The major 18 changes to Bankruptcy After October 2005

 

The Us Department of Justice after 10-2006 started auditing all Bankruptcy petitions for errors and is now requiring documentation of expenses and incomes.

 

9 Changes that effect you Before you file

 

1. Income Testing for Chapter 7 Bankruptcy If you make over the average income for your size of family, you may be  forced to file a Chapter 13 Bankruptcy.  If you make under the average income you should be able to file a Chapter 7 or 13 Bankruptcy.   Here are the tables for your state.   Income means household income even if the spouse is not filing it includes their income. 
2. A Chapter 13 bankruptcy must be for 5 years if you earn over the average income   Prior to this, Chapter 13 bankruptcy cases were often for only 3 years. 
3. Mandatory Debtor Education   After 10-2005 you cannot file any bankruptcy without first taking “credit counseling” classes approved by the Trustee’s office similar to taking traffic school.  This is your ticket to file bankruptcy.   After you file bankruptcy you must also take "Debtor Education" classes in financial management to get a discharge. 
4. No more Chapter 20 bankruptcy filings.   Often a person could not afford a Chapter 13.  To lower payments, he would first file a Chapter 7 bankruptcy to eliminate unsecured debts and then only pay secured debts in a Chapter 13 to stop a foreclosure.  This was Chapter 20.   Now you cannot get a Chapter 13 discharge if you file a 7 within the prior 4 years. 
5. Chapter 7 discharge is limited to one every 8 years.  This used to be every 6. You cant file a Chapter 13 after a filing a Chapter 7 for 4 years. You cant file a Chapter 13 after a filing a Chapter 13 for 2 if your plan paid 70% or more 6 years if it paid less.. If you file before the time limit, you may be able to file a Chapter 13 in order to stop a foreclosure by curing the arrearage.  But you don't get a discharge and you wont be protected from the other creditors calling or suing you.  
6. Exemptions reduced Some states had their homestead exemptions reduced. However, Kentucky and some other states had huge increases in their home exemption from 5,000 to 19,450 in 2005 with annual increases. 
7. Cannot bankrupt student loans even to non government and for profit lenders  Before October 2005 you could bankrupt non government student loans.
8. Documents needed after October 2005 will include:  Attorney must verify the
   1. Certificate of Credit Counseling
   2. Proof of income for prior 7 months to prove income including anticipated increases or decreases in income and expenses this must be at least 7 months of pay stubs (for all employers); or a statement from work of your last seven months of income or if you are on Social  Security your letter of income
   3. List of debts must include account numbers, and address of Creditor provided by mail to the Debtor.  Also you must detail if the debts are joint or husbands or wife's  
   4. A photo id and proof of your social security number (card)
   5. Proof of expenses if you don’t take the standard amounts;
   6. Four years of tax returns, not your copy, the transcript from the IRS; You cannot file if taxes are not filed for last 4 years.  If the Debtor fails to provide within 7 days before the 341 the case must be dismissed further it must be provided to any creditor that requests it.  Also the US Trustee may ask for the return instead.  
   7. at least 6 months of bank statements, credit card statements, loan statements;  
   8. an appraisal on your home and vehicles will be needed pva values (property tax values are ok);
   9. a comprehensive list of personal property - furnishings;
9. Filing Fees and attorney fees increase due to added work and liability  Attorney and filing fees increased also increases in the amount of paperwork to get it through but that is it. 

9 Changes that effect you After you file

1. You can still strip liens on secured property.  Before October you could strip a lien and pay someone in a Chapter 13 what the secured property was worth as a secured claim and the balance would be paid as an unsecured claim.  After October 2005 you can still make this as an offer but the secured creditor can refuse to take your offer.   In effect you offer to them a take it or leave it repayment program only in a Chapter 13.   
2. New Fraud rules  The old rule was that if you charged over 1000 dollars on a card within 60 days of filing that it was fraud and not dischargeable.  The new rule will be 750 dollars in 70 days or 500 dollars of luxury goods in 90.
3. Homestead Exemptions   You must use the exemption for the state you lived in for the last 730 days.  No forum shopping by skipping to another state.
4. Reaffirmations Reaffirmations will require the Debtors attorney to certify that the Debtor will make the payments and can afford them.   The Debtor will have to go through a hearing to get reaffirmations approved by the court.   Creditors can repo and sue for a deficiency right after signing them.  As a result, attorneys will not sign them and secured creditors will probably have to directly talk to debtors to see if cars will be repaid.   If they are not signed within 45 days after the 341 the stay terminates and the Creditor may pick up the property. Instead workout agreements will be made with secured creditors.
5.  Automatic Stay Terminations  The Stay automatically terminates in 30 days if:
   1. A case was filed within the prior year and dismissed by any cause other than the means test conversion.  This includes

i.      Dismissals for failure to file documents

ii.    Complete a plan

iii.   Provide adequate security (which means insure secured property) or….

2. If the Debtor fails to file a Schedule of Intent within 30 days after the petition or complete the reaffirmation within 45 days after the 341 meeting
3. If two or more cases have been filed during the prior year the stay does not go into effect at all until the Court orders it after a hearing and demonstration that it was filed in good faith.
5. Child Support becomes a first priority.  The stay does not apply to Domestic Support enforcement. Child Support is paid first in any Chapter 13 ahead of secured debts etc.  No discharge unless Child Support is up to date at the time of discharge. You may be able to repay child support to the government for a fraction in a Chapter 13. 
6. Super discharge reduced in a Chapter 13 Debts are treated almost equally in a Chapter 7 or 13.  No more discharges for Student loans, debts due to fraud, drunk driving or malicious injury in a Chapter 13.    
7. Asset Protection Trusts can be avoided back 10 years.  Section 548 prevents trusts from protecting assets in any self settled trust.

8. Under the Federal Household exemption the Personal Property you can keep in a Chapter 7 will be limited to the following you must use the wildcard exemption to exempt additional property:

b.      Clothing, Furniture, Appliances, Linens, China, Crockery, Kitchenware,

c.       Educational materials and equipment for minor dependent children

d.      Medical equipment and supplies

e.       Furniture exclusively for minor children, elderly or disabled dependents

f.        Personal effects (including toys of children) and wedding rings

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