The Impact of Changes in Bankruptcy Law
New Bankruptcy Laws
In 2005 the U.S. Bankruptcy Code was substantially modified. However, for the typical debtor the amendments will not affect their bankruptcy case except to add additional documentation requirements that must be met to assure compliance with the new requirements of the bankruptcy laws.
Perhaps the most widely discussed change in the bankruptcy laws is the means test requirement which is an income limit placed upon the debtors and is associated with the size of the debtor(s) family, i.e. all household dependents. Most debtors (over 91% in Northern California) will fall well below the income limits and these limits are calculated on the last six months prior to filing the petition. Our staff would be glad to assist you in determining whether your income exceeds the mandated income limits. Even if your initial income appears to exceed the income level, the Bankruptcy Code permits deductions for your tax liabilities, health insurance payments, education payments, and more, so it is critical to have counsel assist you in evaluating whether your income exceeds the limit allowed in the Bankruptcy Court. Additionally, the income limits are modified yearly and to date have only increased.
New bankruptcy laws and the means test
Individuals who are interested in obtaining relief from debt through bankruptcy will be required to undergo a means test. The means test will look at the person's average monthly income for the past six months compared to the median income of a household of the same size. According to the U.S. Trustee, U.S. Department of Justice, for cases filed on or after2010, median income levels in California are as follows:
- 1 person in household Annual: $47,234
- 2 persons in household Annual: $61,954
- 3 persons in household Annual: $67,562
- 4 persons in household Annual: $77,596
- Over 4 person in household add 7,500 per
Information on median incomes for households up to ten people is available on our Chapter 7 bankruptcy page.
Under Chapter 13, the means test is incorporated into the evaluation of the debtor’s projected income. All projected disposable income must be paid into the plan over a three year or five year period unless the debtor is able to pay all of their debts in less than three years. When that is the case, the plan that will be approved by the court will require 100% payment of the debtor’s creditors. The debtor under the plan is required to make equal monthly payments to its creditors. If a debtor does not qualify for a Chapter 7 case, in that his income is over the income limits, the period of time that he must repay the debts in a Chapter 13 case is a 5 year period rather than a three year period.
The amendment also requires the debtor in chapter 7 and 13 cases to attend two debtor classes. One, debtor counseling must be completed prior to the filing and the second, a debtor education class must be completed within 45 days of the debtor’s trustee’s meeting. In a Chapter 7 case, the debtor must deliver to the chapter 7 trustee the tax return for the last year that he has filed. The trustee has the right to ask for additional tax returns.
If you do not have to file tax returns, then a statement to the trustee will be sufficient either from yourself with your proof of your yearly income or from the IRS, CPA etc. If you have not filed the current year or are years delinquent in filing, it is your last three filed tax returns that must be provided to the Chapter 7 trustee, 7 days prior to the trustee’s meeting. Additionally, at least three to six months of pay stubs, depending upon the appointed trustee, must also be provided to a Chapter 7 trustee. If you are not an employee, or are unemployed, this requirement will not stop you from successfully filing a bankruptcy. The trustee may require additional income proof to be provided to him for the self employed and will handle this on a case by case basis. As your professional we will be assisting you in successfully completing all of your filing needs with the trustee.
In a Chapter 13 case, the debtors must have filed all requisite tax returns.
Our office will also require you to provide us with 3 credit reports from each of the debt relief agencies and 6 months of your bank statements to assure our office and yourself that we have completely and accurately filled out your bankruptcy forms. We can assist you in obtaining your credit reports.
The new law modifies stays that are issued by the court in most cases in some instances. Prior to the new law and upon the filing of a bankruptcy petition, a stay of all legal proceedings was issued by the court and stopped all legal action until the bankruptcy case was resolved except for a few exceptions, such as child support, criminal sentencing. A stay is still issued upon a debtor’s filing but when the debtors have previously filed other bankruptcy cases within 180 days of the current filing, which have been dismissed, the stay may have to be reinstated by the debtor through motion process and may expire 30 days after the second bankruptcy filing if the debtor does not have the court reinstate the stay. There are a few additional instances when a stay will not be issued or if issued initially must be continued through the debtor’s motion. Consult with your professional about any specific questions you may have with regard to a bankruptcy stay.
The automatic stay does not apply to domestic support obligations, actions to establish paternity as well as several other very specific real estate factual situations. Debtors involved with post petition tax issues are now required to participate in tax court cases regardless of the status of their bankruptcy. Domestic support obligations have been given priority over other creditors. Spousal support, is now included in the domestic support obligation and it appears that property division obligations from a dissolution may also be included in the broad term, “domestic support obligation” and non-dischargeable. The automatic stay does not apply any longer to the perfection of a real estate tax which is a special assessment or special tax. A debtor’s wages may be withheld or garnished if he voluntarily agreed and the loan provided was secured by their pension, profit-sharing, stock bonus etc. Under the new law, evictions from property may continue if a third party obtained a judgment for possession of the property prior to the filing of the bankruptcy petition.
There are additional provisions to eliminate the stay where there has been collusion between the debtors to delay, hinder and defraud creditors, but there must be multiple petitions affecting real property or the transfer of all or part ownership of the same, without the consent of the secured creditor or court approval.
There is a two year period when the automatic stay will not prevent the foreclosure on a property which was the subject of a court order to lift the stay on the property. A debtor in a subsequent case may move for relief from this in rem order.
There are other exceptions to the automatic stay being issued or having its desired effect upon the filing of a bankruptcy petition. Consult with your lawyer about any issues you may have regarding the stay that is issued upon filing of a bankruptcy.
The 2005 amendment lengthened the time period that a debtor must have between bankruptcies from 6 to 8 years.
The new law requires debtor to take two counseling classes, one of which must be taken with a certificate provided to debtor’s counsel for filing with the court prior to filing the debtor’s petition. The other class must be taken within 45 days of the trustee’s meeting and is called “Debtor’s Education”. Debtor takes these classes on their own, the fee is not included in counsel’s bankruptcy fee and counsel will provide debtor with a list of approved classes. The providers are approved by the U.S. Trustee’s office and in Redding, the only way to complete these classes without traveling is over the internet. The fees vary from provider to provider but costs are approximately $40.00 per class.
At the law office of Bonnie Baker, Attorney at Law, we help people understand their options in filing Chapter 7 bankruptcy and Chapter 13 bankruptcy under the new bankruptcy laws. To learn how we can help you, please contact our office to schedule your free 90 minute consultation.
Issues Relevant to Both Chapter 7 and Chapter 13 Bankruptcy
It has been over two years since the amendment to the Federal Bankruptcy Law was passed. The new law as predicted in Northern California continues not to negatively impact the vast majority of filing debtors, except for the increase in fees associated with the passage of the amendment and new requirements for attendance at two 90 minute classes, debt counseling and debtor education, as well as additional supporting documentation that must be provided to counsel and the trustee. The 2005 amendment to the bankruptcy law in Northern California has only caused a small percentage of debtors to be over the income levels mandated for a chapter 7 bankruptcy filing.
Under the new laws, individuals are required to complete credit counseling sessions. These sessions can be completed online. Our firm can explain your options and provide you with assistance in finding credit counseling agencies. The first credit counseling session is required before an individual can file for bankruptcy; the second credit counseling session is required before the debt can be discharged.
Are you interested in learning more about how you can discharge debt under the new bankruptcy laws? Contact our firm today to arrange your free 90 minute consultation.
We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.