THE NEW BANKRUPTCY REFORM – The new bankruptcy reform has impacted many areas of the bankruptcy system, including the rules, forms, fees, court procedures, accounting procedures, and changes in CM/ECF .

The Administrative Office is reporting that the bankruptcy law changes have caused a ten percent increase in staffing requirements for the bankruptcy courts. Furthermore, the Administrative Office has created a Bankruptcy Reform Legislation Working Group to assist in identifying added tasks required by the law, alternative approaches for accomplishing this work, and how much time will be required to complete these tasks.

Passages of the Bankruptcy Reform Act have also changed the bankruptcy rules and forms. The Bankruptcy Rules Committee is reviewing the act, updating materials prepared while the bill was pending, and identifying areas where amendments to the forms and rules are needed.

There are some other big changes in this act:

The auto loan rules have changed. If you want to keep your car, you’ll have to pay the auto lender what you owe — even if it’s much more than the car is worth. In the past, if your loan was for $20,000 and the car was worth only $15,000, you could pay the lender the lesser amount and keep your car. Now you’ll have to pay all of what you owe or let the car be repossessed.

Individual retirement accounts have lost some protection. Previously many states made traditional IRAs and Roth IRAs off-limits to creditors in bankruptcy court. Under the new law, only the first $1 million in these accounts is protected.

(Even if you’re not in financial trouble, this aspect of the new law may have far-reaching implications for you. If you should are sued, for any reason, you could lose a substantial portion of your life savings. As a result, consider leaving retirement savings in a 401(k), which is protected, instead of rolling it into an IRA when you leave a job.)

Credit counseling is required. Everyone who opts for bankruptcy has to have counseling by a qualified, not-for-profit agency at least 180 days before filing. Credit counseling agencies expect a flood of new clients, including many who will learn they can no longer get relief in bankruptcy court.

Homestead exemptions have changed for the wealthy. In the past, wealthy people who filed for bankruptcy could shelter an unlimited amount of money from their creditors by moving to Texas or Florida and pouring their money into big houses. Unlike most other states, Texas and Florida had no limit on how much home equity could be protected.

The two states managed to hang on to their unlimited homestead exemptions, but with some caveats. You must buy the house and move to the state at least 41 months before filing for bankruptcy.

If you’ve been convicted of securities violations or a felony, your homestead exemption is limited to a maximum of $125,000. (Lower limits can apply, depending on the state. In frugal Vermont, for example, the limit is $75,000.)


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