Impact of New Administration on Bankruptcy Outcomes

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In recent months, bankruptcy attorneys and people considering bankruptcy have wondered how the new presidential administration might influence bankruptcy laws and the outcomes of personal bankruptcy petitions. We did, too. To gain perspective, we took a look at America First: A Budget Blueprint to Make America Great Again—produced by President Donald J. Trump’s Office of Management and Budget.

The Blueprint revealed a proposed budget change for the Department of Justice, which oversees bankruptcy laws. Specifically, the Blueprint would increase “bankruptcy-filing fees to produce an additional $150 million over the 2017 …  level to ensure that those that use the bankruptcy court system pay for its oversight.”

According to the report, the proposed 2018 DOJ budget is projected to save taxpayer dollars overall by consolidating, reducing, streamlining, and making its programs and operations more efficient. The DOJ Budget also manages critical investments to confront terrorism, reduce violent crime, tackle the Nation’s opioid epidemic, and combat illegal immigration.

While there is no reason to believe the Trump administration seeks to revise the substance of bankruptcy laws, other administrations and political agendas have influenced the bankruptcy codes over the years. In 2006, the last major overhaul to the Bankruptcy Code included the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), which added a “Means Test” for consumer (personal bankruptcy) cases. Before the Means Test, debtors were allowed to pay off at least some of their debt, and it codified a debtor’s choice to pay creditors through an extended repayment plan, which was largely voluntary. According to a report published by the United States Department of Justice Executive Office for United States Attorneys, since BAPCPA was enacted, repayment of consumer debt is done through a three- or five-year payment plan under chapter 13 of the Bankruptcy Code; and a discharge of consumer debt is accomplished by filing for relief under chapter 7.

Under the DOJ, debt discharge and repayment plans are overseen by a bankruptcy trustee; the trustee’s role is to determine the debtor’s ability to repay creditors and oversee the bankruptcy process. For example, a trustee may require a debtor to produce voluminous records to prove his/her financial circumstances and determine repayment capability; the effect could increase overall filing costs. Some believe this scenario is more likely under an administration seeking to reduce government liability for court costs; some believe the new administration could favor creditors over consumers. Time will tell.

Given the proposed changes to the DOJ budget, with anticipated increase in court costs, it may be important for those considering bankruptcy to file before higher court costs take effect.

Consult a bankruptcy attorney if you have questions. Solomita Law is available to help.

Understanding Bankruptcy Options

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Speak with a qualified attorney to help assess your options under bankruptcy laws.                       Photo courtesy: Dreamstime.com # 198174

Positioning Yourself for a Fresh Start through Bankruptcy

Under Title 11 of the United States Code, bankruptcy laws were established to assist financially distressed individuals and organizations with debt relief. After a bankruptcy has been granted and debts have been discharged, debtors are positioned to gain stronger financial footing, and repay debts, such as mortgage and vehicle loans, on more affordable terms. The bankruptcy positions them to make a fresh start.

Bankruptcy provides for the reduction or discharge (elimination) of various types of debt. Depending on individual circumstances involved, the Court may discharge the entire consumer debt (as in a Chapter 7 filing) or provide a plan for repayment of non-dischargeable debts over time (as in a Chapter 13 filing).

To determine the chapter of bankruptcy for which you qualify, you must fill out a form called the “Means Test” and provide details about your income and expenses, based on your personal records. Some information needed to complete the form comes from the Census Bureau and the Internal Revenue Service (IRS). For questions related to the means test, contact Solomita Law or email the United States Department of Justice at ust.mt.help@usdoj.gov

ABOUT THE BANKRUPTCY CHAPTERS

The bankruptcy chapters address the financial needs of different types of entities and employ different qualification criteria. While Solomita Law focuses our practice on reducing stress and uncertainty associated with Chapter 7 and Chapter 13 bankruptcy filings for our clients, we are happy to share information about other bankruptcy chapters, as well. Below are short summaries of issues and options addressed by each bankruptcy chapter.

Chapter 7 enables full discharge of unsecured debts, such as credit cards and personal loans. Secured debt, such as a real estate loan or vehicle loan, typically remains unaltered, meaning that the property remains in the borrower’s possession as long as timely payments are being made. Primarily, Chapter 7 is available to individuals with business debts as well as corporations when they meet certain income requirements.

Chapter 9 deals with reorganizing of municipalities and government owned entities.

Chapter 11 was designed to help a business entity reorganize debts to maintain business viability and pay creditors over time. This is the most comprehensive chapter of the Bankruptcy Code, with reorganization options such as discharging some debts, repaying others, and restructuring the remainder. Although individuals may file for Chapter 11 relief, the relatively high filing fees and administrative costs lead most individuals to favor Chapter 7 or Chapter 13 bankruptcies,

Chapter 12 facilitates restructuring of debts for family farmers.  Only family farmers are eligible and this chapter functions in a similar way (but not exactly comparable) to Chapter 13.

Chapter 13 is reserved for individual debtors (not businesses). It permits the discharge of some debts, as well as the repayment of others across a three-to-five year time frame.  In some cases, a Chapter 13 filing will restructure principle payments of secured debts, or may enable discharge certain debts in full.  Only individuals who meet income and debt qualifications (according to the Means Test) are permitted to file under this chapter.

Finding Bankruptcy Services in Your Area

For general assistance in filing for bankruptcy relief, the clerk of your local bankruptcy court or your local state Bar Association may have information regarding attorneys and/or organizations offering bankruptcy related services on a reduced fee or pro bono basis. However, we are prohibited from providing specific legal advice before conducting a private consultation about your individual case.

The Official Bankruptcy Forms can be found on the Administrative Office of the U.S. Courts Web site.

For more information, contact Solomita Law at 407-545-3625 or send email to Staff@SolomitaLaw.com. We will respond to your questions as soon as possible.