BANKRUPTCY REFORM ACT
You may be aware that Congress amended the bankruptcy laws effective for cases filed after October 17, 2005. The Bankruptcy Reform Act established limits for high-income Chapter 7 filers, and established minimum payments for some Chapter 13 plans. It also mandated credit counseling, and financial management courses, for bankruptcy debtors, and significantly expanded the paperwork and documentation requirements for filing bankruptcy.
However, the vast majority of persons who could file for Chapter 7 before the new law can still file for Chapter 7 now. Proprietary research done by Best Case Solutions, Inc., indicates that only 10 to 15 percent of bankruptcy debtors will have income subjecting them to the new “means test.” Additionally, the director of the American Bankruptcy Institute recently estimated that only about three percent of all debtors will be adversely affected by the Bankruptcy Reform Act. Consequently, it is likely that your rights under the bankruptcy law were not affected by the Bankruptcy Reform Act.
The worst-case scenario is that you may have to file a three to five year Chapter 13 plan. In a Chapter 13, you are simply required to pay what you can afford toward your debts, and the rest is discharged.
Paperwork Requirements Under the Bankruptcy Reform Act
Current monthly income for the bankruptcy forms is calculated by averaging your income from all sources for the past six months. This means your attorney needs all paycheck stubs from the past six months. Income is defined to include almost any cash received, even gifts of money; see the definition of income in the Means Test section below. Also, when a case is filed, we need to file your last 60 days paycheck stubs with the bankruptcy court. Consequently, it is usually necessary to bring us your last seven months pay stubs. You need to give the trustee your most recently filed tax return. If you have not yet filed the most recent year’s tax return, prepare it now.
You need to obtain a certificate of completion of credit counseling from an approved agency, and your attorney must file it with the court when the bankruptcy is filed. You cannot file bankruptcy without it. The counseling takes 90 minutes or less and should be done over the telephone. It costs about $25.00, but this fee can be reduced or waived. A debit card should be used to pay this fee. A partial list of approved credit counseling agencies is provided as a link on the right hand margin of this webpage. The most convenient source of credit counseling is Abacus Credit Counseling, (800) 516-3834.
A few weeks after your bankruptcy is filed, you must give your attorney bank statements covering the day the case was filed, and your most recent paycheck stub. These documents must be given to the trustee before the meeting of creditors. Do not be concerned about providing the financial information discussed here to the bankruptcy trustee. The requested information is used only to verify the information you have already provided. Furthermore, your social security number, and your children’s names, are kept secret by the court, by law. In a typical case, no one but the trustee ever sees the other information.
You must bring your Minnesota drivers license/Minnesota personal identification card, passport, or similar photo ID to the meeting of creditors. You must also bring proof of social security number, such as your social security card, W-2, or a government issued document.
Shortly after filing your case, you must complete a course in financial management, and your attorney must file proof of completion with the court. The course must be taken through an approved agency. As noted above, it is recommended you obtain this through Abacus Credit Counseling, (800) 516-3834, although other agencies offer this service. The proof of completion should be given to your lawyer at the creditors meeting, which occurs shortly after filing your case.
The Bankruptcy Reform Act requires that the U. S. Trustee conduct random audits to verify the accuracy of information contained in bankruptcy papers. Not less than one in 250 cases are to be chosen for audit. So far, the audits consist of simply turning over paycheck stubs, bank records and tax returns which already are in the trustee’s possession. However, it is wise to remember that bankruptcy papers are submitted under oath, and the penalties of perjury apply. Your discharge of debts will be revoked if there are intentional misstatements, or failure to produce documents which cannot be satisfactorily explained.
Summary of documents needed to file the case:
- Credit Counseling Certificate
- Most recent tax return
- Six months paycheck stubs
Summary of documents needed for creditors meeting:
- Most recent paycheck stub
- Bank statements covering the date your case was filed
- Minnesota drivers license, social security card
- Debtor education course certificate
To discuss your unique situation, call my office to arrange a free consultation. We will be glad to explain what bankruptcy can do for you.