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New bankruptcy law affects consumers

New Tax Laws: Bankruptcy Abuse Prevention and Consumer Protection Act of 2005

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 changed a lot of the bankruptcy laws and the ability of people to file for bankruptcy if they feel as though they need to. There are some main areas that may affect those that are thinking about filing for any type of bankruptcy, and we'll give an overview of those items here. The best thing you can do if you do not understand these changes is to contact your bankruptcy attorney so he or she can clarify them for you and your can proceed accordingly.

Here is a short list of the changes and how consumers will be affected:

• Reclamation Demands. The new bankruptcy law says that the period for making a request for reclamation has been extended up to 45 days from the receipt of goods. A seller's reclamation rights are subject to the rights of a creditor with a security interest in the goods. This new law recognizes that reclamation creditors may have an allowed administrative expense, which is not automatic.
• Unsecured Priority Wage Claims. The new tax laws have changed the amount of the priority claims for employee's wages, salaries, and/or commissions, as it has increased from $4,925 to $10,000. In addition to that increase, the review period for these wages is now bumped up to 180 days instead of just 90 days before the end of the bankruptcy case.
• Non-residential Real Estate Leases. Before the President signed the new law the debtor had 60 days from the date that the bankruptcy case was started to assume or reject a lease that hadn't expired of a non-residential property. Now, the new law has extended this period to 120 days from the date that the case is commenced unless otherwise noted. The signing of the new Act also provided the debtor with only one 90-day extension over the landlord's objection after the first 120-day timeline expires. Every following extension must be with the landlord's written consent.
• Plan of Reorganization. Under the old laws, those filing Chapter 11 may have had an unlimited amount of time to file their plan of reorganization as well as to have their plans accepted. The new law under the Act of 2005 says that debtors have the right to take up to 18 months to file a plan from the beginning of the bankruptcy case, as well as just two additional months to have their plans confirmed. The courts are not given the authority to extend the plan deadlines beyond this as this gets bankruptcy repayments rolling much sooner than the old laws allowed for.
• Venue of Certain Actions. Under the new laws that the President signed, lawsuits may not be fired to recover a preferential transfer unless the amount that is trying to be recovered totals more than $5,000. The old bankruptcy laws allowed for lawsuits to be filed that were pursuing just $600 and this often was just a waste of the courts time. The new law also says that lawsuits to recover the preferential transfers of less than $10,000 have to be filed in the district court in the district in which the defendant is located.
• Preference Actions. The ordinary course of business defense to preferential transfers has been changed so that the creditor can win the lawsuit by proving that the payments at issue were made according to the ordinary course or business between the debtor and the creditor, even in cases where the industry standard is different or doesn't apply to the specific situation. On the flip side, the transfers may be defendable if they were made according to ordinary course of business terms when those terms are defined by industry standards.
• Preference Action Against A Creditor Holding Personal Guarantee of Insider. According to the old law a trade creditor that received payment from 90 days and one year of the beginning of the bankruptcy case, and also held the person guarantee of an insider of the debtor ran the risk of being placed in the situation of the insider with an expanded preference period of up to one year. Now that the new laws have taken effect, only the insider is subject to the recovery or the ability to avoid such a transfer.
• Fraudulent Transfers. The new bankruptcy law allows the trustee to go back two years before the date that the bankruptcy was filed to recover fraudulent transfers. The old law states that the trustee could go back just one year to search for such fraudulent activity. The new law also makes it clear that the trustee has the right to recover any transfer to or obligation for the benefit of an insider under an employment contract under certain conditions.
• Expanded Grounds for Dismissal or Conversion And Appointment of Trustee in a Chapter 11 Proceeding. The new Act of 2005 gives a list of 16 factors that may be reason enough for finding cause necessary to dismiss a Chapter 11 case, convert a Chapter 11 case to Chapter 7 case, or eve to appoint a trustee or examiner in a Chapter 11 case. This list allows for cases to be converted much more easily than with the old laws.
• A Change in Homestead Exemptions. The new Act of 2005 puts a cap on homestead exemptions at $125,000.
• IRAs. The new bankruptcy laws provides that retirement accounts that are tax exempt are also exempt from the debtors bankruptcy estate. The new law also says that $1,000,000 on a traditional IRA and Roth IRA earnings and contributions is the limitation. Interestingly, this limitation doesn't apply to any rollover contributions from a qualified plan.
• Tuition Programs. The new bankruptcy laws provide for exclusion of funds placed in qualified tuition programs through IRA's as well as 529 plans for children, stepchildren, and even grandchildren of the debtor more than 364 days before the filing. All of the funds contributed to such a program more than 720 days before the filing are protected, while the funds given between 365 and 720 days before the filing for bankruptcy are capped at $5,000 per recipient.

As you can see, there have been some big or important changes to the bankruptcy laws. How they will apply to your case depends on all of the variables concerned. The best thing you can do is talk to you bankruptcy attorney about your case so that you can get a realistic idea of how the new laws will affect you, if at all.