, or a transcript of it, seven days before meeting with creditors or the case will be dismissed. The information must be provided to any creditor who requests it. Tax returns for the last four years must also be filed before filing for Chapter 13 bankruptcy.