The new bankruptcy law has been was introduced in the Senate in 2005 and on April 14, 2005, was passed by both the House and Senate. The President will sign the new bill into law in late April, 2005.
Unfortunately, President Bush has indicated that he does support bankruptcy "reform" and would sign into law the bill passed by Congress. If the new bankruptcy law does pass both houses of Congress in 2005 and is signed into law by the president, it would go into effect 6 months after presidential signing.
The "Means Test" - is a hard line provision to working people
A core provision of the proposed new bankruptcy law now in Congress is a "means test" whereby persons with income above what amounts to survival levels could not file Chapter 7 to liquidate debts. "If your family income exceeds around $30,000, Chapter 7 will most likely not be available to you," comments Ginsberg. "Supporters of this proposed new law seem to believe that anyone who earns a living just barely over survival level should have to experience what I can only characterize as humiliation if they need to file for bankruptcy."
Under the new law, your monthly expenses must conform to very rigid budget standards. These budget figures are derived from the same budget standards used by the IRS in tax evasion cases.
As a practical matter, potential bankruptcy filers should need to prepare to surrender their homes, cars and even furniture and appliances and survive within a very modest lifestyle in exchange for bankruptcy protection.
Even emergency expenses arising from a medical crisis would not be dischargeable if incurred within three months of filing.
Expect Complicated Procedures
In addition to the proposed limitations on filing, people who could file would find the process much more complicated and expensive. The proposed law, for example, would require a debtor to include documents such as pay stubs and three years of tax returns along with his bankruptcy petition. Failure to include this documentation would be grounds for dismissal.
Interestingly, this particular requirement of supporting documentation is extremely unpopular with Bankruptcy Judges and the Trustees who administer the system.
What you can do
You can let your legislators know how you feel about bankruptcy reform by contacting them at www.congress.gov. But if the legislation does pass and becomes law, there are some additional steps you should take immediately:
- If you have large amounts of debt it`s critical that you create your Savings and figure out whether you can realistically pay back your debts yourself within three to six years. Look at the payments required to pay back your debts and ask yourself whether you could stick to that payment schedule. If you have any doubts - or expect any large expenses that may make it difficult to follow that plan - consider consulting a credit counseling service and/or a bankruptcy attorney for one-on-one help.
- If you are paying your debts back through a credit counseling program, take a hard look at whether you can realistically follow through with the program or if filing bankruptcy would be a better choice.
- If you have high debts and are concerned about your ability to pay them, meet with a bankruptcy attorney now. If the bill is passed, bankruptcy attorneys will get very busy, very quickly - and their fees are expected to double. Make an appointment now to review your options.