By Arlene Gordon Oliver, Esq.
On October 17, 2005, a new bankruptcy law, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, will go into effect. This new law will have a great impact on consumers, as it will make it much harder for debtors to wipe out credit card debt. Instead the new laws could push for debtors to file Chapter 13, which means they will still be required to repay their outstanding debt over an extended period of time. Arlene Gordon Oliver, Esq. is a partner at Rattet, Pasternak and Gordon Oliver, LLP., a law firm in New York State specializing in bankruptcy. She is also chairperson for the Bankruptcy Law Section of The National Bar Association, which convenes for its 80th annual convention July 30-August 6, 2005 in Orlando, Florida.
Q: How will this new law impact people who are in financial trouble and may need to file bankruptcy or Chapter 7?
A: Anyone who seeks to file (for Chapter 7 Bankruptcy), will be forced to undergo a "means test". The "means test" requires inter alia, that their gross income will be measured against the state’s median. If their gross income is higher than their state’s median income, they will not be able to file Chapter 7, but will be forced to file a Chapter 13 or Wage Earners Bankruptcy. This means that they will have to repay their existing debt using a portion of their income over 5 years. In addition, this new law will require that before filing, debtors will be required to take credit counseling classes. This will prolong the filing process which could cause debtors to lose their assets and will also increase the fees and expenses for filing bankruptcy.
Q: What is the difference between filing Chapter 7 and filing Chapter 13?
A: Chapter 7 means that the debtor’s debt slate is wiped clean and they get a "fresh start". Filing Chapter 13 places the debtor on a repayment plan to repay their debt (under the new law debtors will be required to repay debt over a five 5 year period).
Q: What is the National Bar Association’s view of this new law?
A: As Chairperson of The National Bar Association Bankruptcy Law Section, I view these changes as unnecessary and burdensome. The process has not only become complicated for debtors, but for their attorneys as well, who will now have to sign a "certification" that they have conducted an investigation into the debtor’s financial affairs and attorneys will be subject to sanctions in the event that the debtor’s petition and schedules contained inaccuracies. The new legislation also appears to severely limit the discretion of Bankruptcy Judges. I believe that the Bankruptcy Judges, the Office of the United States Trustee, the Chapter 13 Trustees and Chapter 7 Panel Trustees do a very good job at weeding out the abusers. In addition, debtors who are planning to file bankruptcy will incur many more additional charges. For example, they will have to pay for credit counsel in addition to the legal fees for filing, and the legal costs will be higher because this filing process will now be very lengthy.
Q: Do you think this is fair?
A: Most consumers do not abuse the system. Many of my clients who file for bankruptcy, have had hardships such as business failings, health issues and divorce. In many cases, I have had clients come to me almost at the eve of foreclosure sales of their homes or businesses. When this law goes into effect, it will be more difficult to save their assets because before filing for bankruptcy, debtors will be required to attend credit counseling classes up to 180 days before filing and their legal counsel must certify that have investigated their financial circumstances before taking them on as a client. In addition, before receiving a discharge, the debtor must complete an instructional course (which carries an additional fee) concerning personal financial management.
Q: Can a person undergoing hardship still use bankruptcy to stay an eviction?
A: Bankruptcy will no longer stay an eviction if a judgment was obtained prior to the filing.
Q: What are some things debtors should be more mindful of?
A: Credit card companies: I think now credit card companies are going to become more aggressive in inviting consumers to apply for credit card applications. Consumers will now find it more difficult and expensive to file bankruptcy. This will lead the credit card companies to garnish wages, lien bank accounts and possibly seize other assets. Anyone who foresees medical issues or financial problems should seek counsel now and have someone go over their financial affairs with them. Should they need to file bankruptcy, they should do so before October 17.