Bankruptcy and Consumer Protection Act of 2005

Consumer Bankruptcy

Continued from last week.

Domestic support obligations given top priority—Alimony, maintenance, and child support obligations have first priority among unsecured debts, are non-dischargeable, and are not subject to the automatic stay. Chapters 11, 12, and 13 discharges are contingent on full payment of all such obligations.

Tenth priority created for DUI liability—Liabilities incurred in connection with operating a motor vehicle under the influence of alcohol or drugs have tenth priority among unsecured debts, and are non-dischargeable.

Loans secured with personal property reaffirmation/surrender required—Chapter 7 debtors have 45 days after the petition filing date to reaffirm or redeem loans secured with personal property, or surrender the property. If the debtor fails to do so, the case is automatically dismissed.

Secured loan payment continuation required—Chapter 13 debtors must continue making secured loan payments as originally obligated. Debtors must remit such payments to the bankruptcy trustee to be held until confirmation or denial of a payment plan.

Commercial Bankruptcy

Expedited Chapter 11 created for small businesses—Businesses with less than $2 million in debts can file an expedited form of Chapter 11 reorganization.

Chapter 11exclusivity period shortened—A Chapter 11 debtor has only 18 months to propose a reorganization plan before creditors are allowed to propose their own plans. Prior to the Act, creditors were barred from making proposals indefinitely due to the debtor's ability to obtain extensions.

Agricultural Bankruptcy

Chapter 12 made permanent—Chapter 12 family farmer reorganization is made permanent, and extended to include family commercial fishing operations and aquaculture.

Chapter 12 eligibility debt limit raised—Family farmers must have aggregate debts of less than $3.37 million, of which 50 percent must arise from farming operations, to be eligible to file under Chapter 12. This figure is indexed for inflation. Prior to the Act, the limits were $1.5 million/80 percent, and these pre-Act rules still apply to family commercial fishing operations.

This column is offered as a public service with the understanding that each person's tax situation is different; and that you should consult your CPA before taking any action based upon comments made in this article. Call me and I will be happy to explain my “CPA Quality tax preparation at H&R Block Rates”.  I can be reached at 825-2771.