Bankruptcy

The major 18 changes to Bankruptcy After October 2005

9 Changes that effect you Before you file

1. Income Testing for Chapter 7 Bankruptcy If you make over the average income for your size of family, you are forced to file a Chapter 13 Bankruptcy. If you make under the average income you might be able to file a Chapter 7 or 13 Bankruptcy. If you make in between you may not be able to file either a Chapter 7 or 13 bankruptcy if you don’t make enough to fund the Chapter 13 and you make too much to file a Chapter 7 bankruptcy. Large failure rates for Chapter 13s still exist.

2. A Chapter 13 bankruptcy must be for 5 years Prior to this, Chapter 13 bankruptcy cases were often for only 3 years.

3. Mandatory Debtor Education After 10-2005 you cannot file any bankruptcy without first taking “credit counseling” classes approved by the Trustee’s office. This is your ticket to file bankruptcy. After you file bankruptcy you must also take "Debtor Education" classes in financial management to get a discharge.

4. No more Chapter 20 bankruptcy filings. Often a person could not afford a Chapter 13. To lower payments, he would first file a Chapter 7 bankruptcy to eliminate unsecured debts and then only pay secured debts in a Chapter 13 to stop a foreclosure. This was Chapter 20. Now you cannot get a Chapter 13 discharge if you file a 7 within the prior 4 years.

5. Chapter 7 discharge is limited to one every 8 years. This used to be every 6. You cant file a Chapter 13 after a filing a Chapter 7 for 4 years. You cant file a Chapter 13 after a filing a Chapter 13 for 2. If you file before the time limit, you may be able to file a Chapter 13 in order to stop a foreclosure by curing the arrearage. But you don't get a discharge and you wont be protected from the other creditors calling or suing you.

6. Exemptions reduced Several states had their homestead exemptions reduced. The amount and types of property you can keep will be reduced. Kentucky will increase their home exemption from 5,000 to 18,450 on June 20 2005

7. Cannot bankrupt student loans even to non government and for profit lenders Before October 2005 you could bankrupt non government student loans.

8. Documents needed after October 2005 will include: Attorney must verify the

1. Certificate of Credit Counseling
2. Proof of income for prior 6 months to prove income including anticipated increases or decreases in income and expenses this must be at least 60 days of pay stubs (for all employers); or a statement from work of your last six months of income or if you are on Social Security your letter of income
3. List of debts must include account numbers, and address of Creditor provided by mail to the Debtor. In other words a bag of your bills.
4. A photo id
5. Proof of expenses if you don’t take the standard amounts but at least a year of utility bills
6. Four years of tax returns, not your copy, the transcript from the IRS; You cannot file if taxes are not filed for last 4 years. If the Debtor fails to provide within 7 days before the 341 the case must be dismissed further it must be provided to any creditor that requests it
7. At least one year of bank statements, credit card statements, loan statements
8. An appraisal on your home and vehicles may be needed
9. A comprehensive list of personal property - furnishings; You will only be allowed to keep certain items

9. Filing Fees and attorney fees increase by 2 or 3 times due to added work and liability Attorney fees may jump from 500-800 for a Chapter 7 to 1500-2400 or more and from 1500 for a Chapter 13 to 4500 and filing fees also increase the time it takes to get it through will increase.

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5 Changes that effect you After you file

1. You can’t strip liens on secured property anymore. Before October you could strip a lien and pay someone in a Chapter 13 what the secured property was worth as a secured claim and the balance would be paid as an unsecured claim. After October 2005 you must pay all secured creditors in full or lose your property and pay a secured debt as an unsecured claim.

2. New Fraud rules The old rule was that if you charged over 1000 dollars on a card within 60 days of filing that it was fraud and not dischargeable. The new rule will be 750 dollars in 70 days or 500 dollars of luxury goods in 90.

3. Homestead Exemptions You must use the exemption for the state you lived in for the last 730 days. No forum shopping by skipping to another state.

4. Reaffirmations Reaffirmations will require the Debtors attorney to certify that the Debtor will make the payments and can afford them. The Debtor will have to go through a hearing to get reaffirmations approved by the court. Creditors can repo and sue for a deficiency right after signing them. As a result, attorneys will not sign them and secured creditors will probably have to directly talk to debtors to see if cars will be repaid. If they are not signed within 45 days after the 341 the stay terminates and the Creditor may pick up the property. Instead workout agreements will be made with secured creditors.

5. Automatic Stay Terminations The Stay automatically terminates in 30 days if:

1. A case was filed within the prior year and dismissed by any cause other than the means test conversion. This includes
2. Dismissals for failure to file documents
3. Complete a plan
4. Provide adequate security (which means insure secured property) or….
5. If the Debtor fails to file a Schedule of Intent within 30 days after the petition or complete the reaffirmation within 45 days after the 341 meeting
6. If two or more cases have been filed during the prior year the stay does not go into effect at all until the Court orders it after a hearing and demonstration that it was filed in good faith.
7. Child Support becomes a first priority. The stay does not apply to Domestic Support enforcement. Child Support is paid first in any Chapter 13 ahead of secured debts etc. No discharge unless Child Support is up to date at the time of discharge.
8. Super discharge reduced in a Chapter 13 Debts are treated almost equally in a Chapter 7 or 13. No more discharges for Student loans, debts due to fraud, drunk driving or malicious injury in a Chapter 13.
9. Asset Protection Trusts can be avoided back 10 years. Section 548 prevents trusts from protecting assets in any self settled trust.
10. Under the Household exemption, the Personal Property you can keep in a Chapter 7 will be limited to the following you must use the wildcard exemption to exempt additional property:

• b. Clothing, Furniture, Appliances, Linens, China, Crockery, Kitchenware,
• c. Educational materials and equipment for minor dependent children
• d. Medical equipment and supplies
• e. Furniture exclusively for minor children, elderly or disabled dependents
• f. Personal effects (including toys of children) and wedding rings ONE RADIO, ONE TV, ONE VCR AND ONE PERSONAL COMPUTER. No Artwork, electronic equipment antiques or jewelry worth over 500 dollars other items including motor vehicles, lawn tractors, boats ATV motorcycle etc must use some other type of exemption. YOU MAY BE ABLE TO KEEP THE PROPERTY JUST USE ANOTHER EXEMPTION!

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11 things you need to bring with you to file:

1. Last four years tax returns

2. Proof that the Debtor has completed credit counseling in the last 180 days

3. Evidence of the last 6 months income, including pay stubs for the last six months

4. Last year’s bank statements

5. Copies of any titles to vehicles and deeds to property

6. Copies of any loan notes

7. Proof of monthly expenses, for example, phone bill, electric bill, rent payment, child care expenses, tuition, medical bills and health and car insurance bills

8. Copies of all creditors Debtor owes money to

9. A list of all creditors paid within the last 60 days

10. Debtor will need to let the attorney know if he or she has potential lawsuit, such as car accident claim, as that is an assets

11. Information for the Creditors, people owed money to

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