President Bush signed the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 into Law on April 20, 2005. Most of the provisions of this new act will come into effect in180 days after the day of enactment. Thus, October 17, 2005 is the effective date for the new law.

Our Office prepared an informative letter to help our clients understand the changes. Please be advised that this letter is a general guide only and does not give an overall, deep, legal analysis of all changes. Only changes of the Bankruptcy code which concern the Debtor are discussed.  

1. As a precondition to being eligible for bankruptcy relief, the Debtor must undergo credit counseling within 180 days of the filing. The Debtor must also complete a course in personal financial management as a condition of receiving a discharge. Moreover attorneys could be sanctioned if they do not investigate the circumstances that give rise to the petition.

2. The new means test for eligibility for chapter 7 relief was adopted § 707 (b)2. A Debtor is presumed to be abusing chapter 7 if current monthly income , excluding allowed deductions, secured debt payments and priority unsecured debt, and multiplied by 60, would permit a Debtor to pay at least 25 percent of unsecured debt or $100 per month over 60 months for a total of $6,000.00 to unsecured creditors.

3. Allowed deductions will be provided by the Collection Financial Standards issued by the Internal Revenue Service according to §707(b)(2)(A)(ii) - (iv). There will be additional expenses which would be allowed though:

a. necessary health insurance

b. continuation of expenses paid for the care of an elderly

c. up to $1500/year for expenses of dependent minor child to attend private or public secondary school

d. actual expenses for utilities in excess of allowance specified in Collection Financial Standards.

e. additional 5% of the National Standards for food and clothing if reasonable and necessary.

4. The current monthly income multiplied by 12 should not exceed the median family income of the family of the same or smaller size for the state the family lives in. §707 (b) (1),(6), (7)

5. The time between Chapter 7 filings is extended from 6 years to 8 years. That means that a Debtor after filing for Chapter 7, cannot file it again within the next 8 years.

6. Consumer debts incurred from a single creditor for more than $550 for "Luxury goods" within 90 days of filing, and cash advances for more than $750 within 70 days, are presumed nondischargeable.

7. Goods Received by the Debtor within 45 days preceding the filing can be reclaimed by the creditors § 546c. The creditor will do a written reclamation demand -

-Not later then 45 days after receipt of goods by the debtor;

If the creditor does not give timely notice, it still retains an administrative expense claim under § 503 (b)(9).

The Following Literature was used in preparation of this informative letter:

1. Daniel M. Glosband, President Bush signs S. 256- Enacting Bankruptcy Reform Legislation - Goodwin Procter LLP, June 8, 2005, Mondaq Business Briefing.

2. Bankruptcy Bill Reintroduced, Reported by Senate Committee Determined Opposition Expected on Senate Floor, 24-2 ABIJ3(2005).

3. Tomas J. Yerbich, Esq, Synopsis of Bankruptcy Abuse Prevention and consumer Protection Act.

4. Lesllie E. Linfield, Credit Counseling update" The Perfect Storm" Brewing, 24-3 ABIJ 30 (2005).

5. Deborah L. Thorne, Reclamation Creditors Gain significant Advantage, 2404 ABIJ1(2005).