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Bankruptcy Abuse Prevention & Consumer Protection Act of 2005

 

(In 2005), the United States Congress enacted and President George W. Bush signed into law legislation that vastly changes the laws of bankruptcy as they pertain to individuals. This law will go into effect on October 17, 2005 and drastically change the historical American version of bankruptcy in that creditors will be treated much more favorably than debtors. Some of the more significant (and controversial) changes include:

  • Making it more difficult for individuals to receive a Chapter 7 discharge. A means test is to be imposed on would-be filers, one that is linked to whether the debtor’s earnings in the six-month period prior to filing were above or below the median income for the debtor’s state of residence.
  • Making Chapter 13 far less attractive by, amongst other things, eliminating its “super discharge,” eliminating the ability of debtors to “cram down” non-residential secured property (i.e., to disallow them from paying off the real value of the secured property as secured while treating the excess value as unsecured, by disallowing the reduction of interest charged on the debt to reasonable values), by removing the credit for payments on retained secured property from the calculation of disposable income, and by requiring that debtors undergo counselling in order to file under Chapter 13.
  • Making Chapter 13 far less attractive by, amongst other things, eliminating its “super discharge,” eliminating the ability of debtors to “cram down” non-residential secured property (i.e., to disallow them from paying off the real value of the secured property as secured while treating the excess value as unsecured, by disallowing the reduction of interest charged on the debt to reasonable values), by removing the credit for payments on retained secured property from the calculation of disposable income, and by requiring that debtors undergo counselling in order to file under Chapter 13.
  • Limiting the Homestead Protection to $125,000 in equity and establishing a 40 month residency period before such protections are recognized in Bankruptcy.

 

The legislation, sponsored (introduced) by the chairman of the Finance Committee, Republican Senator Chuck Grassley of Iowa, was supported by President George W. Bush and opposed by many Democrats and the Green Party. Although the original legislation was introduced during the Clinton Administration, and had more bi-partisan Congressional support at the time, the president vetoed it nonetheless. The bill languished for years due to disagreements in Congress as to the level of the means test, and whether anti-abortion groups could use bankruptcy to discharge fines levied against them by courts for actions that resulted in property damage or injury such as bombing abortion clinics.

 

Bankruptcy Fraud

Bankruptcy Fraud is a business crime of filing for bankruptcy with criminal intent, that is with the intention of evading payment for goods even though the buyer has funds that could be used to pay for them, or accepting payment for goods or services but not supplying them. Common types of bankruptcy fraud include petition mills, false oath, concealment of assets, and fraudulent conveyance. Multiple filings are not per se fraudulent; as with all things in the law, it depends on the circumstances. Bankruptcy Fraud should be distinguished from Strategic Bankruptcy, which is not a criminal act (but may prejudice a judge against the filer if there is evidence that bankruptcy is being used strategically). In the United States, bankruptcy fraud is a federal crime. Its provisions are found at Title 18 of the United States Code. It is prosecuted by the United States Attorney, typically after a reference from the United States Trustee, the Interim Trustee, or a bankruptcy judge. Bankruptcy fraud can also sometimes lead to criminal prosecution in state courts, under the charge of theft of the goods or services obtained by the debtor for which payment, in whole or in part, was evaded by the Fraudulent Bankruptcy Filing.

 

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