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Being broke has gotten tougher.
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, designed
to curb abusive consumer bankruptcy filings, affects anyone who files for bankruptcy. It went into effect Oct. 17. While there are a few bright spots in the law, the
overall picture is dim for consumers deeply in debt. Its provisions force consumers into more-expensive proceedings
potholed with potential pitfalls. Miss one filing deadline and your bankruptcy
could be dismissed, leaving you facing a series of escalating penalties when you
refile that will make it that much harder to get back on your feet, financially.
That's not the worst part. A complicated means test, administered
by your own attorney, will determine whether you'll be allowed to file under Chapter 7, which forgives debt, or Chapter 13, which sets out a repayment plan. In addition,
your collateral, including furniture, cars and other possessions, will be assessed
at a higher value, inflating the overall value of your assets. When
you're worth more, your creditors can potentially get more out of you. It will
also be harder to get out from under car loans, overdue taxes, student loans and
credit card debt. While cracking down on deadbeats who abuse
the system isn't going to leave anyone reaching for the tissue box, many of those
who file for bankruptcy are pushed to the edge by unemployment and catastrophic
health problems. "There are dozens of catches
that will make it difficult for people who legitimately need to file
for bankruptcy," says Travis Plunkett, legislative director for the Consumer
Federation of America. "The strategy of the people who supported this bill
appears to be death by a thousand cuts. There are lot of traps and gotchas designed
to snare people and keep them from discharging debt that they really may need
to get out from under." Pre-filing
changes
Means test. The means
test is a major change in the law. It is used to determine whether an individual
can file under Chapter 7 or Chapter 13 and is administered by the client's attorney.
Chapter 7 generally liquidates the debts of consumers, while Chapter 13 requires
them to pay back their secured debt and as much of their unsecured debt as possible. Here
is an overview of the means test: - Income:
Using your
state's median income, your attorney determines whether your income, determined
by averaging those of the past six months, is above or below that median. That
figure must be used even if it is no longer accurate; that is, if the consumer
has lost his or her job, or now makes less money.
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