Bankruptcy Abuse Prevention and Consumer Protection Act of 2005
Posted by webmaster on May 12th, 2006
Many people do not realize that the rules of bankruptcy have changed. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 went into effect on October 17, 2005. This act came into effect because many individuals were abusing the previous bankruptcy law and repeatedly taking advantage of its generous rules. Unfortunately this has made it more difficult for those in financial trouble who were not purposefully taking advantage of the law to recover from their financial situation.
Individual bankruptcies are split among two types, ch. 7 and ch. 13. Ch. 7 bankruptcy eliminates either all or a reasonable portion of debt. Ch. 13 requires the debtor and a bankruptcy trustee to create a payment plan and repay the debt in full. Most individuals filing bankruptcy file ch. 7 bankruptcies and it is ch. 7 bankruptcy which now has stricter laws.
New rules for people declaring ch. 7 bankruptcy:
- Before filing you must have a certificate stating that you have completed credit counseling.
- If your income is higher than the median income for your family size in your state you will have to pass the �means test�. Basically the means test is whether or not your disposable income is more than $100 above your debt payments.
- The debtor�s assets, which used to be valued at their auction cost, are now valued at their replacement cost. This means the debtor�s assets will be valued higher and the amount they are assumed to be able to repay will increase.
- Automatic stay has been reduced. Automatic stay refers to the time during the bankruptcy process where creditors are not allowed to collect. If bankruptcy is filed within one year of a dismissal automatic stay is over 30 days after filing unless the court decides otherwise. If there are two previous dismissals there is no automatic stay unless the court decides otherwise.
- Within 45 days of filing you must provide documents detailing your debt and income. Common documents are bills, credit card statements, income taxes, etc.
- Luxury items dismissal has been reduced. Luxury items purchased within 90 days of filing bankruptcy, $500 can be dismissed. Of the luxury items purchased within 70 days of filing $750 can be dismissed.
- After bankruptcy process and debt discharge, debt cannot be discharged again for 8 years.