Dismissal of a Chapter 7 Case for Abuse. Under the former law, only the US Trustee's office or the court can seek dismissal of a Chapter 7 case for “substantial abuse,” and there was a presumption that the case should not be dismissed

The new law expands this to provide “any party in interest” may file such a motion for “abuse.” A presumption is created that the case should be dismissed if the debtor fails the “means test” and has income above the median income in his or her state. The “means test” is a complicated test designed to determine whether someone has enough income after expenses, some of which cannot be over a certain amount, to pay off a significant amount of debt over five years. Debtors who have enough excess income will fail the test, and if they have filed under Chapter 7, their filings would be presumed to be an “abuse.” This presumption, however, will apply only if the debtor's current monthly income is above the median income in his or her state. Even so, the bill requires that all the information and calculations involved in the test be submitted in every case filed under Chapter 7, regardless of the debtor's income. The information and calculations will also have to be submitted when filing for Chapter 13 if the debtor's income is above the state median.  Contact our office to find the most recent State Median Income Amounts

Tax Returns are Required. Under former law, there was no particular rule regarding filing of tax returns as a condition of filing a bankruptcy petition.

The new law changes this to provide that a debtor who files under any chapter must submit to the trustee his or her tax return, or a transcript of it, for the most recent year in which they filed or should have filed one. They also must submit to the trustee copies of tax returns that they file with the IRS during the time that the bankruptcy case is pending. In order to be able to confirm a plan in Chapter 13, debtors must have filed tax returns with the IRS (if required to do so by nonbankruptcy law) during the four taxable years before filing for bankruptcy.

Credit Counseling Is Required. In the past there, was no formal requirement that a debtor participate in any credit counseling before filing a bankruptcy petition.

The new law requires that individual debtors within 180 days before filing under any chapter must receive credit counseling consisting of “an individual or group briefing (including a briefing conducted by telephone or on the Internet) that outlined the opportunities for available credit counseling and assisted that individual in performing a related budget analysis.” Also, after filing for bankruptcy, in order to get a discharge, a debtor must “complete an instructional course concerning personal financial management” from an approved credit counselor.

Stricter Exemption Requirements. An item of property which is exempt is protected from seizure or administration by a bankruptcy trustee. Under the former law, a debtor was entitled to use the exemptions which were applicable in the state in which he or she had been domiciled within the 180 day period immediately before filing, or, if the debtor had lived in more than one state during that period of time, the state in which he or she resided in for the greatest period of time.

Under the new law, for a state's exemptions to apply, the debtor must have lived there for two years immediately prior to filing for bankruptcy. If the debtor did not live in any single state for those two years, the debtor must use the exemptions of the state where he or she lived during the six months (or the majority of that time) just before the two-year period.

New Rules for Luxury Items and Cash Advances. Under former law, there was a presumption that a credit car or similar debt was not dischargeable if within 60 days of the filing of the petition charges were made for “luxury goods or services” for more than $1,125 or cash advances were made for the same amount.

Under the new law, this is tightened considerably. A debt would be presumed nondischargeable if it was for luxury goods costing $250 or more and was incurred within 90 days before filing for bankruptcy, or if it was for cash advances of $750 or more obtained within 70 days of filing.

IRAs Protected. This may be the single provision that may offer more protection to the debtor than under the former law applicable in Texas. Under the law, IRAs would be exempt. This would apply even if the debtor is otherwise using state law exemptions (which is the case in Texas). The exemption would be capped at $1 million as to amounts that are not “attributable to rollover contributions” from various types of retirement plans listed in the bill.

Evictions Aren't Stayed. Under the  new law, an eviction can not be stayed (stopped) in bankruptcy.

Stricter Limits On Repeat Filings. Under current law, debtors cannot file a Chapter 7 if they have received a discharge in a previous Chapter 7 case which was filed within six years or a Chapter 13 case in which less than 70% of unsecured debts were paid. There is no restriction from using Chapter 13. After obtaining a discharge under any chapter, debtors would be barred from using Chapter 7 for eight years, and Chapter 13 for five years. The bill would also restrict the granting of an automatic stay if the debtor has already had a stay, and the case was dismissed, within the past year. A hearing would be required, and the debtor would have to overcome a presumption.

Divorce Settlements are Nondischargeable in Chapter 7. Under the new law, property settlements in divorce can no longer be discharged in Chapter 7. In the past, they could be discharged if the debtor meets a "balancing of the hardships" test in the Code.
Support Obligations Have Higher Priority. Under former law, alimony and support debts were priority claims (paid before other, lower ranked claims) but were ranked seventh in the Code.