Bankruptcy Abuse Prevention Consumer Protection Act 2005

Jessica · Last edited by Jessica on Mon Mar 27, 2006 1:56 am

The congress has passed the "Bankruptcy Abuse Prevention and Consumer Protection Act of 2005" this spring. It will be effective from October 17th, 2005. It has been enacted so that people cannot avoid paying their debts when they can at least pay a part of it. The major changes to this law are:

Means Test:
These are tests performed to identify the ability of the debtor to clear their debts. This is done to find out whether a family is earning above the average income in their state. It is also found if the family has sufficient extra income to pay a part or whole of their debts.
Proof of Income:
Debtors intending to file bankruptcy must provide the government with the most recent tax returns.
State Exemptions:
A minimum of 2 years residency is needed to take advantage of state exceptions.
Counseling:
Debtors need to go through a federally approved credit counseling program within six months before filing the bankruptcy.
Child support and alimony:
Payments regarding child support and alimony have been given top priority when dividing excess income.

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Jessica · Posted: Sat Aug 06, 2005 2:07 am Post subject:

Bankruptcy Abuse Prevention and Consumer Protection Act, 2005 - Benefited to the Lenders and Creditors

The bankruptcy Abuse prevention and Protection act of 2005 will be of great help to creditors since it will check that they get back at least a part of what they have offered as credit. There has been the trend that debtors have filed bankruptcy even when they could have gone for credit counseling and paid back a portion of their credit. Thus creditors have suffered huge losses by offering credit to such debtors.

The new law states that debtors having income below the median level may not have to repay their debts but those above that should try their level best to repay as much as they can. Otherwise creditors will be suffering from huge losses. The new law will require any debtor to qualify through the Means Test before filing bankruptcy. Moreover credit card holders will be informed by credit card companies as to what they should pay upfront and what can be the penalty for making late payments.

The law will help creditor by not allowing abusive debtors to file a bankruptcy unless 8 years have passed since their first filing. Creditors will benefit since the law ensures that debtors must pay about 60% or more of their debts by credit counseling plans.

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I am in heavy debt, not paid my bills in time and have to repay credit card bills as well as mortgage on my home. I am thinking of filing bankruptcy. But I have heard of a new law coming into effect. Will it affect me anyway?

Jessica · Posted: Mon Aug 08, 2005 10:34 pm Post subject:

Hi Denny
Welcome to MortgageFit forum.

It seems that you are in serious debt but under the new law it will not be so easy to file bankruptcy. You will have to undergo Means Test to qualify for bankruptcy. If you had filed bankruptcy previously, you will have to wait for 8 years before you proceed to file again.

Moreover the new regulations will require a debtor having income higher than the median level and having an ability to pay at least $6000 over a period of 5 years($100 per month) to file under bankruptcy code for chapter 13. In case your income is less than the median level, you may not have to pay your debts.

Under the new law, a debtor will have to go through credit-counseling plan within 180 days before filing the application for bankruptcy. These credit counseling services see that debtors can pay at least 60% or more of their debts so that they don't have to file bankruptcy. A credit counseling plan will help you to repay debts within 3 to 5 years which is not possible with the original debt. So I would advise that you go for a credit counseling program but beware of unscrupulous credit counselors.

It is better that you look for a for a credit counselor who offers a variety of services like budget counseling savings- and debt-management classes. You should also avoid organizations that develop a debt management plan without any analysis of your financial status.

Hope this information will be helpful to you.

Please feel free to post further queries.

Regards,
Jessica.

Jessica · Posted: Thu Aug 11, 2005 2:03 am Post subject:

How to determine whether a debtor can file Chapter 7 or Chapter 13 bankruptcy?

The reformed Bankruptcy Abuse Prevention and Protection Act, 2005 refers to a Means Test which helps to determine whether a debtor can get rid off some or all of his debts. It analyzes the debtor's income and necessary deductions as per the rules of Internal Revenue Service. It further finds out whether a debtor should file for chapter 7 through which he can wipe out all unsecured debts and chapter 13 bankruptcy by which he should follow a repayment plan to clear off as much debt as possible. It is necessary that a debtor qualifies through the means test before filing bankruptcy.

According to the Means Test, if a debtor has more than $100 a month after paying approved expenses (no cell phones, no movies and no restaurant meals), he will have to file Chapter 13 bankruptcy. Even if he has less than $100, he may have to file Chapter 13 bankruptcy provided he has paid 25% of his credit card balances over 5 years.

The Internal Revenue Service has put forward some living expense standards which help to determine which bankruptcy a debtor should file.

Under the Means Test, the current monthly income of a debtor includes income from any source whether or not taxable. The income also includes any amount paid by an individual other than the debtor (or his spouse in any joint case) for daily household expenses. It does not include benefits under the "Social Security Act."

The Means Test calculates deductions from the current monthly income to find out the debtor's applicable monthly expenses as per the National and Local Standards and his actual monthly expenses for the categories as Other Necessary Expenses issued by Internal Revenue Service for the debtor's locality.

Jessica · Posted: Mon Aug 15, 2005 1:53 am Post subject: RE:

How does the reformed bankruptcy law affect retirement savings?

The reformed bankruptcy law places a limit on the amount of savings in an individual retirement account (IRA) or 401(k) plan account that can be protected from creditors in case a bankruptcy is filed. The current law allows one to protect the entire amount in a 401(k) plan account in such a case. Individual retirement accounts were treated in the same manner under the current law.

But the reformed bankruptcy law will not allow creditors to take hold of the first $1 million saved in an individual retirement account. Any amount over that limit is not protected from creditors. But if a debtor has recently changed jobs and rolled his 401(k) plan account into an IRA, then the creditors cannot access those funds.

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What if a borrower cannot pay anything, then how this law comes into this situation.

Caron · Posted: Wed Aug 17, 2005 5:08 am Post subject: RE:

Hi Ronase
Welcome to MortgageFit forum.

The reformed Bankruptcy Abuse Prevention and Consumer Protection Act , 2005 states that debtors whose income is below the median income level will not have to repay any debt. But those having their salaries above the median income level should undergo a credit counseling plan before filing for bankruptcy. Debtors whose income exceeds the level of median income and can pay at least $6000 in 5 years ($100 per month) should file bankruptcy chapter 13. But before you do so, go for a credit counseling plan.

A credit counseling plan helps you to repay your debts within 3 to 5 years of filing the bankruptcy. Moreover debtors will have to go through the "Means Test" which will indicate whether they should file for chapter 7 or chapter 13 bankruptcies.

Since you haven't mentioned anything about your financial status, therefore I would advise that you contact your lender and explain your situation. Once he is convinced that you cannot repay the debt, you can consult a suitable credit counseling agency who will guide you further.

Hope we have been able to guide you.

Please feel free to post further queries. Also sign up with us at http://www.mortgagefit.com/signup/ for availing free advice on related issues.

Regards,
Caron.

Jessica

Deductions for housing expenses - utility and mortgage expenses

Under the reformed Bankruptcy Law, the Means Test calculates deductions that consider the applicable allowance provided by the IRS national Standards for food, clothing and household supplies which is offered with respect to their income and household size.

The IRS Local standards provide separate deductions for housing, utilities based on the family size. These deductions however vary from one state to another. There are two kinds of category used by the IRS Local standards for deductions related to housing and utilities. The first one separates the monthly expenses into two components - utilities/maintenance component and mortgage/rental expense component. The utilities component is a simple allowance whereas the mortgage expense component includes debt payment. Debtors are allowed to deduct from the allowance for mortgage expense the monthly mortgage payment with principal and interest up to the entire amount set by the Internal Revenue Service towards the mortgage/rental expense.

The second category involves a single allowance for the mortgage payments or rental expenses as well as expenses for utilities, insurance and maintenance of the housing. Since this allowance includes debt payment, therefore debtors are asked not to include their mortgage expenses to the limit covered by the IRS allowance. However these deductions are determined mainly by judicial decisions.

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