Even though current US president, Barrack Obama, stated in 2008 that further adjustments to the bankruptcy laws were needed, so far no efforts have been seen in this direction. Therefore, it is quite difficult for consumers who are wondering what are the new bankruptcy laws. The answer can be found in the Bankruptcy Code and the Bankruptcy Abuse Prevention and Consumer Prevention Act, both issued in 2005 as references. Let’s take a closer look at the existing bankruptcy laws.
What are the New Chapter 7 Bankruptcy Laws?
Chapter 7 bankruptcy is also known as complete or straight insolvency, as in most situations eligible consumers are absolved of all previous debt. Given that it eliminates the obligation to repay creditors, it is also referred to as the fresh-start bankruptcy. So, what are the new bankruptcy laws? Here is a short overview:
- The means test. Overall, this is a two-step process aimed at demonstrating the monthly disposable income of individuals filing for insolvency. First off, the average salary of the consumer is compared and this has to be lower than the average income in his resident state. The second step involves calculating the monthly expenses and proving they are higher than the earnings
- Debtors with a net income of over $10,000 for 6 months are not eligible
- The eligibility depends on completing 6 months of consumer credit counseling
- Provide proof of paid federal taxes in the year prior to filing for bankruptcy
What are the New Chapter 9 Bankruptcy Laws?
This type of bankruptcy is typically available for municipalities and its main role is to provide assistance in managing city debt. Chapter 9 was not modified in 2005 and the last regulations were mandated in 1978, when the term “person” was replaced with “governmental unit” to avoid a possible overlap with chapter 11. The key features of chapter 9 bankruptcy include:
- Have authorization to search and receive debt relief under the Bankruptcy Code
- Show proof of impoverishment
- Intention of making adjustments on the debts
- Presenting an agreement that proves most creditors agree and will be impaired under the plan
- Suspect that a creditor may want to attain a preference
- Show the impossibility or impracticability of negotiating with creditors
Chapter 11 Bankruptcy
Although many consumers are not aware of this, chapter 11 bankruptcy is available for both individuals and companies. A business filing for chapter 11 can continue to operate, however, only under the direction of a trustee, who is typically appointed by the court. Consequentially, given that the trustee has the role of making the business successful, so that it can pay its debts, chapter 11 is also known to companies as reorganization. Business owners wondering about what are the new bankruptcy laws must know that the eligibility depends on showing that the value of the business is greater than the assets. In the case of individuals, this is a viable alternative for when they have gathered too much debt to file for chapter 13.
This guide strongly advises debtors to discuss the following terms with an attorney before filing for insolvency:
- Debtor in possession
- Automatic stay
- Disclosure statement
- Confirmation and post-confirmation
- Issues regarding the discharge
- Overall costs
Chapter 12 Bankruptcy
Chapter 12 bankruptcy was first introduced in the Bankruptcy Code in 1986, mainly due to the pressure of the farmer and fisherman associations. The introduction of this chapter in the Bankruptcy Code was introduced as an emergency response to the difficulty of attaining an agricultural loan during the mid 1980s. Although the chapter was supposed to expire in 1993, in 2005 it became permanent. What are the new bankruptcy laws regarding chapter 12 effective from 2005?
- 50% or more ownership of an individual or a couple in respect of an agricultural or fishing operation
- More than 50% of the income must have came from the farm or fishing operation for the past 3 years
- 50% of the farmer’s debt and 80% of the fisherman’s debt must come from the farm, or respectively the fishing operation
Chapter 13 Bankruptcy
Chapter 13’s main difference from chapter 7 bankruptcy is the fact that under the first chapter the consumer gets to keep his asset. The further advantage is that filing for chapter 13 usually means stopping a foreclosure, despite the fact that the issue will reappear once the insolvency is over. The debtor will receive considerable discharges that are not usually available under chapter 7. What are the new bankruptcy laws under chapter 13?
- Mandatory credit counseling in a government-approved program
- Mandatory financial management education
- The debtor should not have tax refunds and have all federal taxes paid in the previous year
- Fewer automatic stay protection for debtors (eviction actions, suspension of the driver’s license, divorce proceedings and legal actions for alimony)
- The alimony and child support have higher priorities in the repayment plan
Chapter 15 Bankruptcy
Chapter 15 bankruptcy was especially designed to regulate the international insolvency cases and to help foreign debtors clear due balances. The need for this chapter is dictated by the fact that over the past fifty years it has not been uncommon for a bankruptcy hearing in one country to have links to the assets owned in other states. Similar to chapters 9 and 11, chapter 15 has not suffered any major modifications to the Acts issued in 2005.
List of the key modification to remember
- Compulsory credit counseling (and cash management under chapter 13)
- Chapter 7 means test
- Prioritization of certain debts under chapter 13