With the COVID crisis, many individuals are finding themselves in a situation where bankruptcy is the only viable option to obtain a fresh start and climb out of debt. Many consumers have found themselves laid off or their hours cut back, and their financial obligations are piling up.
New legislation was introduced in Congress in December of 2020 titled the “Consumer Bankruptcy Reform Act of 2020.” This proposed legislation would completely overhaul the current bankruptcy system and aims to simplify the bankruptcy process to make it easier for individuals filing for bankruptcy. If passed, this will be the most significant change to the bankruptcy code since the Bankruptcy Reform Act of 2005 was enacted.
Some significant changes introduced in the bill include:
- The elimination of Chapter 7 and Chapter 13 bankruptcies. The proposed bill would replace these two types of consumer bankruptcy with a new Chapter 10 bankruptcy which would handle all consumer bankruptcies.
- The elimination of the credit counseling requirement. Currently, when you file for bankruptcy you are required to complete a pre-filing and a post-filing credit counseling course. The certificates of completion are required before a discharge can be obtained.
- Remote 341 meetings. Every bankruptcy case filed requires the debtor to attend a 341 meeting or meeting of the creditors. Due to the COVID crisis, these have transitioned to telephonic hearings. The new bill would continue this practice imposing less of a burden on individuals and their counsel having to travel to the Bankruptcy court to attend the meeting of the creditors.
- Elimination of the preclusion from spending funds on luxury expenses. Currently, your recent purchases are examined by the trustee to ensure you did not spend any funds on what is qualified as a luxury service. Instead of examining what you spent your money on, the new bill proposes only your ability to pay be examined.
- Immediate discharges in some cases. Currently, a discharge is obtained in around 3 months in a chapter 7 bankruptcy and in 3-5 years under a Chapter 13 bankruptcy. The new legislation proposes immediate discharge under certain circumstances.
- Payment of attorney fees over time. One of the challenges of Chapter 7 bankruptcy for many individuals is coming up with a lump sum payment for their counsel prior to filing. The new reform would allow all debtors to pay their attorneys in installments instead of an up front payment.
- Some previously non-dischargeable debts can be discharged. Most notably, student loan debt which previously could not be discharged without a showing of “undue hardship” and a separate bankruptcy proceeding, will be a dischargeable debt under the new legislation.
These are just a few examples of the changes this transformative legislation could bring to bankruptcy law.
Article By Jorgensen, Brownell & Pepin, P.C.
We are staying up to date on changes and reform to the law to ensure that our clients receive the most favorable outcome for their individualized situation. We will continue to monitor developments as they arise. If you think you may need to file for bankruptcy please call Sam Henry at 322-7655.