Understanding the Bankruptcy Abuse Prevention & Consumer Protection Act

On Oct. 17, 2005 the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 was implemented. Though the changes are many, some of the significant changes are as follows:

Median Income Thresholds:

If your Current Monthly Income[CMI] (calculated by annualizing your gross income for the last 6 months plus other income received on a regular basis but not including social security income) is less than the Median Family Income (determined by the median family income reported by the Bureau of the Census for your state and household size) you may file a Chapter 7 If your CMI is greater than the Median Family Income, you must conduct a Means Test to determine if you are eligible to file a Chapter 7.

Means Test Formula:

The means test formula begins with CMI and deducts allowed expenses to calculate a monthly amount presumed to be available to unsecured creditors. Generally, a debtor may deduct the amounts specified for the IRS National Standards for food, clothing, housekeeping supplies, personal care and miscellaneous expenses and the amounts specified for the IRS Regional Standards for automobiles and housing expense. Actual expenses may be deducted for certain other categories of expenses including child care, court-ordered payments for alimony, support and restitution, necessary medical and dental expenses, term life insurance premiums, taxes, internet services.

Presumption of Abuse:

Presumption of abuse arises if after conducting the means test, the amount left over times 60 is less than $10,000.00 or 25% of unsecured debt, as long as that 25% of unsecured debt is at least $6,000.00. The presumption of abuse may be rebutted, by showing special circumstances including serious medical condition, call to active duty in the armed forces.

Counseling and Debtor Education Classes:

With limited exceptions, debtors must take a pre-bankruptcy counseling class form a credit counseling agency approved by the United States Trustee before filing a bankruptcy petition or their case will likely be dismissed. After filing the case, a debtor must take a debtor education class form an approved agency or the debtor will not be entitled to a discharge.

Cram downs:

If you purchased a motor vehicle for personal use on credit more than 910 days before the filing of the petition, you may pay only the replacement value of the motor vehicle even if the loan balance is more.

Tax Returns:

Chapter 13 debtors must have filed with appropriate taxing authorities by the day before the firs scheduled 341 meeting, all tax returns that debtor was required to file for all taxable periods ending in the four years before the petition. At least 7 days before the §341 meeting of creditors, the debtor must provide to the Trustee a copy of the federal income tax return required under applicable law (or a tax transcript of such return) for the most recent tax year ending immediately before the commence of the case and for which a federal income tax return was filed.

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