Bankruptcy Abuse Prevention and Consumer Protection Act of 2005

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 makes it more difficult to get rid of debts by filing for bankruptcy, forcing tens of thousands of people to work out repayment plans instead. President Bush signed the bill on April 20, 2005.

The bill which marks the first major change to the bankruptcy code in 27 years and makes sweeping new changes which take effect on October 17, 2005.

Some of the major changes include:

Income means test. In order to file for Chapter 7 protection, a debtor must now pass a rigorous income means test or be faced with a Chapter 13 bankruptcy and a 5 year repayment plan. If your family earns over the median income, you must file Chapter 13, you are not eligible to file Chapter 7. For those close to the median, you may not qualify to file a Chapter 7 and you may have too little income to file a Chapter 13

The median incomes for Wisconsin are:

Single $ 35,885
Two People $ 46,927
Three People $ 57,968
Four People $ 69,010
Five People $ 80,052

Credit counseling. Credit counseling is now required in order to file for bankruptcy. The counseling outlines the opportunities for available credit counseling and assists with budget analysis. This "briefing" must be completed during the 180-day period preceding the date of filing the bankruptcy petition.

Tax Return Disclosure. Each debtor, at least seven days prior to the Court hearing, must file a copy of their latest federal income tax return or transcript of the return. A copy of the return is available to any of the debtor's creditors upon request.

Documentation. In order to file all information must be verifiable. The following documents will be needed for filing:

€ three years of tax returns,
€ at least one year of bank statements, credit card statements, loan statements;
€ at least 6 months of pay stubs (for all employers);
€ an appraisal on your home and vehicles;
€ a comprehensive list of personal property - furnishings;
€ a year of utility bills;

Household Goods. The new code imposes strict requirements are what household goods a debtor will be allowed to keep. The debtor will be allowed to have no more than one tv, vcr and stereo. No more than one computer and no collectibles. No riding lawn mower, no pools for the kids, hot tubs bought with the house. No ATV, scooters, adult ski equipment, adult bicycles or guns.

The new law places strict requirements upon attorneys, who must now:

(1) certify the accuracy of the debtor's schedules of assets, under penalty of harsh court sanctions;
(2) certify the ability of the debtor to make future payments under reaffirmation agreements; and
(3) identify and advertise themselves as "debt relief agencies" subject to a host of new regulations.

Consumer groups and unions have strongly opposed the bankruptcy reform legislation in large part because they argue that the means test arbitrarily and unfairly denies the benefits of bankruptcy to many people who need them.

If you have more questions regarding the new Bankruptcy Law please feel free to contact us.