How will the new bankruptcy laws affect me?
Under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, which was enacted on April 20, 2005 and which will take effect on October 17, 2005, consumer debtors may find it more difficult to be eligible for protection under Chapter 7 of the Bankruptcy Code. Under the new law, a consumer debtor must first obtain certification from an approved nonprofit credit counseling agency within 180 days of the filing of the bankruptcy case. To obtain the certification, you must undergo, at a minimum, a briefing which has “outlined the opportunities for available credit counseling and assisted such individual in performing a related budget analysis.”
Second, you must satisfy a “Means Test” to determine eligibility for Chapter 7. Under the means test, Chapter 7 will be permitted only after a determination that you cannot repay a scheduled amount or percentage of your debts. Generally, after analyzing your income and expenses, if you are able to make a minimum payment of $100 per month over 60 months, then you are presumed to have failed the means test making you ineligible for Chapter 7. In such a case, your only other bankruptcy option is to file Chapter 13, which is a repayment plan. It is quite a complicated formula to determine whether a person satisfies the means test, and it will very likely require the assistance of an attorney.
Third, you will be required to have filed all income tax returns which have come due and provide the bankruptcy trustee with the most recent year’s federal tax return prior to the Meeting of Creditors. You must also give a copy to any creditor requesting it. A transcript may be provided instead of the actual return. Failure to provide the return or transcript will result in dismissal of your case unless you can show that the failure is due to circumstances beyond your control.
Fourth, before you can receive a discharge of your debts under Chapter 7, you will be required to complete a personal financial management course from an approved nonprofit budget and credit counseling agency. Essentially, this means that you will be required to undergo credit counseling twice, once in the form a briefing for which you will be required to obtain a certificate before you file your petition, and again in the form of a personal financial management course after you file so that you can then receive a discharge.
Fifth, compliance with the Statement of Intention. Under the present law, if you have a debt which is secured by collateral, such as a car, you may file a Statement of Intention which indicates that you intend to retain the car and continue to make the current monthly payments. You are not required to reaffirm the debt. Under the new law, the option of maintaining current payments is no longer available. You will be required either to reaffirm the debt, or redeem the collateral. Reaffirming the debt is a binding legal contract which you enter into after the filing of your bankruptcy case. If you fail to perform your duties under the new reaffirmation agreement, e.g., if you default on your payments, you will be liable for the balance due, notwithstanding your bankruptcy. In other words, under the new law, your bankruptcy filing will not protect you from any deficiency balance on a repossessed vehicle (or other personal property which is the subject of a security agreement), after you have entered into a post-filing reaffirmation agreement. Under the present law, where no reaffirmation agreement is required, if you default on your payments after your bankruptcy filing and your car is repossessed, you are still protected by your bankruptcy since the underlying debt was discharged. This is a significant protection which will be lost under the new law. The other option is redeeming the collateral. Redemption requires you to make a lump sum payment to the creditor based on the current fair market value of the collateral. This option will be impossible for most consumer debtors if the collateral is a vehicle, since most consumers will not be able to come up with the money to pay for the car all at once.
There are other important changes under the new law, and the above list only generally describes the most significant ones. It is clear, however, that obtaining a discharge of your debts under Chapter 7 of the new Bankruptcy Code will be far more difficult and will require you to perform of duties which are far more burdensome.