BK reform effects....

I wanted to start this thread in order to delineate the effects the new reform bill will have on people filing for bk. It will be for educational purposes which is one of the main purposes of creditnet so please contribute if you can. The new reforms are lengthy so everyone can contribute something. Here goes my first contributions:

1. After filing a chapter 7 and being discharged you will now have to wait 8 years instead of 6 before you can file another bk.

2. After filing a chapter 7 and being discharged you can no longer file a chapter 13 to take care of non-discharged debt (basically the "chapter 20" is done away with).

3. The residency requirements for filing a bk has been increased from 6 months to 2 years. This means you have to live in the district you file in for one day over 1 year as opposed to one day over 3 months. This will stop people from moving to homestead liberal states like Texas and Florida in order to shield big assets.

These three are just the tip of the iceburg so come on all you research oriented people (you know who you are) and let's get all the relevant consumer changes (so don't worry about chapters 11 & 12) included on this thread.

Hope this starts a great thread.

clc

 

Calmest,
You are exactly right and those provisions are in the bill. Let's ferret out all the appropriate provisions dealing with this. Here is the site where you will find the latest version of the bill:http://thomas.loc.gov/cgi-bin/query/D?c107:4:./temp/~c107da6JJz::

Let's all review it and post the parts that will be important for us all to know.

I would do it all but I'm am swamped right now as I'm prepping to take the law school admissions test. But I will try and contribute when I can. Thanks.

clc

 

KHM-
Not exactly sure what "put in moron term's" means as I don't consider anyone here morons except maybe our friendly, incompetent trolls. I just want to point out that this bill is far reaching and will effect not only bkers but also the way we acquire and deal with credit. It is not a great bill for the consumers but the credit industries' lobbyists (well paid and funded I might add) have been pushing this for almost 5 years...and it WILL pass and I predict it will pass before the end of this year. So I just want everybody here to understand the changes and be ready to change their credit repair tactics' advice when it is in fact passed into law.

Thanks for the support of this thread!

clc

 

keepmine-
You are exactly right...this bill will effect not only how we deal with debt but also how we acquire and maintain debt. It will change the credit repair tactics significantly. that is why I want all your input on the parts you think will be significant in those areas.

the creditnet group is strong on research...let's be proactive and not reactive on this!

clc

 

Well before I get back to studying here are two more provisions:

Chapter 7 & Chapter 13 discharges will be conditioned upon the debtor's completion of an approved instructional course concerning financial management (I wonder who is going to run these???)

Prohibits credit counseling agencies from reporting a debtor's participation in their program to credit reporting agencies. (This will definitely change our advice to never seek CCC services.)

Will check back later and add a couple of more.

clc

 

not exactly, keepmine. What the new Section 308 says is it will prohibit from exemption from the bk estate any amount of interest acquired during the 2 years before the bk filing. That includes real or personal property used as a residence, a cooperative that owns property as a residence by the debtor or the debtor's dependent, or a burial plot for the debtor or the debtor's dependent.

In laymen's language that means that if you buy a house in Florida (which exempts all homestead property which is why O.J. lives there) and you pay cash...in order to hide your assets from bk. If the house appreciates more than $125K in the 2 years before the bk filing than all amounts above that will become part of the bk estate. This in effect takes away some of the State's protections but does not eliminate them entirely. This also ties in with the residency requirement of 1 year and a day. So basically the new strategy will have to be buy a year in advance, pay cash and pray the real estate market takes a dive. Not a really reliable strategy which is just what the drafters wanted. BTW I just used FL as an example as it is a state where people go to invest assets in order to keep them from the bk estate. So for the normal joe this won't be a big deal problem as few homes increase in value $125K in 2 years.

There are some consumer protection provisions in the bill...but I'm tired and need to get some sleep. I will touch on those in tomorrow's lesson ;=}.

Nite,

clc

 

Here are a couple more provisions of the bk reform act:

1. Modifies guidelines governing nonattorney bankruptcy petition preparers to mandate that as a prerequisite to any collection of fees for services: (1) such preparers officially disclose to debtors that they cannot practice law or give legal advice; and (2) such disclosure be signed by the debtor and filed with the requisite court documents. Prescribes enforcement and penalty guidelines for preparer noncompliance.

This basically states that if a non-lawyer prepares your filing and there are problems later you are in essence screwed as you will have to sign away the "affirmative" defense of "I paid someone to do this and I thought it was done right".

2.(Sec. 225) Sets forth criteria for excluding certain education individual retirement accounts from the property of the bankruptcy estate if the designated beneficiary is the debtor's child or grandchild.

This provision is the first big "loophole" as it seems you can hide some cash assets here. So if you have a child or a grandchild open up a UGMA account with $100 so you have it in case you need it. Finding the "loopholes" in this reform act is going to keep bk attorneys really busy!

Stay tuned for my next edition tomorrow. Hope everyone's weekend was swell.

clc

PS a chapter 20 is in actuality a Chapter 7 followed by a 13. It is used when after a 7 you still have non-discharged debts and want to force a payment plan on the remaining creditors. A chpater 13 to a 7 is called a "conversion". The bk reform act will eliminate the chapter 20 strategy..more about that tomorrow.

 

Sorry...one more post to answer SCmomof5's question (didn't ignore you just overlooked it at first :{).

(Sec. 309) Revamps prescriptions governing the effects of conversion from chapter 13 to another chapter. Declares that: (1) valuations of property and of allowed secured claims in a chapter 13 case shall not apply in a case converted to chapter 7; and (2) with respect to cases converted from Chapter 13, the claim of any creditor holding security as of the date of the petition shall continue to be secured by that security unless the full claim amount, as determined under applicable nonbankruptcy law, has been paid in full as of the conversion date. States that a prebankruptcy default shall have the effect given under applicable nonbankruptcy law unless it has been fully cured pursuant to the plan at the time of conversion.

This provision changes the rules for conversion by eliminating the "cramdown" effect of a 13. A "cramdown" example is if you own a car and the balance of your car loan is $10K but the real value of the car based on blue book and auction sale price is $7K...you in essence in a 13 can cram the creditor down to 7K saving you $3K in loans. If you failed to complete your plan and convert to a chapter 7 the car is still worth only the $7K. In the new law this will be done away with. If you convert from a 13 to a 7 the car will then be evaluated at whatever the balance on your loan is. So instead of reaffirming at $7k (which is the way it is now) you will have to reaffirm at the $10k or give up the car. This does away with the strategy people used to remedy being upside down in a car loan.

So in answer to SCM5...you will still be able to convert but the penalties for converting will be more severe.

More tomorrow,

clc

 

<bump> will add more bk reform provisions later today but in the mean time has anybody else read the proposed bk reform act?

Later,

clc

 

Two more provisions of the bk reform act:

Redefines "disposable income" of a chapter 13 debtor to exclude a domestic support obligation that first becomes payable after the date the petition is filed.

This provision will eliminate having to declare your future alimony/child support payments post divorce/post filing. The strategy here would be to file bk before you are to receive these payments so that you can effectively receive them without including them in your disposable income for a 13 plan.

Cites circumstances under which a chapter 13 wage earner's plan may be modified after confirmation to include a special allowance for health insurance coverage.

This was a sorely needed provision and is very pro-consumer. Basically you will be able to modify your plan if for any reason you will have to pay for health insurance that is not covered in your employment package.

Will add a couple of more later tonight.

clc