On April 14, 2005, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) was enacted, which implemented several significant changes to the United States Bankruptcy Code. On April 20, 2005, President George W. Bush signed “BAPCA” into law. The act took affect on October 17, 2005. Referred to as the “New Bankruptcy Law,” “ BAPCA” attempts to, among other things, make it more difficult for debtors to file a Chapter 7 Bankruptcy—under which most debts are forgiven (or discharged)–and instead required them to file a Chapter 13 Bankruptcy—under which the debts they incurred are discharged only after the debtor has repaid some portion of these debts.
Some Key Changes:
Means Test: Currently, it’s up to the court to determine if your case qualifies for Chapter 7 bankruptcy. Under “BAPCA”, your income will be subject to a two-part “means test,” which analyzes your income for the six (6) months prior to filing for bankruptcy. The “means test” determines whether your income is low enough for you to file Chapter 7 bankruptcy. It’s a formula designed to keep filers with higher incomes from filing for Chapter 7 bankruptcy. High-income filers who fail the means test may use Chapter 13 bankruptcy to repay a portion of their debts.
However, having to take the Chapter 7 means test doesn’t mean that you must be penniless in order to use Chapter 7 bankruptcy. You can earn significant monthly income and still qualify for Chapter 7 bankruptcy if you have a lot of expenses, such as a high mortgage payment.
Credit counseling and money management: Under provisions of the new bill you must complete a credit session in the six months prior to applying for bankruptcy. And before debts are discharged (or wiped out), you must complete a money management class.
The Different Types of Bankruptcy Available to New Yorkers
The Bankruptcy Code provides for three different types of bankruptcy filings:
- Chapter 7
- Chapter 13
- Chapter 11.
Chapter 7
Chapter 7 is one type of bankruptcy that is available for individuals. It is also called straight bankruptcy or liquidation. The bankruptcy court appoints a trustee who administers the bankruptcy. The individual filing for bankruptcy usually retains all the typical types of household goods and clothing. He may also retain his home and vehicles as long as he does not have more equity in those items than he can exempt (or protect). If the bankruptcy trustee allows an individual in bankruptcy to keep a car secured by a car lien or a house encumbered by a mortgage, the individual filing for bankruptcy must pay all car and mortgage payments as they fall due and pay the insurance on those items. A chapter 7 bankruptcy usually lasts about four to six months. At the end of the bankruptcy, most debts are extinguished through a discharge of debts. Secured debts, however, such as a car loan or a mortgage, receive different treatment. At the beginning of the bankruptcy process, the debtor will select to do one of the following:
- Pay the creditor for the replacement value of the property;
- Return the property to the creditor;
- Or “reaffirm” (or agree) to new contract terms with the creditor
Chapter 13
Chapter 13 is another type of bankruptcy available for individuals. This bankruptcy lasts for the duration of a debt repayment plan, from three to five years. General, unsecured creditors are usually only repaid a small percentage of what is owed, but past due taxes must be paid in full, as well as arrearages on secured debt, such as a mortgage or car loan. This bankruptcy may allow individuals to keep a home or car even if they have become seriously delinquent on the loans. At the end of a successful bankruptcy, most debts are extinguished through a discharge of debts.
The debtor must meet debt limitation requirements. A debtor is ineligible for Chapter 13 if unsecured debt exceeds $336,900 or secured debt exceeds $1,010,650.
Chapter 11
Chapter 11 is a type of bankruptcy that is referred to as “business reorganization” bankruptcy. It is specifically aimed at relieving the debts of businesses and corporations. Businesses that file for Chapter 11 are able to continue with almost normal operation as a debtor-in-possession. It is designed to permit a business the ability both to restructure its debt and to reorganize its business operations