Chapter and Verse – New Bankruptcy Law Changes the Rules of the Road
May 27, 2005
On April 20, 2005, President George W. Bush signed a new bankruptcy law with the official title of “The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.” Approved by the Senate in mid-March, and passed by the House of Representatives in April, President Bush quickly signed the law that had been enacted by Congress. The immediate effect is that filing for personal bankruptcy will be a more complex, costly and time-consuming process, and the major beneficiary of the new laws will clearly be the banking and credit card industries. Certain sections of the law became effective upon the enactment on April 20, 2005, while other provisions become effective six (6) months from the date of enactment, in October of 2005.
One of the major effects of the new law is that debtors (people filing bankruptcy) who earn more than their state’s median income, and who are able to pay a portion of their debt, will be forced into filing Chapter 13 bankruptcy, which requires a repayment plan, rather than Chapter 7, which most often resulted in an ability to eliminate unsecured debts and to obtain a “fresh start”. Median household income is the point at which half of all household incomes are greater than that amount, and half of all household incomes have less than that amount. his term refers only to pre-tax money income, and does not include the value of non-cash benefits.
While an exact figure has not yet been announced for Massachusetts, the median income for an individual for the year 2002-2003 in Massachusetts was $50,976, according to the US Census Bureau. That figure will increase for debtors with more than one person residing in the household. If a person earns more than that amount of money, there will be a presumption that they should file under Chapter 13, and will be required to do a five-year payback plan as long as the Court determines that they can pay at least $100 per month over a five-year plan.
Presently, Chapter 13 debtors are allowed to provide evidence of their actual expenses in calculating a Chapter 13 plan, but under the new law debtors will be required to make payments based upon Internal Revenue Service guidelines for “reasonable and necessary expenses.”…
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by: Michael B. Katz, Esquire
May 16, 2005