Bankruptcy

AuthorRoy Girasa
Pages49-52

Page 49

In 2005 the U.S. Congress enacted profound changes to the Bankruptcy Reform Act of 1978. Known as the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, the amendments were designed to correct perceived abuses by debtors who allegedly took advantage of the pro-debtor tone and provisions of the 1978 statute. The emphasis has been shifted from a pro-debtor enactment to one favoring creditors.

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The basic premise for enabling debtors to file for bankruptcy is to have a "fresh start" by permitting them to end their overwhelming debt and begin anew to rebuild their credit and engage in day-to-day activities without fear of creditors seizing their assets and imposing liens on their salaries. Congress had concluded that a sizable percentage of debtors had taken advantage of liberal Bankruptcy Code provisions and grossly abused their credit access. Thus, Congress imposed a number of roadblocks to the discharge of indebtedness while refraining from limiting creditors' persistent inundation of offers of credit to consumers—especially by credit card companies.

The Bankruptcy Code contains a number of chapters, including preliminary sections concerning procedural and administrative requirements and substantive chapters that detail requirements for debtors regarding liquidation, reorganization, or adjustment of debts. The most relevant chapters are 7, 11, and 13.

CHAPTER 7 LIQUIDATION PROVISIONS

The most significant change to the 1978 statute concerns consumer bankruptcy under the Chapter 7 liquidation provisions. Previously, debtors had the choice of filing for liquidation—which means that debtors are completely discharged from all indebtedness except for certain nondischargeable debts, after their assets have been reduced to cash and distributed to creditors—or filing a plan under Chapter 13 with the court for the payment of all or part of the indebtedness.

The act continues the choice but now requires consumer debtors electing to file under the act to initially secure credit counseling within 180 days preceding the filing and to provide a certificate from an approved non-profit budget and credit counseling agency concerning services provided to the debtors, including a copy of the repayment plan, if any. The act also continues to permit debtors to have their debts discharged, after compliance with the statute, and to possess a not-insignificant amount of assets upon termination of the proceeding.

Exemptions

Contrary to what many persons believe, the debtor being discharged in bankruptcy is able to retain a substantial amount of property (which would be double the sum if there is a joint filing). This is a further inducement to seek bankruptcy protection before being reduced to an impoverished condition. The assets that a bankrupt person may retain are:

Interest in property held jointly or as tenants by the entirety if the tenant is exempt from the process under nonbankruptcy law

Retirement funds pursuant to statute

Debtor's aggregate interest up to $18,450 in value in real or personal property used as a residence, cooperative, or burial plot

Debtor's interest in one motor vehicle up to $2,950 in value

Debtor's interest up to $475 in any particular item or $9,850 in total value in household furnishings and goods, and various personal items, such as clothing

$1,225 in value for jewelry for personal, family, or dependent use

Any property up to $975 plus up to $9,250 of any unused amount of exemption

$1,850 in any implements, professional books, tools of trade

Unmatured life insurance

Prescribed health aids

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