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Consumer Bankruptcy Law Synopsis of the 2005 Bankruptcy Reform Legislation
On March 10, 2005, the Senate passed S. 256, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. President Bush has signed the bill into law. The law becomes effective on October 17, 2005. The following summary discusses changes in the consumer bankruptcy law affected by the bill. Unless otherwise noted all references are to the United States Bankruptcy Code ("Code"). Either directly or indirectly the content of the new law will have a material effect on consumer debt, real property transactions and home ownership.
General Changes affecting consumer Chapter 7, 11 cases under the Bankruptcy Code
1. Time between discharge, multiple filings
2. Required production of income tax returns and other documents; case dismissal for non-production.
3. Credit counseling and debtor education
4. Automatic Stay Provisions
5. Limiting definition of household goods concerning avoidance of liens.
6. Non-Dischargeability.
7. Two-year residency requirement for state or local exemption laws including homestead.
8. Limits on state specific homestead exemptions, effective date.
9. Limitation on new homestead valuation additions; homestead caps. Effects on debtors in Florida and other formerly unlimited homestead exemption states.
10. Avoidance of transfers to asset protection trust.
11. Exclusions from estate property.
12. Effective date of new law.
Consumer cases under Chapter 7
13. New § 707(b)-income means testing;
14. Sanctions which can now be imposed on debtor's counsel.
15. Support priority; dischargeability of marital property settlements.
16. Reaffirmation Agreements
17. Redemption
18. Trustee compensation
19. Non-subordination of property tax liens to family support claims
Changes to consumer cases under Chapter 13
20.. Secured Claims
Conclusion: The new bankruptcy law imposes many restrictions which will make it much more difficult to discharge unsecured debt and which will allow lenders to enforce and foreclose secured claims such as mortgages over a shorter time frame. It may be more cost effective and efficient to enter a debt negotiation plan or debt management plan rather than to declare bankruptcy. This may actually result in lower payments to clear debt outside the scope of tight controls of both the Bankruptcy Court and Trustee and avoids the 10-year long negative credit stigma or having a bankruptcy reported on your credit report.
To learn about alternatives to bankruptcy, please fill out the form on the right side of this page.
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