Bankruptcy Law Changes after October 2005

As we all know, on October 17, 2005, new bankruptcy rules became the law of the land. Bankruptcy is a federal matter, which means that the rules apply all over the United States - everyone is in the same boat.

There are several excellent resources available to provide an overview of the new bankruptcy provisions, and I cannot detail them in a single page article, so I will try to cover the provisions that apply to the foreclosure industry and Ward's graduates.

First, despite what you have heard, you can still file for bankruptcy. Bankruptcy courts are still in business and are still accepting filings. However, a key weapon in our arsenal, the emergency bankruptcy filing, has been sharply curtailed. You can no longer file a bankruptcy in two hours. Now, they have to be planned. This may well increase the number of trustee sales in the months ahead, we will see.

The reason for that is that bankruptcy filers are required to attend a credit counseling meeting and have a certificate of completion at the time of filing the bankruptcy. The credit counseling can be done over the phone, on the internet or in person. The average cost is about $50; the counselor can also charge for the certificate. The sessions last about 90 minutes on average. Again, this must be done before the filing of the bankruptcy petition. There are very few exceptions, primarily medical or Hurricane Katrina related.

In addition, and complicating the emergency filing requirement, is that the paperwork required for filing has increased. All new petitions are needed, the pre-October 2005 forms can no longer be used. The filing fee has also gone up.

Worse, in order to prepare the petition, the filer is now required to provide:

1. List of Creditors (unchanged)
2. Schedule of Assets and Liabilities (unchanged)
3. Schedule of Income and Expenses (unchanged)
4. Photo ID and Social Security Card (unchanged)

1. The Certificate of Credit Counseling Discussed above
2. Proof of income (pay stubs, etc) for the past 6 months
3. Statement of Monthly Net Income (new form)
4. Tax Returns for the previous 4 years
5. Tax Returns filed while the bankruptcy is pending
6. Copies of mortgages, deeds and titles to vehicles
7. Copy of your auto financing agreement, if applicable.
8. Any creditor mail the filer received within 90 days of filing
9. Copy of any security agreement with secured creditors
10. Copies of any divorce decrees, property settlement agreements, child support or other divorce decrees.

Next, most people will not be able to choose Chapter 7 (liquidation) and will be forced into a repayment plan under Chapter 13. These repayment plans take about 5 years to implement. Finally, when you complete the repayment plan, you will be required to attend a financial management class. Curiously, as I write this, the format for the financial management class has not been approved by the government.

In order to keep the family home, the potential bankrupt will almost certainly have to choose Chapter 13 bankruptcy. In addition, within 30 days of filing the bankruptcy petition, the bankruptcy petitioner must file an notice with the court stating they wish to affirm the mortgage debt and a plan to make the mortgage payments.