In 2005 Congress comprehensively overhauled the bankruptcy
laws, in the form of the Bankruptcy
Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA")
passed by Congress on April 20, 2005. Some of the provisions
of BAPCPA went into effect immediately, but most went into effect
for cases filed on or after October 17, 2005.
Bankruptcy
Code Changes
The bill represented a sea change from the Bankruptcy
Code. Under BAPCPA, a multitude of new technical requirements were
added, and the ability of debtors to obtain relief was made much tougher.
BAPCPA was enacted in part due to a concern that the Code had favored
debtors over creditors, and that an adjustment was needed. All new
bankruptcy cases are filed under BAPCPA.
Means
Test and Consumer Debtors
The most significant change wrought by BAPCPA
is the so-called "means test", which applies to consumer
debtors, but not to those debtors whose debts are primarily business
debts. In response to a perceived abuse of the bankruptcy system,
the means test attempts to force higher-income individuals into Chapter
13 repayment plans or denying them relief altogether, by tightening
the eligibility for Chapter
7 relief.
Key
Provisions / New Bankruptcy Law
Some
of the other key provisions under the new bankruptcy law of 2005 under
BAPCPA include the following:
- "Serial"
Bankruptcy Filings --seek to limit repetitive or "serial"
bankruptcy filings, by limiting the duration or existence
of the automatic stay in subsequent cases, and increasing
the required wait period between Chapter 7 discharges from
6 years to 8 years;
- Credit
Counseling Course --require consumer
debtors, as a precondition to a bankruptcy filing, to
undergo a pre-bankruptcy credit counseling course within 180
days prior to any bankruptcy filing; this course is for the
ostensible purpose of educating debtors as to their options
and providing possible alternatives to bankruptcy, such as
an out-of-court repayment plan; it requires about 45 minutes
to an hour of time, and is generally done on-line or on the
telephone, at a cost of roughly $ 30-50; after the bankruptcy
filing, but before they can receive a discharge, debtors must
take a financial management course to learn more about their
finances and how to possibly avoid further financial trouble
in the future; both of these courses need to be taken through
an agency approved by the Office
of the U.S. Trustee in the district where the bankruptcy
petition is filed, and the Court
web sites maintain a list of approved agencies.
-
Debt Relief Agencies --define attorneys and others
who counsel consumer debtors who have nonexempt assets of
less than $ 150,000 as "debt relief agencies"; these
agencies need to comply with numerous requirements, including:identifying
themselves as such in their advertising and
promotional
material; making written disclosures to the client about the
various chapters of bankruptcy, bankruptcy crimes, the effect
of bankruptcy, and alternatives to bankruptcy including relief
through credit counseling agencies; prohibiting them from
advising clients to incur new debt in contemplation of bankruptcy
or to pay for attorney's fees; forcing them in a Chapter 7
case to certify that they "have no knowledge after inquiry"
that the financial information contained in the debtor's bankruptcy
petition and accompanying schedules is incorrect; and mandating
that agreements for services be reduced to writing within
5 business days after first providing service.
- Cap
on Homestead Exemptions --impose a nationwide $136,875.00
cap on homestead
exemptions in certain circumstances, namely, where the
property was acquired within 1215 days (3 years and 4 months)
prior to the bankruptcy filing and the debtor's prior residence
was in a different state; this was designed to limit an asset-protection
strategy engaged in over the years by various noteworthy wealthy
judgment debtors, who relocated their residences to states
with more favorable (or unlimited money amount) homestead
exemptions, like Florida and Texas, in order to shield assets
from creditors.
- Two
Year Residency Requirement --impose a new 2-year residency
requirement in order to claim a state's homestead exemptions;
this provides for some curious results; a bankruptcy petition
is required to be filed in the district in which the debtor
resided for the 180-day period prior to the bankruptcy filing;
however, if the debtor has not lived there continuously for
2 years prior to filing, then the debtor is bound by the exemption
laws of the state where he resided 2 years prior to the
bankruptcy filing.
- Non-filing
Spouses and Children--expand
the protection available to non-filing spouses and children
by making all obligations (not just support obligations) under
divorce decrees non-dischargeable
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Written
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