Bankruptcy Abuse Prevention and Consumer Protection Act of 2005

Payday Loans are a quick fix for cash flow problems. Please remember that cash loan or a paycheck advance is a short term solution. Having more then one cash advance out at the same time can lead to bigger financial problems further down the road. And its even worse if you are taking out a cash advance to pay for another payday loan. This type of irresponsible behavior can lead to bankruptcy.

Following is a summary of the some of the changes to the bankruptcy laws. For complete information on The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, please visit http://www.uscourts.gov/bankruptcycourts.html or http://www.abiworld.org.

Effective Date: The new bankruptcy laws will become effective on October 17, 2005.

Limited Eligibility for Chapter 7 - "Means Testing" - If a consumer’s household income is greater than the state median income for a family of his or her size then the bankruptcy trustee may request that the court dismiss the Chapter 7 case due to “abuse.” The court will presume that the consumer is ineligible for Chapter 7 bankruptcy ("liquidation") if his or her current monthly income should, according to a list of permissible expenses set forth by the IRS, leave the consumer with $100 per month to be repaid to creditors.  In such cases, the consumer will have to repay his or her debts over a five-year period through Chapter 13 ("adjustment").

Bankruptcy Credit Counseling - Beginning October 17, 2005, every individual who files for bankruptcy must receive mandatory credit counseling from an “approved nonprofit budget and credit counseling agency.” The credit counseling must occur within 6 months prior to the bankruptcy filing and the credit counseling agency must provide proof to the court that the consumer has received the counseling. A consumer will not be permitted to discharge debts under Chapter 7 or Chapter 13 unless he or she completes a mandatory debtor education course in personal financial management as approved by the U.S. Trustee. The legislation requires people in bankruptcy to pay for credit counseling.

Creditors - Current law allows debtors in bankruptcy to use an “automatic stay” to stop creditors from pursuing them – allowing a fresh start.  Beginning October 17, 2005, the ability to stop creditors through the use of the automatic stay (see above) will be limited. Under the new law, for example, if a consumer has filed for bankruptcy and needs to re-file because the first one was dismissed, the creditors can collect again from the consumer 30 days after the new case is filed if the re-filing takes place within a year of the first case. If two or more bankruptcy cases were dismissed during the prior year, the automatic stay does not go into effect at all until the court so orders after a hearing and a demonstration that the filing was made in good faith.  There is an assumption that the consumer has filed the bankruptcy in bad faith unless proven otherwise. Cash advances of $750 within 70 days of filing are considered to be non-dischargeable.

Attorney Fees - For those who seek an attorney's help, it will be harder to find after October, and it may cost double what it does today. This is due to increased paperwork and new punitive laws that require attorneys to "investigate" the debtor's claims and make the debtor's attorney financially responsible for court costs and creditor's attorneys' fees if the debtor's statements about their property and finances turn out to be false or incomplete.

Additional Documents Required - In addition to the list of creditors, schedules of assets liabilities, income and expenses, debtors must provide the following: A certificate of credit counseling, pay stubs for the 60 days before filing your case, tax returns or transcripts for the most recent tax year, tax returns filed during the case including tax returns for prior years that had not been filed when the cases began, and photo identification. Failure to provide the required documents within 45 days after the petition has been filed will result in automatic dismissal of the case.

Increased Time Between Bankruptcy Filings - A consumer will not be eligible to receive a discharge of your debts in Chapter 7 if he or she has received a prior Chapter 7 discharge within 8 years of the new filing. A consumer will not be eligible to receive a Chapter 13 reorganization if he or she has filed a Chapter 7, 11 or 12 bankruptcy case within the 4 years prior to the date of filing of the pending case, or if the consumer has filed a Chapter 13 case within 2 years of the pending case.