The Bankruptcy Abuse Prevention & Consumer Protection Act
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (Act) was signed
into law by President Bush on April 20, 2005. The law is generally effective for
bankruptcy filings commenced after October 17, 2005. The new legislation consists
of checks and balances to ensure consumers are making better informed decisions
when it comes to filing bankruptcy. This new legislation requires all Chapter 7
or 13 bankruptcy petitioners to participate in credit counseling and to provide
the court a certificate of completion from a U.S Trustee-approved non-profit credit
counseling agency. The law also requires all consumers who file for bankruptcy to
successfully complete a U.S. Trustee-approved debtor education course prior to discharge
of their debts.
MAJOR CHANGES WITH NEW LEGISLATION
Means Test
The means test will be used to identify debtors who have the financial capacity
to pay some money to their creditors. It compares the income of a petitioner for
bankruptcy to the median income in their state. Based upon this test, certain petitioners
may be required to repay a portion of their debt under Chapter 13 instead of a complete
dissolution under Chapter 7. If your last resort it bankruptcy, your attorney will
be able to conduct an accurate means test for you.
IRS Decides Reasonable Living Expenses
Under the new law, the IRS guidelines will be used to determine what living expenses
are reasonable and these values will be used for means testing for determining your
net income rather than your actual living expenses.
Repayment Period for Chapter 13
For petitioners forced to file Chapter 13 bankruptcy, the repayment period for amounts
mandated will be lengthened to five years, rather than the previous three years.
Vehicles
Debtors who wish to keep their vehicles may be required to pay the full loan amount,
rather than the current value of the vehicle. The new rule will apply to all car
loans less than two and a half years from the date you file bankruptcy.
Pre-Filing Counseling
Every debtor who files bankruptcy will be required to obtain counseling from a court-approved
counseling center before filing.
Pre-Discharge Education
Debtors must also participate in a U.S. Trustee approved debtor education course
through a non-profit credit counseling organization prior to the discharge of a
Chapter 13 or Chapter 7 bankruptcy. The course will cover financial management topics
and is required in addition to the pre-filing counseling mandate.
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