Bankruptcy Abuse Prevention and Consumer Protection Act of 2005:

By Carrie M. Wilcox, Esq.

Signed by President Bush on April 20, 2005, the "Bankruptcy Abuse Prevention and Consumer Protection Act of 2005" is generally effective as to bankruptcy cases filed on or after October 17, 2005. The reforms significantly impact both individual and small business owners ability to receive bankruptcy relief via more stringent limits on bankruptcy options. Small businesses are affected because nearly 20 percent of the individual bankruptcies filed in 2004 were actually owners of small, unincorporated businesses.

Highlighted below are the major areas impacted; the list, however, is not exhaustive.

Means Test - Section 707(b)(2).
Chapter 7 bankruptcy filings with primarily consumer debts are subject to dismissal upon a finding of abuse. Abuse can be found in one of two ways: first, through an un-rebutted presumption of abuse under the new means test; and second, on general grounds, including bad faith. The means test permits any party in interest, the Court or the Trustee, to seek dismissal of the case for abuse if the debtor's income exceeds a defined state median. A debtor's income is the "current monthly income" multiplied by 12. "Current monthly income" is a debtor's average monthly income over a six-month period. Thus, the means test provides that a debtor may not be eligible for discharge when his/her income exceeds the state median, regardless of the amount of debt.

Extended Time Between Discharges - Section 727(a)(8).
Debtors filing a Chapter 7 bankruptcy are ineligible for discharge if the debtor filed a Chapter 7 or 11 within eight (8) years of the pending bankruptcy.

Production of additional documents - Section 521.
The reform legislation imposes a number of new production requirements on debtors. At least seven (7) days prior to the meeting of creditors, Chapters 7 and 11 debtors must provide to the trustee and any creditor making a timely request, a copy of the federal income tax return for the period for which the return was most recently due and for which the debtor filed a return. Failure of the debtor to produce the return requires dismissal of the case.

Chapters 7, 11 and 13 debtors must also, on request of a party in interest or the judge, file with the Court at the same time filed with the IRS, copies of any federal income tax return for a tax year ending while the bankruptcy case is pending and for any tax year that ended during the three (3) years before the case was filed. If a Chapter 7 or 13 debtor fails to file all the information required under Section 521 within 45 days after filing, the case is dismissed on the 46th day.

Credit Counseling - Section 109(h).
This is perhaps one of the most radical reforms in the legislation. Individuals are ineligible for relief under any chapter of the Bankruptcy Code unless, within 180 days of the bankruptcy filing, they received "an individual or group briefing" from a non-profit budget and credit counseling agency approved by the United States trustee or bankruptcy administrator under the standards set forth in section 111. Among the standards is a requirement that the agency provide its services without regard to the debtor's ability to pay any fee. The service may be provided personally, telephonically or on the Internet and must outline opportunities for credit counseling and assist in performing a related budget analysis.

Automatic Stay - Section 362(c)(3).
If a Chapter 7, 11 or 13 bankruptcy is filed within one year of the dismissal of an earlier case, the automatic stay in the second case terminates 30 days after the filing.

Household Goods definition limited - Section 522(f)(4).
The new definition limits electronic equipment to which a non-possessory, non-purchase money security interest can be avoided to one (1) radio, one (1) television, one (1) VCR and one (1) personal computer with related equipment. The new section also excludes works of art not created by the debtor, jewelry worth more than $500 (except wedding rings), and motor vehicles.

Nondischargeability for fraud in the use of credit cards - Section 523(a)(2)(C).
Previously, a presumption of fraud existed when a debtor charged over $1,225 for luxury goods within sixty (60) days of filing for bankruptcy. That amount is now reduced to $500, and the time limit is expanded to ninety (90) days. Credit card cash advances, previously carrying the same limitations as purchases of luxury goods, now have the harsher $500, ninety (90) day limitation.

The stricter bankruptcy filing requirements diminish the threat of a bankruptcy discharge for those collecting individual and/or business debts. If an individual or small business owner owes you money, this means a greater potential for recovery on overdue accounts. Wilcox & Wilcox, P.C.'s experienced collection department is now accepting new accounts, on a contingent fee basis. Contact Darlene Lewis, Wilcox & Wilcox, P.C. Lead Collections Paralegal, for more information.

Bankruptcy Abuse Prevention and Consumer Protection Act of 2005
Page 1, Page 2, Page 3, Page 4 - PDF File - Text File

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