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New Bankruptcy Laws Affect Consumer filings

The Bankruptcy Abuse Prevention & Consumer Protection Act of 2005, in effect since Oct. 17, 2005, requires debtors to pass more stringent guidelines to determine whether they can have their debts liquidated through Chapter 7 or whether they must enter a repayment plan through Chapter 13. Below is a description of each category. Because the new law makes it more difficult for consumers to file bankruptcy, consumers should consult with bankruptcy attorneys in their area to make sure they file the necessary forms to discharge debt.

• A strict financial means test that will prohibit many debtors from filing a liquidation bankruptcy under Chapter 7;
• A requirement that all debtors must receive a briefing from an approved credit counseling agency at least six months before they can file their bankruptcy case;
• A requirement that debtors take an approved class on debt management techniques before they receive their bankruptcy discharge;
• A provision making it easier for a court to dismiss a bankruptcy case outright or to convert a Chapter 7 case to a Chapter 13 case and;
• A provision permitting a court to impose sanctions on attorneys, or even on debtors, for filing a Chapter 7 case that is dismissed or converted to a Chapter 13 case.

How do Bankruptcy Attorneys solve credit problems?

Bankruptcy attorneys specialize in bankruptcy law and provide legal methods for an individual or commercial enterprise (business) to either wipe out ("discharge") the debts by liquidating assets and distributing them among creditors or resolve them by developing a court-approved reorganization plan, or other plan involving the repayment of creditors over time.

Bankruptcy lawyers explain the primary purposes and applications of bankruptcy laws and how they function to relieve individuals and businesses from indebtedness and provide a fresh financial start. Title 11 of the United States Code (the bankruptcy code) regulates the bankruptcy proceedings, including what chapter under which a debtor may file, what bills can be eliminated, how long payments may be extended, what possessions can be kept, and all other details concerning the bankruptcy. If the debtors or their lawyers initiate the bankruptcy it is called a voluntary bankruptcy. If the creditors or their attorneys initiate the bankruptcy it is called an involuntary bankruptcy.

Bankruptcy Proceedings

Bankruptcy attorneys practice two basic types of bankruptcy proceedings: liquidation under Chapter 7 and debtor rehabilitation involving a court-approved plan of reorganization and payment of the debts over a period of time using future earnings under Chapters 9, 11, 12 and 13. The following gives general information on the five chapters
of bankruptcy under which the debtor may possibly file:

Chapter 7 – informally called "straight bankruptcy," is a liquidation bankruptcy proceeding. The debtor turns over all non-exempt property (assets) to the bankruptcy trustee who then converts it to cash for distribution among the creditors. At the end of the proceeding the debtor receives a discharge of indebtedness (discharge notice) for all dischargeable debts, releasing him or her from personal liability for those debts.

Chapter 9 – Adjustment of Debts for a Municipality – is a federal mechanism for the resolution of municipal debts passed by Congress about 60 years ago. This form is similar to reorganization under Chapter 11, but it’s only available to municipalities. Municipalities include cities and towns, as well as villages, counties, taxing districts, municipal utilities, and school districts.

Chapter 11 – Reorganization – is normally the chapter under which commercial enterprises (businesses) or their lawyers file. This allows the business to continue its operations while repaying creditors concurrently through a court-approved plan of reorganization.

Chapter 12 – Adjustment of Debts of a Family Farmer with Regular Annual Income – provides debt relief to family farmers. Chapter 12 proceedings are very similar to those of Chapter 13 where the debtors or their lawyers propose a plan to repay debts over a period of up to three years, unless the court approves a longer period, no more than five years.

Chapter 13 – Adjustment of Debts of an Individual with Regular Annual Income – provides debt relief for individuals or consumers. Chapter 13 differs from Chapter 7 in the respect that it enables the debtor to keep valuable assets, like a house, while making payments to creditors (through the trustee) based on the debtor’s anticipated income over the life of the plan, usually three to five years. At a confirmation hearing, the court either approves or disapproves the plan, depending on whether the plan meets the Bankruptcy Code’s requirements for confirmation.

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