| The goal of the Bankruptcy
Abuse Prevention & Consumer Protection Act of 2005 (Act) is to prevent abuse
of the bankruptcy process and to require those filers able to repay some of
their debts to do so after filing for bankruptcy.
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| Means Test
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| The means test at the center of
the Act determines whether an individual is required to file for protection
under Chapter 13 of the Act, which results in a court-ordered repayment plan, as
opposed to Chapter 7, which erases debts following the forfeiture of certain
assets. The formula used in the means test takes into account whether filers
earn more than their state's median income and whether their remaining income
"after allowable expenses are deducted" is sufficient to pay up to
$6,000 over a five-year period.
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| Home
Equity/Homestead Exemptions
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| For homes purchased within 40
months of the bankruptcy filing, the Act limits the home equity a debtor could
protect during bankruptcy proceedings to $125,000. For bankruptcy filers
convicted of certain crimes, including securities fraud, the $125,000 figure
would apply no matter when the home was purchased. Outside of those
restrictions, state homestead laws would apply.
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| Limits
on Non-Dischargeable Debts
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| The Act makes a number of debts
non-dischargeable, meaning they would have to be repaid. Included in the list
are domestic support obligations such as alimony and child support, as well as
luxury purchases exceeding $500 and made within 90 days of filing for
bankruptcy. Cash advances greater than $750 made within 70 days of filing also
would have to be repaid. Other non-dischargeable debts would include fines or
penalties under federal election laws, qualified student loans and any debt
incurred while paying a debt that is non-dischargeable.
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| Repeat
Bankruptcy Filers
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| The Act also contains new
provisions addressing repeat bankruptcy filings by individuals, providing limits
to the automatic stay and allowing the bankruptcy court to terminate or restrict
the automatic stay against collection of debts if an individual files for
bankruptcy within one year of a previous filing.
Additionally, the Act extends from six to eight years the allowable time
between a Chapter 7 discharge and a new Chapter 7 bankruptcy filing.
Other limitations apply to Chapter 13 cases.
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| Consumer
Education
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| Under the Act in order for an
individual to be eligible for bankruptcy relief, he or she, in a majority of
cases, must have received credit counseling within six months of filing for
bankruptcy protection, followed by a personal financial management course.
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Small-Business Provisions
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| The Act makes changes to
sections of the bankruptcy code dealing with small-business bankruptcies.
Small-business debtors are required to file a reorganization plan within 180
days of filing the bankruptcy petition, and would be required to file periodic
financial reports. The current definition of a small business includes any
business with less than $2 million in debts. |
