Summary of Major Changes under the "Bankruptcy Abuse Prevention and Consumer Protection* Act of 2005"**

Major changes

Mean (uh.. means) test : For Chapter 7 liquidation, the debtor's average monthly income (calculated over a six-month period) must fall below the state's published median income. Allowable deductions from that income are very limited, and living expenses may not fully take into account the higher cost of living in certain costly metropolitan areas. "National standards" establish allowances for food, clothing, personal care, and entertainment. "Local standards" are used to establish allowances for transportation (on a regional basis) and housing (on a county by county basis). If a debtor's petition shows that the average monthly income is above the means, it can be treated as an "abuse" of the process and can either be dismissed or thrown into a Chapter 13 repayment plan lasting no longer than five years.

Discretionary income: If the debtor has at least $166.67 in current monthly income available after the allowed deductions, or if the debtor has income sufficient to pay at least 25% percent of unsecured debt over five years, the same thing will occur.

Credit Counseling: Individuals may not receive bankruptcy relief unless, within 180 days before the bankruptcy filing, they received "an individual or group briefing" from an approved nonprofit budget and credit counseling agency, which can cost the debtor money. It may take place by telephone or on the Internet. And I ask you, what could be better than that to teach people they should not get sick or lose their job. That'll teach 'em!

Financial Management Course: Debtor also must complete "an instructional course concerning personal financial management" during the bankruptcy in order to assure their discharge. In a chapter 7, this case must be completed 45 days before you get the discharge (the court will tell you the date-don't worry).  In a chapter 13, you must complete the course before you receive the discharge.  What if you don't?  There is a 2 year prison sentence mandatory; but that is not for you, it is for drug dealers (sorry, did I scare you?).  Seriously now, if you do not complete the course, you will be denied the discharge.

Attorney certification: A debtor's attorney must certify that the attorney has conducted a "reasonable investigation" of the truth of the debtor's petition statements, under threat of monetary penalty against the attorney. This will increase the attorney's workload and significantly increase the debtor's cost, to the point where, among other things 1) the debtor will have a great burden to provide extensive documentation; 2) a current appraisal of real property would be required; 3) a current credit report must be obtained. Just what the public needs, an excuse for attorneys to charge more.

Reaffirmation/Redemption:  Within 30 days of the meeting of creditors in Chapter 7 cases, the debtor will have to reaffirm (i.e. agree to be liable again), redeem the property (i.e. pay it off in a lump-but the value may depend on other factors; see below), or return it if to the creditor. In the event that no reaffirmation or redemption takes place, the creditor will be able to take back the property pursuant to his rights state law.  No longer may the debtor simply continue to pay on the secured debt and keep the secured item. For purposes of redemption, the property valued at amount of the "allowed secured claim." Presumably, the allowed claim would the price a retail merchant would charge considering the age and condition of the property at the time the value is determined.   What if you don't reaffirm?  Well then, the creditor can have relief from the stay and repo the car or take back the property securing the debt.  Will it, if you are current?  Who knows?  And regarding a car, if the creditor repo's the car, can you go to state court to get the car back, if you are current?  Maybe.  It is an interesting question though, isn't it?

Cram-downs (Chapter 13 cases):  The above 910 day rule prevents what bankruptcy attorneys called "cram-downs" under chapter 13 plans.  Cram-downs allowed the debtor to pay just the then present value of motor vehicle into the plan, thus saving quite a bit of money, as compared to paying off the full amount of the loan.  Cram-downs are also allowed on other personal use property if it was purchased more than a year ago.  Therefore, why pay $18,000 for your 1979 Yugo when the car is worth about a buck ninety? You could just pay the buck ninety and get the car.  On second thought, maybe that's too much.

Cram-downs vs. interest rate modification: Interestingly, the new bankruptcy law does not appear to prevent debtors from modifying the interest rate they are paying on their vehicle.  This mean that if you are paying 15% on your loan (and by the way, if that is true, you got ripped off), you may be able to modify it to 6-8%.

Waiting Period: The waiting period between Chapter 7 bankruptcies is changed from six years to eight years. Proof of Income: The debtor must file with the petition proof of income from employers within 60 days before filing the bankruptcy. 

Chapter 13 Discharge Waiting Periods: A Chapter 13 debtor may not receive a discharge if he obtained a discharge in a Chapter 7 within is now four years or within 2 years in a prior Chapter 13 case.  There was no waiting period in a Chapter 13 under the old law.  If a case is filed before the above four year period, the debtor will not be able to get a discharge.  A discharge may not be important if you are just trying to save your home, however.  This is because it is the confirmation order that is important.  A debtor cannot discharge a mortgage anyway, since it is a long-term debt.

Evictions: Once the landlord obtains a judgment for possession, filing a bankruptcy will not stop the eviction.

Student loans: All student loans are nondischargeable, even if nongovernmental and from profit-making institutions.  See, you knew there was a reason to stay home and work at Wawa.

Credit card debts: The amount the debtor must charge for "luxury goods" to be presumed fraudulent is reduced from $1,225 to $500; the amount that the debtor must withdraw in cash advances to invoke the presumption is reduced from $1,225 to $750. The presumption period is increased from 60 to 90 days for luxury goods, and from 60 to 70 days for cash advances.

Chapter 13 Refilings: The stay upon a refiling will terminate within 30 days unless the debtor meets a burden of proof as to good faith, thus increasing debtor's costs.  A refiling is, under the code, where the debtor has been in a chapter 13 and had his case dismissed for certain reasons (enumerated in the code, e.g. for not paying the plan) within a year of filing the new case.  For example, the debtor files his case January 1, 2007.  He is bankruptcy until his case is dismissed June 1, 2009, when he stops paying the chapter 13 plan.   If he files before June 1, 2010, he will the stay will terminate July 1, 2010 unless he applies for and the court hears a motion to extend the stay before July 1, 2010.  Presumably, if the court hears the case June 2, 2010, the debtor's stay will end and be dead.  If the debtor is on his third filing (first case followed by one other, which was dismissed, there will be no stay unless the court grants one upon the showing of changed circumstances.

*Thank you George Orwell, for teaching Congress Newspeak.

**Thank you to the most erudite Attorney Robert F Cohen his initial work in originating this summary, save my cynical comments at the beginning.  

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Lawrence S Rubin, Atty.,