246 MODULE 27 BANKRUPTCY

i. If composition were involved, then discharge bars another discharge for six years unless debtor
paid 70% of debts covered
M. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005
1. Amends various parts of US Bankruptcy Code including consumer bankruptcies and
business
bankruptcies

1. Needs-based bankruptcy
a. Individuals who make more than the median income of state they live in will not anymore be able
to file under Chapter 7 unless they meet a strict formula -
(1) Filings now subject to audit in ways similar to tax returns
(2) Formula considers things such as

(a) Expenses paid that are reasonably necessary for safety of debtor or debtor's family
(b) Expenses incurred by debtor for care of chronically ill, disabled, or elderly household
member

(c) In other situations, Act heavily restricts amount of expenses

b. Provides for materials to educate debtors on how to better manage their finances
b. Debtor cannot receive a Chapter 7 or Chapter 11 discharge in bankruptcy unless debtor has com-
pleted an approved course with credit counseling
c. Essentially requires attorneys to guarantee correct use of formula to file under Chapter 7 or be
subject to civil penalties
(1) Attorneys' signatures on bankruptcy petitions certify that they are well-based on facts
e. Newly defined Debt Relief Agencies include attorneys and other professionals who assist
consumer debtors with their bankruptcy cases and must provide debtors with additional ways to
avoid bankruptcy

3. Enhanced consumer protection

a. Provides penalties for abusive creditor practices
EXAMPLE: Bad creditor refuses to negotiate a reasonable repayment schedule proposed by an approved credit
counseling agency on behalf of the debtor .
b. Certain claims for domestic child support obligations are placed in the first priority claim category
b. Debts for certain qualified educational loans are dischargeable when those loans create an undue
hardship on debtor or debtor's dependent.
4. Prohibits debtor from using household exemptions from protecting such items as electronic
entertain-
ment equipment, works of art, antiques or jewelry worth more than $550, more than one personal
computer, aircraft, watercraft, or motorized recreational devices.

5. Provisions under new Act allow trade creditors to treat large portions, sometimes most or even all
of
vendors' claims as being administrative expenses, significantly increasing their priority status.

4. This Act creates a new Bankruptcy Code section that imposes limits on the payment of severance
pay
or retention bonuses to key employees in a Chapter 11 case
a. Retention bonuses are permitted only if key employees have good-faith offers from other busi-
nesses at the same or greater compensation

7. For consumer cases, the time between discharges has been increased so that Bankruptcy Code will
deny discharge to a Chapter 7 debtor if that debtor received either a Chapter 7 or Chapter 11 discharge
in a case filed within 8 years of filing of pending case

a. Prior law said 6 years between such discharges under Chapter 7 or Chapter 11
a. Under the new act, Chapter 13 debtors have a few different time limitations when combined with
the various chapters.
 8. Makes more types of debts nondischargeable in bankruptcy
a. Generally, the following debts are now nondischargeable:
(1) Debts for luxury goods and services owed to anyone creditor under certain conditions
within
60 days of filing

(2) Cash advances under various conditions

(3) Death or injury caused while intoxicated further expanded to include any motor vehicles,
vessels or aircraft .
(4) Nondischargeable student loans now include for-profit and nongovernmental entities
(5) Pension and profit-sharing debts

(6) Homeowner Association, condo and cooperative fees

(7) Debts to pay fines and penalties
(a) Including those on prisoners
(8) Debts to pay local and state taxes
(9) Nonsupport obligations for separation or divorce
(10) Debts due to violation of securities law are nondischargeable
9. This Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 creates a new Chapter 15 of
the US Bankruptcy Code on cross-border insolvency cases

a, Meant to make bankruptcy proceedings across international borders more functional

(1) Favors and promotes cooperation and communication with both foreign courts and foreign
representati ves

N. Bankruptcy Fees
1. 'In recent years, bankruptcy specialists have made much larger fees, Rising fees have elicited major
objections coming from

a, Federal watchdogs
b. Organized labor
c. Major creditors of bankrupt compa~ies
2. Major complaint is that lawyers and other advisors have been taking too many fees and leaving less
money for others in the bankruptcy

3. Thus bankruptcy is more likely testable on CPA Exam because it is now on minds of many