In April, President George W. Bush signed S.256, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 into law. The provisions of the new law, most of which went into effect October 17, include several changes that affect businesses filing for bankruptcy. Changes include: establishing a way to test for Chapter 7 bankruptcy; raising the priority for payments of domestic support obligations; placing limits on the homestead exemption; and requiring credit counseling prior to filing. The new law also enhances credit card company disclosure requirements. In addition, the United States Trustee Program, the component of the U.S. Department of Justice (DOJ) responsible for enforcing the bankruptcy law, will now have added responsibilities. Small businesses filing for Chapter 11 will now be subjected to "enhanced oversight" conducted by the United States Trustee Program.
Under the new law, individual debtors filing bankruptcy on or after October 17 will be required to undergo credit counseling within six months before filing; they must also complete a financial management instructional course after filing.
According to an online CNN article, the new law could very well be considered a "gift" to creditors. Since under the new law more debtors will be forced to file Chapter 13 bankruptcy rather than Chapter 7, creditors are likely to benefit heavily from the repayment plans. (Note: Under Chapter 13 debtors are put on a repayment plan compared to Chapter 7 in which all assets are liquidated.)
Additional information about bankruptcy can be found online at www.usdoj.gov/ust.
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