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1. BankruptcyThe New Law Bankruptcy Abuse Prevention Act of 2005
3. Bankruptcy The New Law First we need to define some terms that might not be familiar to us
Automatic Stay
Precludes and halts all collection activities from creditors and even the IRS. You can even get seized property back from the IRS in a chapter 13 or chapter 11.
Chapter 7 Liquidation
Straight bankruptcy- may be voluntary or involuntary. Liquidation of all non-exempt assets. Taxes in order of precedence - Federal Income Tax, Withholding tax, Employment tax, Excise tax, Customs and duty tax, Any pecuniary loss penalty on any of the foregoing.
4. Bankruptcy The New Law
Chapter 13 - Reorganization
Simply put, is the reorganization of consumer debt with a new payment schedule.
Chapter 11
An individual may file under this chapter but it is used primarily for business debt. Like a chapter 13, this chapter halts collection activities an allows the business debtor to restructure their payments. This applies to business debt that exceeds $250,000 in unsecured debt and $750,000 in secured debt. Total debt may not exceed $2,000,000.00
5. Bankruptcy The New Law
Conversion
If the court believes the petitioner can pay all or a part of his bills it can deny a chapter 7 and convert to a chapter 13.
Cram-down
The courts authority to force acceptance by creditors, stock holders, IRS, etc of a reorganization or liquidation plan as empowered by the bankruptcy code.
Debtor
A person or entity who owes money, also referred to as the borrower.
6. Bankruptcy The New Law
Creditor
A person or entity to whom money is due, or one who has extended credit and has a vested interest in getting paid.
Discharge
To release from debt after fulfilling ones obligations
Exemption
Assets that cannot be touched by creditors during bankruptcy proceedings.
Unable to pay ones debts.
Involuntary Bankruptcy
This is when creditor take legal action against a debtor and files petition in court.
7. Bankruptcy The New Law Secured Debt
debt that is backed by collateral. For example: mortgage or car loan.
Substantial Abuse
dismissal of a chapter 7 filing because income of petitioner is sufficient to service debt.
Tax Abatement
After a bankruptcy court has discharged any tax liability as outlined in the bankruptcy codes, a form (3870) will be filed with the IRS as official notice.
8. Bankruptcy The New Law Trustee
Person appointed to oversee the completion of a bankruptcy filing.
Unsecured Debt
debt that is not backed by collateral. For example: credit cards, medical bills, utility bills.
Voluntary Bankruptcy
This is when the debtor takes the initiative to file bankruptcy on their own rather than being forced by creditors.
9. Bankruptcy The New Law Filling Procedures under the New Bankruptcy Code
Effective October 17, 2005
10. Bankruptcy The New Law Filling Procedures under the New Bankruptcy Code
Effective October 17, 2005
11. Bankruptcy The New Law Filling Procedures under the New Bankruptcy Code
Effective October 17, 2005
12. Bankruptcy The New Law Family Income Test The family income must be below the average income for their State
In 1997 the US Average family incomes were:
Family of Average Income
1 $18,762
2 $39,343
3 $47,115
4 $53,165
If your income is below the limit you can file Chapter 7
If it above the limit you must meet
the Means Test in order to file a Chapter 7
otherwise you must file a Chapter 13
13. Bankruptcy The New Law Means Test
The Means Test identifies debtors who have the financial capacity to pay some money to creditors
Current monthly income expenses
X 60
= Means test score
14. Bankruptcy The New Law Means Test
Current monthly income expenses X 60 = Means test
15. Bankruptcy The New Law Means Test
What this says
for example if you have
excess monthly income of $166.66 / month
to pay debts of
$10,000 over a 5 year period
You should have to repay a portion of your debts over time
16. Bankruptcy The New Law Unsecured Debt Test
If your percentage of unsecured debt is greater than 25% then you must file a Chapter 13
If your percentage of unsecured debt is less than 25% than you can File a
Chapter 7
17. Bankruptcy The New Law Exemptions
A major aspect of filling bankruptcy is the ability of the Debtor to exempt certain property from the bankruptcy
There are both
State
and
Federal
guidelines for what can be exempt and not exempt
18. Bankruptcy The New Law State of Maryland Exemptions
Homestead - Real Property
Debtors interest up to $5,000
Must have lived in the property the last 3.3 years
Personal Property
Clothing, books, appliances, tools required for trade or practice
Retirement Accounts
19. Bankruptcy The New Law Federal Exemptions
Homestead - Real Property
Must have lived in the property the last 3.3 years
If less than 3.3 years limited to $125,000 interest
Federally qualified Retirement Accounts and
Educational Savings Accounts
Also if debtor has been convicted of certain offenses (security laws, fraud, etc). Then the limits of exempt property is reduced.
20. Bankruptcy The New Law Federal Exemptions
Ts for personal injury awards that result from you driving while intoxicated
Legal fines and penalties
Some Income tax debts
Fraudulent statements
21. Bankruptcy The New Law Chapter 7 - Liquidation
Known as a straight bankruptcy
Allows the debtor to wipe the slate clean
Be discharged from its debts.
Items Not Dischargeable
Alimony, child support, back taxes, student loans, recent substantial purchases.
22. Bankruptcy The New Law Chapter 13
Reorganization
This is by far the biggest change in the new law
This is referred to as the Wage Earners Plan
Because if you are a wage earner based upon the Income test
you have a steady disposable income stream sufficient to make some sort of payments
23. Bankruptcy The New Law Chapter 13 Reorganization
To qualify you must unsecured debt must not be more than $250,000
And secured debt $750,000
Debtors can reaffirm part or all of their debt (must be at least 10%)
24. Bankruptcy The New Law Chapter 13 Reorganization
This is mostly used by individuals who wish to keep certain property
That would normally be liquidated in a Chapter 7 Bankruptcy
During the reorganization an any subsequent
Repayment period the Trustee usually is in control of the Debtors finances an credit issues
25. Bankruptcy The New Law Chapter 13 Reorganization
Also known as the Small business Debtor Bankruptcy
It allows the business to keep operating while you seek ways to reorganize payments
Secured and unsecured debt restrictions as before in addition total Debt can not exceed $2,000,000
26. Bankruptcy The New Law Chapter 13 Reorganization
The debtor remains in possession of the compaines assets
Debtor in possession
27. Bankruptcy The New Law Costs
Filling $200
Lawyer Fees $800 - $1,200 average
28. Bankruptcy The New Law The 341 Meeting
A meeting of the creditors
where the Trustee, creditors may ask questions to the Debtor who is under Oath
29. Bankruptcy The New Law Bankruptcy take usually in usually
3 5 months
Some reorganizations take longer
At which time all of the debts will be
written off or Discharged
Once all the paperwork has been filed the debtor will be discharged
30. Bankruptcy The New Law A Final Step in the Bankruptcy provision
is that an approved
financial management course
must be taken in order to receive a
Final discharge of debts from the court