BANKRUPTCY LAW

Major Intent of Bankruptcy Reform (BAPCPA):

The major intent of bankruptcy reform is to require people, who can afford to make some payments towards their debt, to make these payments, while still affording them the right to have the rest of their debt erased. These people must file Chapter 13.

Status of the Bills:
The Senate passed the Bill on March 11, 2005 and the Congress on April 14, 2005.

When will this be Law:
The bill was signed into law by the president on April 20, 2005.

Sections 308, 322 and 330, all concerning the homestead exemption, take effect immediately.

This is law now: For the most part the law came into effect 180 days after the Bill was signed on October 17, 2005.

Major Changes:

For Consumers there is a Means Test and requirements for credit counseling:

Means Test:
This will identify debtors who have the financial capacity to pay some money to their creditors. The test will work as follows:

TEST # 1:
Is the family earning above the median income for their state?
You can check to see if your income is above the median income for your state. State Median Incomes If the answer is "No" Chapter 7 can be filed!

TEST # 2:
If the answer is "Yes" to TEST # 1 , do you have excess monthly income of more than $166.66/month to pay $10,000 of debt over 5 years?
If the answer is "No" you must answer another question, if "Yes" Chapter 7 cannot be filed but Chapter 13 may be filed!

TEST # 3:
If the answer is "No" to TEST # 2 do you have excess income of greater than $100/month to pay over the next 60 months at least 25% of your unsecured debt?
If the answer is "No" you can file Chapter 7, if "Yes" chapter 7 cannot be filed but Chapter 13 may be filed!

Proof of Income:
Debtors filing Chapter 7 or Chapter 13 bankruptcy, must provide to the trustee, at least seven days prior to the 341 meeting, a copy of a tax return or transcript of a tax return, for the period for which the return was most recently due.

State Exemptions:
You cannot use the exemptions in your state of residence unless you have lived there at least 2 years.

Homesteads:
This goes into effect as soon as the bill is signed by the president! The exemption is limited to $125,000 if the property was acquired within the previous 1215 day (3.3 years). The cap is not applicable to any interest transferred from a debtor's previous principal residence (which was acquired prior to the beginning of such 1215-day period)

Counseling:
You must have finished counseling within the last 6 months before you can file.

Child Support and Alimony:
These debts would go from a priority of 7th to 1st.

Tithing:
Up to 15% of your income can be given to charity. This is seen by some as a loophole allowing people who may be just over the thresh hold of having to file Chapter 13 to drop down low enough to file Chapter 7.

Bankruptcy Basics
The Law and its language

Bankruptcy in the United States seeks to benefit both debtors and creditors by seeing that debtors get relief from debts they can't pay, and that creditors get paid from whatever assets the debtor does not need to live going forward.

Bankruptcy is governed by the federal law found in Title 11 of the United States Code. As federal law, it supersedes any conflicting state law by reason of the Supremacy Clause of the Constitution. With the exception of exemptions, it is the same from state to state.

You can go to the Glossary page in this site for an explanation of the terms used in bankruptcy. When legal terms are used in this site, they are linked to the Glossary: you can click on the legal term and see a general definition of the term.
Bankruptcy chapters

There are four kinds of bankruptcy proceedings. They are referred to by the chapter of the federal Bankruptcy Code that describes them.

Chapter 7

Chapter 7 is the most common form of bankruptcy. It is a liquidation proceeding in which the debtor's non-exempt assets, if any, are sold by the Chapter 7 trustee and the proceeds distributed to creditors according to the priorities among creditors established in the Code.

Chapter 7 is available to individuals, married couples, corporations and partnerships. Individual debtors get a discharge within 4-6 months of filing the case.

If there are assets which are not exempt, the trustee takes control of those assets, sells them and pays creditors as much as the proceeds permit.

Any wages the debtor earns after the case is begun are the debtor's; the creditors have no claim on those earnings.

Chapter 11

Chapter 11 is a reorganization proceeding, typically for corporations or partnerships. Individuals, especially those whose debts exceed the limits of Chapter 13, may file Chapter 11.

In Chapter 11, the debtor usually remains in possession of his assets and continues to operate any business, subject to the oversight of the court and the creditors committee.

The debtor proposes a plan of reorganization which, upon acceptance by a majority of the creditors, is confirmed by the court and binds both the debtor and the creditors to its terms of repayment. Plans can call for repayment out of future profits, sales of some or all of the assets, or a merger or recapitalization.

Chapter 12

Chapter 12 is a simplified reorganization for family farmers, modeled after Chapter 13, where the debtor retains his property and pays creditors out of future income.

Chapter 13

Chapter 13 is a repayment plan for individuals with regular income and unsecured debt less than $307,675 and secured debt less than $922,975.

The debtor keeps his property and makes regular payments to the Chapter 13 trustee out of future income to pay creditors over time (3-5 years).

Repayment in Chapter 13 can range from 10% to 100% depending on the debtor's income and the make up of the debt.

Certain debts that cannot be discharged in Chapter 7 can be discharged in Chapter 13. Chapter 13 also provides a mechanism for individuals to prevent foreclosures and repossessions, while catching up on their secured debts.

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McCallar Law Firm 115  West Oglethorpe Avenue P.O. Box 9026 Savannah, Georgia 31412

Phone: 912-234-1215 Fax: 912-236-7549