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Bankruptcy The New Law Bankruptcy Abuse Prevention Act of 2005

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    1. Bankruptcy The 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