News
Bankruptcy Reform bills
have been passed by both the House (H.R. 833 on February 2, 2000) and the
Senate, (Amended S. 1301 on September 23, 1998), but the two bills have
significant differences. Before a bankruptcy reform bill is presented to
the President, a Conference Committee will need to develop a reconciled bill,
and both branches of Congress will need to vote on the new bill. Last
spring, a group of Republicans, met in shadow conferences to attempt to develop
a reconciled bill President Clinton issued a statement threatening to veto the
legislation in its current form.
Under legislation Congress is
expected to take up soon, families will be required to go through a series of
means tests to justify their medical and other expenses. With
an evenly divided House and Senate after the election, it is not known
when the final bill is ready for signature. However, if you are
considering bankruptcy, it will be advantageous to do it sooner than
later, as the proposed new law will certainly make it a lot tougher to
file for Chapter 7 Bankruptcy and would increase the amount of payments
to creditors in both a Chapter 7 Bankruptcy and Chapter 13 Bankruptcy.
The senate bill
would give a Bankruptcy Judge the authority to dismiss a Chapter 7 case
or convert it to a Chapter 13 if, based on your current income, you
could pay 20% or more of your unsecured debt over five years. In the
House bill, if your income is more than the federal poverty level
(currently $9,260 for one person and $12,480 for a family of two), you
could file for Chapter 7 bankruptcy only if you met a “means test.”
The test would take into consideration your monthly income,
monthly payments on secured debts and priority debts, and living
expenses for you and your family.
Under both bills,
you would be required to give the Bankruptcy court copies of your
Federal Tax Returns for the last three year, and pay stubs or other
evidence of pay from your employer for the previous two months.
Both the House and
Senate bills include provisions that would require you to show the
Bankruptcy Court a certificate from a nonprofit credit counseling
agency, stating that you had tried in good faith to repay your debts
through credit counseling.
Currently, most
Chapter 13 Bankruptcy are based on a three year repayment plan. Under
both bills, most plans would last five years, and in some cases as many
as seven year. A three year repayment plan might still be available to
Low-income debtors.
If, after
subtracting your expenses from your income, you are left with $50.00 per
month or less, you would be allowed to file a Chapter 7 Bankruptcy. If
the amount left is more than $50.00, you would not be permitted to file
unless you could show that you would not be able to pay your creditors
at least 20% of your unsecured debts over a five year period of time.
You would be required to either file a Chapter 13 Bankruptcy or consider
other options.
Current law prevents
you from filing a Chapter 7 Bankruptcy if you have received a Chapter 7
discharge within the previous six years. There is no similar limit for
filing a Chapter 13 case. Under the House bill, you could not file a
Chapter 7 case if you had received a Chapter 7 discharge within ten
years. You would be barred from filing a Chapter 13 Bankruptcy if you
had received either a Chapter 7 or Chapter 13 discharge within five
years.
