CHANGES IN THE LAW, EFFECTIVE OCTOBER 17, 2005 BELOW
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CHANGES IN THE LAW,
EFFECTIVE OCTOBER 17, 2005
A means test has been designed to force those debtors who have the ability to pay some of their debts into Chapter 13 as opposed to liquidating their debt under Chapter 7 and wiping the slate clean. The Act eliminates the presumption that, without a finding of substantial abuse, a debtor is entitled to relief under Chapter 7. Instead, a debtor's Chapter 7 case will be dismissed or, with the debtor's consent, converted to a Chapter 13 upon a finding of abuse. The Act lowers the "substantial abuse" standard for dismissal or conversion to one of simple abuse. Whether abuse is presumed depends on the outcome of the means test. This test is complicated, but in a nutshell, once the debtor's current monthly income (CMI) is determined and reduced by all of the allowances, actual monthly expenses, and secured and priority claimed deductions, the number resulting from those calculations is multiplied by 60 months. Abuse is presumed if that number is not the lesser of 25% of the debtor's non-priority unsecured claims or $6,000.00, whichever is greater, or $10,000.00. The debtor will be required to show the calculations to determine whether a presumption of abuse arises. (Sec. 707 (b)(2)(C)). The presumption of abuse may only be rebutted with detailed documentation of "special circumstances" requiring additional expenses or adjustment of current monthly total income for which there is no reasonable alternative. (Sec. 707(b)(2)(B)(ii)).
The United States Trustee must review all materials filed by Chapter 7 debtors, and not later that ten days after the meeting of creditors, file a statement as to whether the presumption of abuse is triggered. If the debtor has income in excess of the of the median income, the United States Trustee must either file a motion to dismiss or convert the case or file a statement setting forth the reasons why the motion is not appropriate, within 30 days of the filing of the notice.
1. Effective October 17, 2005, no individual may be a debtor under Title 11 unless, within 180 days prior to filing the petition, the debtor has received an individual or group briefing from an approved non-profit entity that outlines the opportunities for credit counseling and assists the debtor in performing a personal budget analysis. Counseling can be individual, group, telephone or even possibly over the internet.
2. Debtors must file a certificate from the budget and credit counseling agency that describes the services provided to the debtor and the debtor must file a copy of the debt repayment plan, if a repayment plan was created prior to filing. The debtor may file a sworn statement that states the exigent circumstances that prevented the filing of the certificate. (Sec. 109(h)(l). However the debtor would need to attend counseling within 30 days after filing the petition.
3. Debtors must file a statement showing any anticipated increase in income or expenditures anticipated within the year after filing. (Sec. 521(a)(1)(B)(iv)).
4. Debtor must deliver to the trustee a copy of the debtor's latest tax return or a transcript prior to the meeting of the creditors or the debtors case "shall" be dismissed. (Sec. 521 (e)(2)(A) ).
5. Debtor must provide a copy of the tax return or transcript to any creditor that requests a copy at the same time the debtor provides such to the trustee. (Sec. 521 (e) (2) (A) (ii) )
6. Debtor is under a continuing duty to provide tax returns during the case, from commencement to termination; the case may be dismissed or converted for failure to comply.
7. Debtors must choose their intent to surrender, reaffirm or redeem a debt secured by property of the estate within 30 days after the first date set for the meeting of creditors.
8. In the case of personal property secured by purchase money security interest, within 45 days after the first meeting of creditors, debtors must reaffirm, redeem, or surrender the property. Failure to do so will result in an automatic lifting of the stay without creditor motion. (Sec. 521 (a)(6)).
9. A debtor can be denied a discharge if the debtor fails to complete an educational course concerning personal financial management, (Sec. 727(a)(11)) unless the court determines that the debtor is unable to complete this requirement because of incapacity, disability, or active military service in a combat zone.
Non-Dischargeable Debts Expanded
1. Debts for money, credit, etc. , obtained through fraud or false statement in writing.
2. Debts incurred within 90 days of filing that aggregate at least $500.00 for luxury goods or services and cash advanced aggregating more than $750.00 within 70 days. (Sec. 523(a)(2)).
3. The exception to discharge for student loans is expanded to encompass all student loans, as defined by the IRC Sec. 221(e)(1).
4. If an individual is drunk or impaired due to drugs or any substance, and causes death or personal injury by operating a motor vehicle, vessel or aircraft, then debts relating to that incident are non-dischargeable. (Sec. 523(a)(9)).
5. Domestic support obligations are non-dischargeable. Sec. 523(a)(5) and 523(a)(15)).
6. Debts incurred to pay state and local taxes. Sec. 523(a)(14)).
7. Debts incurred to pay fines and penalties.
8. Debts from homeowner association, condominium and cooperative dues.
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