What You Need To Know About The New Bankruptcy Laws
Written and Submitted by Advanced Bankruptcy Legal Services, Law Offices of Charles A. Maglieri
As many of you have probably heard by now, the United States Congress recently passed very broad and sweeping changes to the Bankruptcy Laws. The official name of the Federal law which amended the Bankruptcy Code is known as “Bankruptcy Abuse Prevention and Consumer Protection Act of 2005” (BAPCPA). The new laws became effective in 2005 at two different times of the year. A small portion of the new laws took effect on April 20, 2005, with the majority of the laws taking effect on October 17, 2005. Prior to the effective dates of the changes, much was written in the newspapers and several national and state news media outlets presented coverage regarding the new laws. Much of the news coverage contained very limited and sometimes erroneous information, conveying a misunderstanding of the effect of the new laws on the individual consumer’s right to file for bankruptcy protection.
It is the purpose of this article to provide the public with the proper information regarding the availability of bankruptcy protection for the individual consumer debtor. In short, the right to file bankruptcy is still with us today in a very much the same form and substance which existed prior to October 17, 2005. However, as stated previously, there were major reforms passed by Congress which need to be explained further.
First, the major portion of the reforms passed by Congress was addressed to modify consumer bankruptcies, not business bankruptcies. In essence, Congress was attempting to develop a mathematical or bright line “Means Test” by which objective standards can be used to determine one’s eligibility to file for bankruptcy protection, whether it is for Chapter 7 Liquidation or Chapter 13 re-payment plan cases. Basically, an individual who incurred primarily consumer debt (debts incurred for family, personal, or household purposes) and whose income falls below the Median Income for the State of Connecticut, based on a particular family size, may still file for bankruptcy pretty much as was allowed prior to October 17, 2005. For those individuals whose family income is above the Median Income, they will have to prepare and file with the Bankruptcy Court a document setting forth income and household expenses based on the Interval Revenue Service Standards as otherwise calculated and reported by the United States Census Bureau regarding various fixed living expenses and allowances. This document is commonly referred to as a “Means Test”. When the calculations are done, the resulting family income is once again compared to the Median Income of the State of Connecticut, and if the individual’s income is now below said median income, then a Chapter 7 bankruptcy can be filed in much the same manner as it existed prior to October 17, 2005. Should the calculations result in the individual’s income still being in excess of the State Median Income, then those individuals are not eligible for Chapter 7 Bankruptcy unless they can show very special circumstances why they should be allowed to do so. For those individuals whose income exceeds the State Median Income level, generally, the bankruptcy available to those individuals will be the Chapter 13 repayment plan.
A Chapter 13 case is basically an individual’s attempt to make his or her best effort at re-paying creditors, but not necessarily paying 100% of what is owed. The payments are made through a Court approved plan with a term of 36 through 60 months, as chosen by the debtor. This money to be paid to creditors is sent to a Chapter 13 Trustee who actually makes the payments for the individual through a court ordered payment plan process. Individuals who file for Chapter 13 protection receive a discharge of that portion of the debts not paid by the Trustee after the plan term has expired and all payments have been made, as promised. For more information about Chapter 7 and Chapter 13 bankruptcy cases and a direct link to the U.S. Bankruptcy Court website, one may visit the author’s website at www.charlesmaglieri.com.
The second major reform implemented by Congress was to require individuals to undergo a brief counseling program prior to filing for bankruptcy. During the program, the individual is informed about non-bankruptcy options for dealing with one’s current debts. The program takes anywhere between 60 to 90 minutes to complete can be done on-line, via a toll free number, or through some agencies, in a face to face conference with an approved credit counselor. This is a small fee charged for this service, but the fees can be waived should the individual not have the ability to pay. Once the conference is completed, the credit counseling agency will issue a certificate of completion which is valid for 180 days. This certificate must be presented to the Bankruptcy Court at the time the individual’s case is filed. Individuals who do not complete a credit counseling course generally may not file for bankruptcy protection, either under Chapter 7 or Chapter 13. Additionally, once the bankruptcy case is filed, a second instructional course is necessary whereby the individual must undergo a Personal Financial Management Instructional Education Course and receive one more certificate of completion. This certificate must be presented to the Bankruptcy Court in order to obtain a discharge of debts.
The third major reform was to require both the individual contemplating filing for bankruptcy and any attorney or petition preparer assisting said individual (now designated as Debt Relief Agencies) to obtain a substantial amount of paperwork, records, and documents supporting the individual’s declaration of financial affairs. For instance, as many as four years of income taxes must be reviewed, six month’s of earnings statements, and a comprehensive review of other financial records detailing the individual’s eligibility for Bankruptcy protection. Furthermore, credit reports should be obtained to verify creditors and title searches be conducted should the individual own real estate. Also, real estate appraisals or Comparative Market Analysis reports must be obtained for any real estate owned by the individual at the time the bankruptcy case is filed. Likewise, the fair market value of all motor vehicles must be accurately determined and reported on the bankruptcy schedules. A full, complete, and honest disclosure of all the assets of the individual, together with all the debts owed, must be completed on newly designed bankruptcy forms and submitted to the Bankruptcy Court in a timely fashion. However, once the case is filed, the procedure for obtaining the bankruptcy discharge is not much different than what existed prior to October 17, 2005.
The right to receive a bankruptcy discharge has not been diluted in any significant way. Under the new law, an individual debtor can still discharge consumer debts, including credit cards, utility bills, medical bills, and other forms of indebtedness, thus obtaining a “fresh start” for a new financial beginning. Likewise, filing for Chapter 13 protection, individuals can still seek protection from mortgage foreclosures against their personal residences, prevent or reverse repossessions of automobiles, and pay income taxes and family support orders through the bankruptcy court while protecting all of their assets from creditor collection efforts. Chapter 13 Bankruptcy is still a very reliable means by which to save one’s home from a mortgage foreclosure action, should one qualify for Chapter 13 protection.
In summary, bankruptcy protection is still available for the honest but unfortunate debtor. The intent of the U.S. Congress was to simply mandate that certain individuals whose incomes are above the State Median Income average pay back some or all of their debts, if possible, when filing for Chapter 7 bankruptcy protection. In some instances, individuals may only qualify for Chapter 13 protection and not for Chapter 7. However, under either bankruptcy chapter, debts can be forgiven and assets protected.
For more information, please feel free to contact the undersigned with your questions. Thank you for taking a moment to read this public service announcement.
Very truly yours,
Charles A. Maglieri
Advanced Bankruptcy Legal Services
23 Wauregan Road, Suite 3 – Brooklyn, CT 06234
(860) 779-9326
Or
34 Jerome Avenue
Bloomfield, CT 06002
(860) 242-0574
“We are a relief agency. We help people file for bankruptcy under the Bankruptcy Code.”
