On April 20, 2005, President Bush signed the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. Most provisions will go into effect 180 days after enactment, but some will be effective immediately.
The new changes to the Bankruptcy Code primarily impact individual consumer bankruptcy filings. However, the changes will also affect certain business transactions.
Under the new Act:
- in most cases, debtors who receive a discharge in bankruptcy will have to wait longer before filing another bankruptcy case;
- some prohibitions on creditors (including landlords) taking action against a debtor during a bankruptcy case will be relaxed;
- generally, creditors who repossess collateral before the debtor files for bankruptcy will no longer be required to return collateral remaining in their possession upon the filing of a bankruptcy case;
- it will be more difficult for debtors to discharge credit-card debt and student loans;
- additional limits on the homestead exemption will be imposed;
- it will be more difficult for debtors to take advantage of liberal homestead exemptions in states such as Florida;
- transfers to asset-protection trusts are honored, unless done with actual intent to hinder, delay, or defraud creditors;
- debtors will be subject to a "means test," which will force many debtors out of Chapter 7 liquidation cases and into Chapter 13 bankruptcies, where debtors must make payments to creditors over five years;
- debtors' attorneys will be exposed to possible sanctions and other disciplinary action if they or their clients provide inaccurate information;
- additional requirements must be met to obtain approval of reaffirmation agreements;
- with respect to collateral securing consumer debt, debtors will be required to redeem (i.e., pay the debt in full) or reaffirm the debt if they want to retain collateral, thus eliminating the "ride-through" as an option where debtors could keep collateral by simply continuing to make payments on the underlying debt;
- "lien stripping" in Chapter 13, where the debtor attempts to pay secured creditors only the value of their collateral, is more limited;
- the types of debts excepted from discharge are expanded;
- in Chapter 13 cases, debtors will be required to file additional documents, including financial statements and tax returns;
- in Chapter 11 cases, an individual's property acquired postpetition will become property of the bankruptcy estate, and thus subject to creditors' claims;
- the ability to avoid a secured creditor's lien will be more limited;
- sellers of goods will have expanded reclamation rights;
- under certain circumstances, the claim of an unsecured creditor who is owed consumer debt may be reduced if the debtor can show that the consumer creditor refused to negotiate a reasonable alternative repayment plan proposed by a credit counseling service;
- creditors will have 30 days instead of only 20 to perfect liens without being exposed to a preference action; and
- domestic support obligations will be more protected in a variety of ways.
A more complete description of the major changes to the Act can be viewed by clicking on the link below, which will take you to a summary prepared by the Honorable Eugene R. Wedoff, Bankruptcy Judge for the N.D. of Illinois.
http://www.abiworld.org/pdfs/s256/mainpoints6.pdf
Please feel free to call 612-604-6400 and ask to speak to Dan Beck, Chris Camardello, Hart Kuller, or Michael Rosow if you have any questions or would like to discuss the new legislation.
Winthrop & Weinstine, P.A., is a full-service, entrepreneurial, commercial law firm with a full range of practice areas to meet a variety of needs for our clients. We are dedicated to advancing the best interests of our clients and community through the timely delivery of legal services of exceptional quality, innovative character and unsurpassed value.
This information is intended to provide you with up-to-date information on changes to federal law. It is a general summary and is not intended to be a substitute for legal advice. Recipients should always consult their attorney about specific legal matters.