File Before Harsh New Bankruptcy Laws Take Effect

On April 20, 2005 President Bush signed a new bankruptcy law. The effective date for most provisions is 180 days after signing (October 17, 2005).

Broadly speaking, the new bill will make it much more difficult for people to file bankruptcy. Both Chapter 7 and Chapter 13 will be dramatically different, and many of the benefits of both will no longer be available under the new law.

Generally, if you intend to file bankruptcy, you should make every effort to complete your filing before October 17th, and the sooner the better.

For full details, read on...

NEW MEANS TESTING

By way of background, when filing bankruptcy you are restricted in Louisiana to this state's homestead exemption, which is $25,000 per  household You must live in the house to claim the homestead exemption.

Under the new law you may not use the Louisiana exemption unless you have lived in Louisiana for the 730 days (about two years) prior to filing bankruptcy. If you have moved during that 730-day period, the state exemptions available to you are those for the state in which you lived the majority of the time for the 180 days before the 730 day period. If you do not qualify for any state's homestead exemption, you may use the federal exemptions. If the homestead was obtained through fraudulent conversion of nonexempt assets during the 10 year period before the filing, the exemption is reduced by the amount attributed to the fraud.

A Chapter 7 filing may be dismissed if your income is greater than the state median income. Your monthly income is calculated as the average of the previous 6 months whether or not that income is accurate at the time of filing. For example, if you are unemployed now the income you earned during the last 6 months is used against you.

For purposes of the means test, the median income for Louisiana is estimated to be: $30,646 for a one-person household, $38,017 for a two-person household, $45,732 for a three-person household, and $51,402 for a four-person household.

If your monthly income (as calculated above) exceeds your monthly living expenses by $100 per month, your Chapter 7 may be converted to Chapter 13 (in which you would pay your debts in part over a minimum of five years). In determining your monthly living expenses, the Internal Revenue Service allowable living expenses are used (with certain adjustments), rather than the your actual living expenses. Living expenses are adjusted for your mortgage, car payment, child support, delinquent tax payments and other secured or priority debts. If the time remaining on your car loan (or other secured debt) is less than five years the payment is reduced based on a five year pay-off.

MANDATORY CREDIT COUNSELING

You must get credit counseling from an approved nonprofit budget and credit counseling agency within 180 days prior to filing bankruptcy. There are exceptions where there is an emergency and you could not receive counseling within five days, or where the U.S. Bankruptcy Trustee has determined that the approved agencies are not adequate to provide the required counseling.

LIMITED LIEN STRIPPING

Under the old law if you were under water on a car loan (i.e., you owed more than the car was worth) you could pay the current value of the car over time in a Chapter 13 and wipe out the balance of the loan. Under the new law you must pay the full amount of the loan, unless you purchased the car more than 910 days (about 2.5 years) before filing bankruptcy.

MANDATORY DEBTOR EDUCATION

You must complete an approved education course in personal financial management before your debts will be wiped out (i.e., discharged).

FRAUD EXCEPTION TO DISCHARGE FOR LARGE RECENT DEBTS EXPANDED

Under both the old and new law, debts incurred through fraud are not discharged (i.e., wiped out) if the creditor files an Adversary Proceeding before the deadline and proves fraud. Under the old law debts totaling $1,225 or more to single creditor incurred within 90 days of filing for luxury goods were presumed fraudulent. Under the new law the dollar limit is dropped to $500. In addition cash advances of $750 or more within 70 days before filing are presumed fraudulent as well.

WAITING PERIOD FOR PRIOR FILERS

You cannot receive a Chapter 7 discharge if you previously received a Chapter 7 discharge within 8 years of the filing date of the new case.

You cannot receive a Chapter 13 discharge if you received a Chapter 7 discharge within 4 years of the filing date of the new case.

You cannot receive a Chapter 13 discharge if you received a Chapter 13 discharge within 2 years of the filing date of the new case.

REAFFIRMATIONS MORE DIFFICULT

Generally, you will not be allowed to reaffirm a debt if your monthly expenses, including the reaffirmed debt, exceed your monthly income.

In addition, the automatic stay terminates if you fail to file your statement of intentions within 30 days of filing and carry out those intentions (i.e., reaffirm, redeem surrender, etc.) within 30 days after the first date set for the §341 meeting of creditors. Failure to either reaffirm or redeem the property within 45 days after the §341 meeting results in termination of the automatic stay and allows the creditor to exercise whatever remedies it has under applicable non-bankruptcy law.

NO AUTOMATIC STAY IN SERIAL FILINGS

The automatic stay terminates after 30 days if you file a Chapter 7 or 13 within 1 year after a prior bankruptcy case was dismissed. There is an exception for a case re-filed in another chapter after a dismissal of a Chapter 7 case based on the means test).

ACCOUNT NUMBERS AND EXACT ADDRESSES REQUIRED

The creditor addresses contained in the bankruptcy petition must be those designated by the creditor, either in communications to you or as provided to the court. The bankruptcy filing must include account numbers.

LONGER MINIMUM LENGTH FOR CHAPTER 13

The minimum length for a Chapter 13 plan is lengthened to 5 years from 3 years. An updated budget must be filed annually.

ADDITIONAL DOCUMENTS REQUIRED

You must provide the following additional documents:
  1. Certificate of credit counseling;
  2. All paycheck stubs received within 60 days before filing;
  3. Statement of any anticipated increase in income or expenses after filing;
  4. Tax returns or transcripts for the most recent tax year;
  5. Tax returns filed during the case including tax returns for prior years that had not been filed when the cases began; and
  6. Photo identification.
Your case will be automatically dismissed if these documents are not provided within 45 days of filing bankruptcy.

DELENQUENT CHILD SUPPORT MAY JEOPARDIZE DISCHARGE

Failure to remain current on support claims is grounds for conversion or dismissal of a case. The debtor must be current on post petitions obligations in order to confirm a Chapter 13 plan, the plan must provide for priority payment of support debts, and the debtor may not obtain a discharge unless such obligations are paid in accordance with the terms of the plan.

SCOPE OF CHAPTER 13 DISCHARGE REDUCED

The following debts will not be dischargeable in Chapter 13:
  1. Debts for trust fund taxes (i.e., sales, withholding taxes, etc.);
  2. Taxes for which returns were never filed or filed within two years of filing bankruptcy;
  3. Taxes for which the debtor made a fraudulent return or evaded taxes;
  4. Debts incurred through fraud or false statements;
  5. Debts not listed in the bankruptcy;
  6. Defalcation by a fiduciary;
  7. Domestic support payments;
  8. Student loans;
  9. Drunk driving injuries;
  10. Criminal restitution;
  11. Fines and penalties;
  12. Civil restitution; and
  13. Damages awarded for willful or malicious personal actions causing personal injury or death.

EVICTION PROCEEDINGS

The automatic stay will no longer prevent an eviction if the debtor failed to pay rent after filing.

TAX RETURNS

The Debtor must provide a copy of their latest tax return or a transcript at least 7 days before the §341 meeting of creditors or the case will be dismissed. That tax return must also be provided to any creditor who requests it. All tax returns must be filed for a plan to be confirmed in Chapter 13. The debtor must file all returns for the last 4 years prior to the Chapter 13 filing.