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U.S. Bankruptcy Laws - Now Benefit The Rich and Creditors Most - Peter Lemkin - 13-03-2009 Bankruptcy Abuse Prevention and Consumer Protection Act From Wikipedia http://en.wikipedia.org/wiki/Bankruptcy_Abuse_Prevention_and_Consumer_Protection_Act The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (Pub.L. 109-8, 119 Stat. 23, enacted April 20, 2005), providing for significant changes in bankruptcy in the United States, was passed by the 109th United States Congress on April 14, 2005 and signed into law by President George W. Bush on April 20, 2005. Most provisions of the act apply to cases filed on or after October 17, 2005. Referred to colloquially as the "New Bankruptcy Law", the Act of Congress attempts to make it more difficult for consumers to discharge debt under Chapter 7; some of these consumers may instead utilize Chapter 13.Contents [hide] 1 Provisions 1.1 Presumption of abuse 1.1.1 Means test 1.1.2 Nonpresumed abuse 1.2 Waiting period between filings 1.3 Credit counseling 1.4 Applicability of Automatic Stay 1.5 Stricter notice requirements 1.6 Dischargeability 1.7 Lien avoidance 1.8 Limits to the homestead exemption 1.9 Exemptions 1.10 Additional requirements for filers 1.11 Other changes 2 Legislative history 3 Support 4 Criticisms 5 Hurricane Katrina bankruptcies 6 Global Financial Crisis of 2008 7 See also 8 References 9 External links [edit] Provisions This article may be confusing or unclear to readers. Please help clarify the article; suggestions may be found on the talk page. (January 2007) The Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) made sweeping changes to American bankruptcy laws, affecting both consumer and business bankruptcies. Many of the bill's provisions were explicitly designed by the bill's Congressional sponsors to make it "more difficult for people to file for bankruptcy."[1] Although the BAPCPA was intended to make it more difficult for debtors to file a Chapter 7 Bankruptcy--under which most debts are forgiven (or discharged)--and instead force debtors to file a Chapter 13 Bankruptcy--under which debts are discharged only after the debtor has repaid some portion of these debts--the Act has not been effective in practice.[citation needed] Approximately 85% of debtors are not subject to its "means test" and a large percentage of the rest are able to "pass" the means test. Some of the bill's more significant provisions include the following: [edit] Presumption of abuse Prior to the BAPCPA Amendments, debtors of all incomes could file for bankruptcy under Chapter 7. BAPCPA restricted the number of debtors that could declare Chapter 7 bankruptcy. The act sets out a method to calculate a debtor's income, and compares this amount to the median income of the debtor's state. If the debtor's income is above the median income amount of the debtor's state, the debtor is subject to a "means test." [2] The most noteworthy change brought by the 2005 BAPCPA amendments occurred within 11 U.S.C. § 707(b). Congress amended this section of the Bankruptcy Code to provide for the dismissal or conversion of a Chapter 7 case upon a finding of “abuse” by an individual debtor (or married couple) with “primarily consumer debt.” The pre-BAPCPA language of § 707(b) provided for dismissal of a chapter 7 case upon a finding of “substantial abuse.” Under the former § 707(b), only the court or the United States trustee could bring a motion to find abuse under the section. The 2005 amendments removed these restrictions. Post-BAPCPA, § 707(b) provides two definitions of "abuse." “Abuse” may be found when there is an unrebutted “presumption of abuse” arising under a BAPCPA-created “means test,” [§ 707(b)(2)], or through a finding of bad faith, determined by a totality of the circumstances [§ 707(b)(3)]. [edit] Means test Only debtors whose monthly income is higher than the median income of their state, as calculated by the Code, are subject to being found abusive under § 707(b)(2). Debtors whose income falls below the median income figure may be in violation of the means test, however no party is permitted to file a motion in order to find abuse under § 707(b)(2).[3] This creates a means test "safe harbor" for debtors below the state's median income figure. Current monthly income is defined in 11 U.S.C. § 101(10A) as the monthly average of the income received by the debtor (and the debtor’s spouse in a joint case) during a defined six-month time period prior to the filing of the bankruptcy case. Some narrow classes of payments, for example, social security, are excluded from these figures. Notably, the average income may be higher or lower than the debtor's actual income at the time of filing for bankruptcy. This has led some commentators to refer to the bankruptcy code’s “current monthly income” as “presumed income.” It should be noted that if the debtor's debt is not primarily consumer debt, then the means test is inapplicable. The applicable median income figure is adjusted by family size. Generally, the larger the family, the greater the applicable median income figure and the more money the debtor must earn before a presumption of abuse arises.[4] This code section then requires a comparison between the debtor’s “current monthly income” and the median income for the debtor’s state. If the debtor’s income exceeds the median income, then the debtor must apply the means test. For debtors subject to the means test, the test is calculated as follows. The debtor's “current monthly income” is reduced by a set of allowed deductions specified by the IRS. These deductions are not necessarily the actual expenses the debtor incurs on a monthly basis. Some commentators have referred to these deductions as “presumed expenses.” The deductions applicable in the “means test” are defined in § 707(b)(2)(A)(ii)-(iv) and include: living expenses specified under the ‘’collection standards of the Internal Revenue Service,’’ actual expenses not provided by the Internal Revenue Standards including “reasonably necessary health insurance, disability insurance, and health savings account expenses,” expenses for protection from family violence, continued contributions to care of nondependent family members, actual expenses of administering a chapter 13 plan, expenses for grade and high school, up to $1,500 annually per minor child provided that the expenses are reasonable and necessary, additional home energy costs in addition to those laid out in the IRS guidelines that are reasonable and necessary, 1/60th of all secured debt that will become due in the five years after the filing of the bankruptcy case, 1/60th of all priority debt, and continued contributions to tax-exempt charities.[5] A “presumption of abuse” will arise if: (1) the debtor has at least $166.67 in current monthly income available after the allowed deductions (this equals $10,000 over five years) regardless of the amount of debt, or (2) the debtor has at least $100 of such income ($6,000 over five years) and this sum would be enough to pay general unsecured creditors more than 25% over five years. For example, if a debtor had exactly $100 of “current monthly income” left after deductions and owed less than $24,000 in general unsecured debt, then the presumption of abuse would arise, [§ 707(b)(2)(A)(i)]. If a presumption of abuse is found under the means test, it may only be rebutted in the case of "special circumstances."[6] [edit] Nonpresumed abuse Even in cases where there is no presumption of abuse, it is still possible for a Chapter 7 case to be dismissed or converted. If the debtor's "current monthly income" is below the median income, as discussed above, only the court or the United States trustee (or bankruptcy administrator) can seek dismissal or conversion of the debtor's case. If the debtor's "current monthly income" is above the median income, as discussed above, any party in interest may seek dismissal or conversion of the case. The grounds for dismissal under § 707(b)(3) are the filing of a petition in “bad faith,” or when “the totality of the circumstances (including whether the debtor seeks to reject a personal services contract and the financial need for such rejection as sought by the debtor) of the debtor’s financial situation demonstrates abuse.” [edit] Waiting period between filings Another change that resulted from the BAPCPA was an extension of the time between multiple bankruptcy filings. Section 727(a)(8) was amended to provide that the debtor would be denied a discharge if a debtor had received a discharge in a prior Chapter 7 case filed within eight (8) years of the filing of the present case. Prior to BAPCPA, the rule was six (6) years between chapter 7 filings. BAPCPA did not change the rule for the waiting period if the debtor filed a chapter 13 previously. [edit] Credit counseling Credit counseling and debtor education requirements: Another major change to the law enacted by BAPCPA deals with eligibility. Section 109(h) provides that a debtor will no longer be eligible to file under either chapter 7 or chapter 13 unless within 180 days prior to filing the debtor received an "individual or group briefing" from a nonprofit budget and credit counseling agency approved by the United States trustee or bankruptcy administrator. The new legislation also requires that all individual debtors in either chapter 7 or chapter 13 complete an "instructional course concerning personal financial management." If a chapter 7 debtor does not complete the course, it constitutes grounds for denial of discharge pursuant to new § 727(a)(11). The financial management program is experimental and the effectiveness of the program is to be studied for 18 months. Theoretically, if the educational courses prove to be ineffective, the requirement may disappear.[citation needed] In 2006 more than half of all certified pre-filing counseling sessions were rendered by the three largest agencies: Money Management International, Consumer Credit Counseling Service of Greater Atlanta and GreenPath Debt Solutions.[7] A 2007 GAO report[8], Bankruptcy Reform: Value of Credit Counseling Requirement Is Not Clear was inconclusive regarding the efficacy of the counseling provisions and concluded that there is no mechanism in place to evaluate it:“ ...the value of the counseling requirement is not clear. The counseling was intended to help consumers make informed choices about bankruptcy and its alternatives. Yet anecdotal evidence suggests that by the time most clients receive the counseling, their financial situations are dire, leaving them with no viable alternative to bankruptcy. As a result, the requirement may often serve more as an administrative obstacle than as a timely presentation of meaningful options. Because no mechanism currently exists to track the outcomes of the counseling, policymakers and program managers are unable to fully assess how well the requirement is serving its intended purpose. ” [edit] Applicability of Automatic Stay The automatic stay in bankruptcy is the court order that requires all collection proceedings to stop. There are exceptions, of course, but generally this is the term for the “relief” from collection proceedings a debtor receives by filing the bankruptcy with the bankruptcy clerk’s office. BAPCPA limited the protections the stay provides in some re-filed cases. New §362©(3) provides that if the debtor files a chapter 7, 11 or 13 case within one year of the dismissal of an earlier case, the automatic stay in the present case terminates 30 days after the filing, unless the debtor or some other party in interest files a motion and demonstrates that the present case was filed in good faith with respect to the creditor, or creditors, being stayed. If the present case is a third filing within one (1) year, the automatic stay does not go into effect at all, unless the debtor or any other party in interest files a motion to impose the stay that demonstrates that the third filing is in good faith with respect to the creditor, or creditors, being stayed. The provision presumes that the repeat filings are not in good faith and requires the party seeking to impose the stay (usually the debtor) to rebut the presumption by clear and convincing evidence. There are exceptions. Notably, §362(i) provides that the presumption that the repeat filing was not in good faith would not arise in a “subsequent” case if a debtor’s prior case was dismissed “due to the creation of a debt repayment plan.” BAPCPA also limited the applicability of the automatic stay in eviction proceedings. The stay does not stop an eviction proceeding if the landlord has already obtained a judgment of possession prior to the bankruptcy case being filed, §362(b)(22). The stay also would not apply in a situation where the eviction is based on “endangerment” of the rented property or “illegal use of controlled substances” on the property, §362(b)(23). In either situation the landlord must file with the court and serve on the debtor a certificate of non-applicability of the stay spelling out the facts giving rise to one of the exceptions. There is a process for the debtor to contest the assertions in the landlord’s certificate or if state law gives the debtor an additional right to cure the default even after an order for possession is entered, §362(l) & (m). [edit] Stricter notice requirements BAPCPA enacts a provision that protects creditors from monetary penalties for violating the stay if the debtor did not give “effective” notice pursuant to §342, [§342(g)]. The new notice provisions require the debtor to give notice of the bankruptcy to the creditor at an “address filed by the creditor with the court,” or “at an address stated in two communications from the creditor to the debtor within 90 days of the filing of the bankruptcy case. The notice must also include the account number used by the creditor in the two relevant communications [§342©(2)(e) & (f)]. An ineffective notice can be cured if the notice is later “brought to the attention of the creditor.” This means that the notice must be received by a person designated by the creditor to receive bankruptcy notices. [edit] Dischargeability BAPCPA also provided more protections to creditors because it expanded the exceptions to discharge. The presumption of fraud in the use of credit cards was expanded. The amount that the debtor must charge for “luxury goods” to invoke the presumption is reduced from $1,225 to $500. The amount of cash advances that would give rise to a presumption of fraud has also been reduced, from $1,225 to $750. The time period was increased from 60 days to 90 days. Thus, if a debtor purchases any single item for more than $500 within 90 days of filing, the presumption that the debt was incurred fraudulently and therefore non-dischargeable in the bankruptcy arises. Prior to BAPCPA, the presumption would not have arisen unless the purchase was for more than $1,225 and was made within 60 days of filing (§523(a)(2)©). BAPCPA amended §523(a)(8) to broaden the types of educational loans that can not be discharged in bankruptcy absent proof of “undue hardship.” The nature of the lender is no longer relevant. Thus, even loans from “for-profit” or “non-governmental” entities are not dischargeable. [edit] Lien avoidance Some types of liens may be avoided through a chapter 7 bankruptcy case. However, BAPCPA limited the ability of debtors to avoid liens through bankruptcy. The definition of “household goods” was changed limiting “electronic equipment” to one radio, one television, one VCR, and one personal computer with related equipment. The definition now excludes works of art not created by the debtor or a relative of the debtor, jewelry worth more than $500 (except wedding rings), and motor vehicles (§521(f)(1)(B)). Prior to BAPCPA, the definition of household goods was broader so that more items could have been included, including more than one television, VCR, radio, etc… [edit] Limits to the homestead exemption Under the new law, the homestead exemption, which allows bankruptcy filers in some states to exempt the value of their homes from creditors, is limited in various ways. If a filer acquired their home less than 1,215 days (40 months) before filing, or if they have been convicted of security law violations or been found guilty of certain crimes, they may only exempt up to $125,000 (adjusted periodically), regardless of a state's exemption allowance. Filers must also wait 730 days before they are allowed to use their state's exemptions. There is an exception if the property is “reasonably necessary for the support of the debtor and any dependent of the debtor.” These provisions were largely intended to prevent filers from forum shopping, i.e. moving assets and domiciles to a state with more favorable exemptions and filing. [edit] Exemptions BAPCPA attempted to eliminate the perceived “forum shopping” by changing the rules on claiming exemptions. Exemptions define the amount of property debtors may protect from liquidation to pay creditors. Typically, every state has exemption laws that define the amount of property that can be protected from creditor collection action within the state. There is also a federal statute that defines exemptions in federal cases. In bankruptcy, Congress allowed states to opt out of the federal exemption scheme. Opt out states still controlled the amount of property that could be protected from creditors, or “exempted” from creditors, in bankruptcy cases. Under BAPCPA, a debtor who has moved from one state to another within two years of filing (730 days) the bankruptcy case must use exemptions from the place of the debtor’s domicile for the majority of the 180 day time period preceding the two years (730 days) before the filing [§522(b)(3)]. If the new residency requirement would render the debtor ineligible for any exemption, then the debtor can choose the federal exemptions. Also, there is a “cap” placed upon the homestead exemption in situations where the debtor, within 1215 days (about 3 years and 4 months) preceding the bankruptcy case added value to a homestead. The provision provides that “any value in excess of $125,000” added to a homestead can not be exempted. The only exception is if the value was transferred from another homestead within the same state or if the homestead is the principal residence of a family farmer (§522(p)). This “cap” would apply in situations where a debtor has purchased a new homestead in a different state, or where the debtor has increased the value to his/her homestead (presumably through a remodeling or addition). [edit] Additional requirements for filers This article includes a list of references or external links, but its sources remain unclear because it lacks inline citations. Please improve this article by introducing more precise citations where appropriate. (November 2008) The new law adds a number of new requirements for bankruptcy filers that attempt to make the filing process more difficult and costly. These additional requirements include: Additional filing requirements and fees. The new law increases the amount of paperwork involved in filing and raises the filing fees. The law also allows filing fees to be waived for debtors earning below 150 percent of the federal poverty level. Increased attorney liability and costs. Attorneys representing bankruptcy filers are now required to conduct an investigation of their clients' filings and can be held personally liable for inaccuracies. Most bankruptcy attorneys predicted that this will result in increased attorneys fees and will make attorneys less likely to take on some cases. In addition, bankruptcy filings are now subject to audit in a manner similar to tax returns. Increased compliance requirements for small businesses. The new law increases the bureaucratic compliance obligations and shortens the deadline for Chapter 11 reorganizations involving small businesses, a series of new requirements not applicable to larger businesses. Increased amount of debt repayment under Chapter 13. The new law made several changes that effectively increased the amount of debt that Chapter 13 filers will have to repay. [edit] Other changes The new law allows creditors to pursue collection remedies without court permission in various circumstances such as offsetting tax refunds, pursuing tax and domestic relations litigation in all respects except the final turnover of assets from the estate, establishing wage assignments in domestic relations actions, repossessing vehicles and personal property subject to loans or leases 45 days after the first meeting of creditors in cases where no court action has been taken regarding that property, and allowing evictions that completed the court process prior to the filing of the petition or involve endangerment to property or drug use to proceed. The law also makes it easier for creditors who received preferential payments of less than $5,000 from the debtor before bankruptcy to avoid repaying such payments for the benefit of all creditors. The law improves the ability of the bankruptcy estate to reclaim assets placed in asset protection trusts within ten years of filing or paid as employment bonuses to insiders within two years prior to filing. The law makes Chapter 12 bankruptcy (farm reorganization) permanent while adding family fishermen, overhauls the treatment of complex financial contracts including many derivative contracts used by hedge funds, and overhauls the treatment of ancillary foreign bankruptcy proceedings. The law extends protection to non-ERISA pension plans like private sector 403(b)s and some Individual Retirement Account that ERISA plans had enjoyed thereby making these plans more similar to ERISA plans. [edit] Legislative history The 2005 bankruptcy bill was actually first drafted in 1997 and first introduced in 1998. The United States House of Representatives approved a version titled the "Bankruptcy Reform Act of 1999" and the Senate approved a slightly different version in 2000.[9] After the differences in the bills were reconciled, Congress passed the "Bankruptcy Reform Act of 2000". President Clinton, however, employed what is known as a "pocket veto" by waiting for the lame-duck congressional session to adjourn without signing the bill, a legislative maneuver tantamount to a veto.[10] [11][dead link] In the years since 2000, the bill was introduced in each Congress, but was repeatedly shelved due to threats of a filibuster from its opponents and because of disagreements over various amendments, including one backed by Senate Democrats that would have made it harder for anti-abortion groups to discharge court fines related to felony convictions.[12] The increase in Republican majorities in the Senate and House after the 2004 elections breathed new life into the bill, which was introduced in its current form by the chairman of the Finance Committee, Republican Senator Chuck Grassley of Iowa.[13] The bill was supported by President George W. Bush. Tom DeLay also championed the controversial legislation. The bill passed by large margins, 302-126 in the House[14] and 74-25 in the Senate[15], and was signed into law by President Bush. [edit] Support Support for the act mostly came from banks, credit card companies, and other creditors.[16] This section requires expansion. [edit] Criticisms The 2005 bankruptcy bill was opposed by a wide variety of groups, including consumer advocates, legal scholars, retired bankruptcy judges, and the editorial pages of many national and regional newspapers. While criticisms of the bill were wide ranging, the central objections of its opponents focused on the bill's sponsors' contention that bankruptcy fraud was widespread, the strict means test that would force more debtors to file under Chapter 13 (under which a percentage of debts must be paid over a period of 3-5 years) as opposed to Chapter 7 (under which debts are paid only out of existing assets), the additional penalties and responsibilities the bill placed on debtors, and the bill's many provisions favorable to credit card companies. Opponents of the bill regularly pointed out that the credit card industry spent more than $100 million lobbying for the bill over the course of eight years.[17] There has also been significant criticism of BAPCPA's changes to Chapter 11 business bankruptcies.[18] Harvey Miller, one of the most-prominent bankruptcy attorneys in the country (particularly in terms of representing corporate debtors) has described BAPCPA as "ill-conceived."[19] One of the primary stated purposes of the bankruptcy bill was to cut down on abusive or fraudulent uses of the bankruptcy system. As Congressman F. James Sensenbrenner Jr. (R-Wis), one of the bill's key supporters in the House, argued, "This bill will help restore responsibility and integrity to the bankruptcy system by cracking down on fraudulent, abusive, and opportunistic bankruptcy claims."[20] Opponents of the bill argued that claims of bankruptcy abuse and fraud were wildly overblown, and that the vast majority of bankruptcies were related to medical expenses and job losses. Their arguments were supported by an in-depth study by Harvard University medical and legal scholars, which found that more than half of bankruptcies were attributable to unpaid medical bills.[21] Perhaps the most controversial provisions of the bill was the strict means test it established to determine whether a debtor's filing under Chapter 7 of the bankruptcy code would be considered as an "abuse" and therefore subject to dismissal. This decision was previously made by a bankruptcy court judge, who would evaluate the particular circumstances that led to a bankruptcy. Critics of the means test, which is triggered if a debtor makes more than their state's median income, argued that it ignored the many causes of individual bankruptcies, including job loss, family illnesses, and predatory lending, and would force debtors seeking to challenge the test into costly litigation, driving them even further into debt.[22] Besides the stricter means test, opponents of the bill also objected to the many other obstacles the bill creates for individuals seeking bankruptcy protection. These included more detailed reporting requirements, higher fees, mandated credit counseling, and the additional liability placed on bankruptcy attorneys, which critics argued would drive up attorneys' fees and decrease the number of lawyers willing to help consumers file.[23] These criticisms have been borne out in the months following the new law, as lawyers have reported that the bankruptcy process has become significantly more arduous, forcing them to charge higher fees and take fewer clients.[24] The many provisions beneficial to credit card companies were also a major target of the bill's opponents. In particular, critics objected to the extension to eight years from six to the time before which debtors could liquidate their debts through bankruptcy, and requirements that those who file for multiple bankruptcies pay previous credit card debt that would have been forgiven under the old law.[17] The bill's opponents were especially critical of provisions that prioritize the repayment of credit card debt over unpaid child support, forcing spouses owed alimony to fight with credit card companies and other lenders for their unpaid support. More broadly the bill's critics argued that the legislation did nothing to curtail the predatory practices of credit card companies, such as exorbitant interest rates, rising and often hidden fees, and targeting minors and the recently bankrupt for new cards. The bill's critics pointed out that these practices are themselves significant contributors to the growth of consumer bankruptcies.[25] [edit] Hurricane Katrina bankruptcies Jim Sensenbrenner, Republican chairman of the House Judiciary Committee noted "If someone in Katrina is down and out, and has no possibility of being able to repay 40 percent or more of their debts, then the new bankruptcy law doesn't apply.[26] The Justice Department's US Trustee program has since said it would not attempt to enforce the means test rules for disaster victims, including those affected by Hurricane Katrina.[citation needed] The Justice Department Trustees oversee the administration of bankruptcy law and are able to file the motions necessary to enforce the mean's test. Despite these assurances, bankruptcy judges are still able to enforce these rules sua sponte.[27] The Department of Justice also indicated it would not oppose a debtor's eligibility to file bankruptcy because the debtor did not fulfill the credit counseling requirements before filing.[citation needed][28] [edit] Global Financial Crisis of 2008 As the Financial Times noted during the fall of 2008, "the 2005 changes made clear that certain derivatives and financial transactions were exempt from provisions in the bankruptcy code that freeze a failed company's assets until a court decides how to apportion them among creditors." This radically altered the historic process of paying off creditors and did so just a few years prior to trillions of dollars in assets going into liquidation as a consequence of bankruptcies following from the global financial crisis of 2008. [edit] See also Global financial crisis of 2008 [edit] References ^ [http://grassley.senate.gov/index.cfm?FuseAction=PressReleases.View&PressRelease_id=4878 "Opening Statement of Sen. Chuck Grassley at the Bankruptcy Reform Hearing"] Senate Committee on the Judiciary.] ^ Sahadi, Jeanne. "The new bankruptcy law and you". CNNMoney.com, October 17, 2005. Retrieved on April 12, 2007. ^ 11 U.S.C. § 707(b)(7). ^ A chart of the most recent applicable median incomes by state can be found at the US Trustee’s website. ^ An itemized list of the applicable IRS living standards can be found at the US Trustee’s website. ^ 11 U.S.C. § 707(b)(2)(B) ^ Jones, Yvonne D. (2007), Bankruptcy Reform: Value of Credit Counseling Requirement Is Not Clear (GAO-07-203), Washington, D.C.: Government Accountability Office, p. 14, OCLC 156274430 LCCN 2007-414394 ^ Jones, Yvonne D. (2007), Bankruptcy Reform: Value of Credit Counseling Requirement Is Not Clear (GAO-07-203), Washington, D.C.: Government Accountability Office, p. (Highlights), OCLC 156274430 LCCN 2007-414394 ^ Text of Bankruptcy Reform Act of 1999. ^ Full text of bill ^ "Clinton vetoes bankruptcy bill." CNN.com, December 20, 2000. Retrieved on April 11, 2007. ^ Industry Issues: Bankruptcy Reform ^ Full text of legislation. ^ House roll call. ^ Senate roll call. ^ Harvey R. Miller, Chapter 11 in Transition - From Boom to Bust and Into the Future, 81 Am. Bankr. L.J. 375, 388 (2007) ^ a b Egan, Timothy. " Newly Bankrupt Raking In Piles Of Credit Offers." The New York Times, December 11, 2005. Retrieved on April 4, 2008. ^ Harvey R. Miller, Chapter 11 in Transition - From Boom to Bust and Into the Future, 81 Am. Bankr. L.J. 375, 387-88 (2007) ^ Harvey R. Miller, Chapter 11 in Transition - From Boom to Bust and Into the Future, 81 Am. Bankr. L.J. 375, 388 (2007) ^ Day, Kathleen. "Bankruptcy bill passes; Bush expected to sign." The Washington Post, April 15, 2005; Page E01. Retrieved on April 12, 2007. ^ Himmelstein, David U., Elizabeth Warren, Deborah Thorne, and Steffie Woolhandler. "MarketWatch:Illness And Injury As Contributors To Bankruptcy." Health Affairs, February 2, 2005. Retrieved on April 12, 2007. ^ Sabatini, Patricia. "New law's 'means' test just mean, bankruptcy experts say." Pittsburgh Post Gazette, April 26, 2005. Retrieved April 12, 2007. ^ Sahadi, Jeanne. "The new bankruptcy law and you". CNNMoney.com, October 17, 2005. Retrieved on April 12, 2007. ^ Gertner, Reni. "Lawyers reflect on first six months of bankruptcy reform". St. Louis Daily Record & St. Louis Countian, May 6, 2006. Retrieved on April 12, 2007. ^ "Testimony of Professor Elizabeth Warren to the U.S. Senate Judiciary Committee", February 10, 2005. Retrieved on April 12, 2007. ^ "No Bankruptcy Relief for Katrina Victims", ConsumerAffairs.Com, September 15, 2005. Accessed April 4, 2008. ^ See 11 U.S.C. 707. ^ U.S. Trustee's have the discretion to grant waivers of the credit counseling requirements to debtors. See 11 U.S.C. § 109(h)(2). House Roll Call Vote. Senate Roll Call Vote. [edit] External links No Bankruptcy Relief for Katrina Victims US Courts Bankruptcy Reform Page US Trustee Minimum wage, bankruptcy plans up for Senate vote The Associated Press US Trustee Means Testing page with Median Income Table US Trustee Credit Counseling & Debtor Education Information New law's 'means' test just mean, bankruptcy experts say Tuesday, April 26, 2005 By Patricia Sabatini, Pittsburgh Post-Gazette The heart of the sweeping new bankruptcy law set to take effect in October is a so-called "means test" that many filers will be forced to undergo to prove they are worthy of erasing their debts. This is the second of a three-part series on the new bankruptcy law. The final installment will appear tomorrow. http://www.post-gazette.com/pg/05116/494270.stm Part One: Bankruptcy is about to get a lot harder -- and, law's detractors say, meaner Part Three: Ripe for abuse? Critics of federal bankruptcy law worry about counseling requirement Unlike final exams, it is a test filers will be hoping to flunk. Those who pass will be deemed to have the "means" to pay off more of their debts. In that case, they won't be eligible for the most popular type of bankruptcy filing, a Chapter 7, which essentially lets debtors walk away from their bills after forfeiting most assets. Instead, debtors will be restricted to filing under Chapter 13, a more costly and lengthy process that allows them to keep more assets in exchange for sticking to a court-ordered spending and repayment plan. Supporters of the legislation insist that the means test will weed out abusers and force people who can truly afford it to pay back at least some of their debts. They say the test will do a better job of diverting filers to Chapter 13 repayment plans than judges, who currently decide which type of filing is most suitable. But critics charge it won't work that way. They say the test will do more harm than good by shutting out legitimate filers. They also contend the structure of the test will make it easy to abuse. Debtors will trigger the means test if they make more than their state's median household income, adjusted for family size and inflation. The median household income in Pennsylvania was $41,478 in 2003, according to the Census Bureau. If income exceeds the median, the court then must use a combination of state and IRS standards to determine what are reasonable costs for housing, food and other living expenses. Debtors who have enough money left over to pay creditors at least $6,000 over 5 years -- $100 per month -- will be forced into Chapter 13. Currently, judges set reasonable living expenses and determine how much debtors can afford to repay creditors. Veteran bankruptcy attorney Ken Steinberg of Steidl & Steinberg, Downtown, doesn't believe that using standardized living expenses is fair. For example, he said, he remembers one set of clients who had moved from Allegheny County to Beaver County to accept jobs after losing their old ones. A short time later, both were transferred back to Allegheny County to work. As a result, their commuting expenses were enormous -- a consideration that the new law may not allow. "Is the new law going to consider that these people are spending too much on gasoline?" If so, people in similar situations may have to give up their jobs or sell their homes, Steinberg said. In addition, the formula for calculating income, which averages a filer's monthly income over the previous six months, is similarly unfair, said Travis Plunkett, legislative director at the Consumer Federation of America. "What if you lost your job two months ago? They will count income going back four months that you no longer have," he said. "That doesn't make sense." Some also contend the test will make it easy for deadbeats to continue to work the system. "People could stay out of work for another month or so to reduce their monthly income or [run up] debts" just to duck the means test, said Jeff Morris, resident scholar at the American Bankruptcy Institute, a nonpartisan group that tracks bankruptcy statistics. Morris also maintains that the test will do little to actually get more money into creditors' hands, noting that two-thirds of Chapter 13 filers already fail to complete their repayment plans. "It's unrealistic to think you will have a better success rate for people who are involuntarily forced into Chapter 13."