Bankruptcy law in the United States is a federal statutory law contained in the Title 11 of the United States Code. It provides for developing a plan to allow a debtor who cannot pay his creditors a means of resolving the issue through dividing his or her non-exempted assets among the creditors. In some instances, the bankruptcy law may provide for debtors to remain in business while developing a plan to repay the creditors through the earnings generated in the future. In any event, there have been many abuses of the system and the U.S Government was compelled to amend the bankruptcy law to minimize such abuses, as well as to discourage initiating the process of filing for bankruptcy when there are other means of settling the prevailing debt issues.
According to legal experts, the latest change to the bankruptcy law in the US is the introduction of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. Although there were many changes implemented through the said act, three major changes should be highlighted when discussing the prevailing bankruptcy law in the US. These changes include the means test, ‘the ticket in’ and ‘the ticket out’ processes.
The means test is a novel procedure, which shifts the responsibility of categorizing debtors into designated bankruptcy types, from the courts to a test that is performed in two parts. Accordingly, the authorities will first look into the accumulated expenses for food and shelter and thereby derive an opinion with regard to the person’s ability to pay at least 25% of the unsecured debt. Secondly, they would look into the mean income for a given state and compare it with the bankruptcy applicants’ income to assess whether the person receives an income above or below the stipulated mean. If the person applying for bankruptcy can settle at least 25% of the monthly debt using each months disposable income, he or she may not be able to file for bankruptcy under chapter 7. At the same time, if the monthly income of the person is significantly above the mean income for the state, again the person applying for bankruptcy may not be able to claim for liquidation under chapter 7. In both these instances, the bankruptcy claims would be processed under chapter 11 or 13.
The second important addition to the bankruptcy laws was the introduction of ‘the ticket in’ process in which a person has to attend a credit counseling session before filing for bankruptcy at least six months before doing the same. Similarly, ‘the ticket out’ process was introduced to facilitate debtor education, which is done before the completion of the bankruptcy process. The intention of the said course is to educate the debtors on how to stay debt free following completing the bankruptcy filing process.
In addition to the major changes imposed on the bankruptcy laws, the new act has also expanded the responsibility of the United States Trustees Program, which overlooks the supervisory and administrative duties of a bankruptcy process. Thus, the trustee programme now has to supervise random and targeted audits, certify entities providing credit counseling as in the case of ‘the ticket in’ process, certify entities that provide financial education as in the case of ‘the ticket out’ process, and provide greater oversight of small businesses chapter 11 reorganization cases.
However, these changes are not the last to the bankruptcy laws in the US and in order to negotiate the ever-evolving bankruptcy laws, persons intending to file for bankruptcy should seek the assistance of expert bankruptcy attorneys from the very beginning.