Understanding the new bankruptcy law
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When a bankruptcy case is filed, the court automatically stops debt collection activities by those representing both secured and unsecured creditors. Secured creditors are those with loans secured by property such as a home, car or boat. Unsecured creditors are those that don't have any interest in property -- mostly credit card companies.

However, this stay isn't automatic if you previously filed a bankruptcy case that was dismissed. Under the new law, such refilings are automatically treated as abusive, even if the prior case was dismissed because you weren't aware that you had to file certain documents or you made a mistake.

You'll have to ask the court for a stay within 30 days of your second filing. If the court finds that this filing was made in good faith, you'll get the stay on creditors. If not, you won't, and your house or other property could be repossessed despite the fact that you are in bankruptcy. If it is your third time around, the stay is even more difficult to get.

Serial filers. While the old law forced consumers to wait a certain period of time between bankruptcy filings, it was much easier to file for one type of bankruptcy after filing for another. For example, in legal circles, consumers who file a Chapter 13 to hold onto their secured property and then file a Chapter 7 to get out from under debts held over under the Chapter 13 are known as "Chapter 20" filings.

"A lot of Chapter 13 filings fail because the debtor either can't or won't pay his creditors under the plan worked out in that filing," says Howard Dvorkin, president of Consolidated Credit Counseling Services, a consumer credit counseling agency in Fort Lauderdale, Fla. "So they end up with what we call a Chapter 20."

The new law lengthens the amount of time between Chapter 7 filings to eight years. There must be four years between a Chapter 7 and a Chapter 13, and two years between consecutive Chapter 13s, according to the American Institute of Bankruptcy.

The bright spot
Reducing unsecured claims. The biggest bright spot in this law allows bankruptcy courts to impose debt reductions of up to 20 percent on unsecured creditors who don't cooperate with consumer credit counseling agencies' efforts to negotiate payment plans with those creditors. While many creditors are usually willing to reduce interest rates in repayment plans, few offer any reduction of principal. This provision gives consumers and consumer credit counseling agencies some real leverage in negotiating, says Plunkett.

In many cases, unsecured creditors are the credit card companies who were a driving force behind this bill. And while credit card companies ultimately stand to recoup more from consumers in bankruptcy, this provision will actually let consumers do something meaningful to reduce their overall debt load into a more payable amount.

A court can force this 20-percent reduction of principal on unsecured creditors if they refuse an offer from a debtor through a consumer credit counseling agency, offering to pay 60 percent of the debt due if the plan is proposed within 60 days of filing a bankruptcy petition.

Enhanced disclosures. For debtors who sign agreements with creditors to continue paying back debt during and after bankruptcy, known as reaffirmation, the law specifies that these consumers must be fully informed of their rights and the exact terms of these agreements. Consumers have the right to change their minds within a certain period and receive documents stating the date payments are to begin, as well as the interest rate to be paid.

Retirement and college savings gain protection. If a consumer entering bankruptcy has funds in a retirement plan such as a 401(k), 403(b) or an IRA, those funds aren't included in the bankruptcy as an asset available to creditors. College savings accounts for children are also exempt, and debtors are allowed to continue to fund retirement plans, if they can.

"IRAs, other retirement plans and 529s are exempt; so, the law is trying to protect consumers' retirement benefits, which is very good," says Duggan. "But in most cases there is not a lot to protect in the first place."

Support obligations. Child support obligations now receive top priority in bankruptcies, ahead of all other unsecured claims except administrative and legal fees. Debtors in Chapter 13 must pay back all child support arrears before their bankruptcy can be completed or discharged.