After five years of consideration and revisions, the Bankruptcy Abuse and Consumer Protection Act of 2005, Pub. L. No. 109-8, 119 Stat. 23 (Apr. 20, 2005), was signed into law by President Bush on April 20, 2005. The new legislation will be effective in six months. The bill was originally introduced in 1997 by Senator Charles E. Grassley (R-Iowa) as a measure to make Chapter 7 bankruptcies “needs based.” The new bill, which makes substantial changes to the United States Bankruptcy Code, tests, if not outright questions, the “fresh start” principles of the Code. The changes impact primarily on debtors an debtors’ attorneys. Changes I creditors’ duties and disclosures are relatively minor.

Under the bill as passed last month, 11 U.S.C. § 707(b) is amended to, inter alia, allow creditors and panel trustees to challenge a debtor’s eligibility for liquidation under Chapter 7 if the debtor’s income exceeds the state’s median income and if a debtor can repay 25% of his unsecured debt. A debtor may overcome these presumptions of bankruptcy filing abuse by demonstrating special circumstances.

The bankruptcy legislation also amends § 109 to require a debtor to meet with a nonprofit budget and credit counselor within 180 days of filing for bankruptcy in order to be eligible for bankruptcy discharge. Sections 272 and 1328 are amended to deny a discharge to a debtor who has not completed an instructional course on personal finance management. The legislation also revises support obligations to the first priority and requires bankruptcy trustees to notify support recipients of state agencies that help them protect their rights. Chapter 13 is amended to essentially require a Chapter 13 debtor to maintain postpetition support obligations at all times or risk dismissal of his case.

The legislation, which was heavily supported by and lobbied for by banks; credit card companies; and other financial institutions, includes additional protections for creditors who lend money for the purchase of consumer goods. For example, a Chapter 7 debtor will have 45 days within which to either reaffirm the consumer debt or redeem the collateral. If the debtor fails to do either within the time frame established, the automatic stay will be lifted. In addition, under the new legislation, if a debtor had a case pending within one year prior to filing for bankruptcy, the automatic stay will expire within 30 days after filing unless extended by the court. The new legislation will require a debtor to wait eight years between Chapter 7 discharges, and the debtor will not be able to be discharges under Chapter 13 if he received a Chapter 7, 11, or 12 discharge within four years pre-petition or a Chapter 13 discharge within two years pre-petition.

These are just a few of the revisions to the Code required by the bankruptcy legislation. The widespread revisions to the United States Bankruptcy Code will undoubtedly be the subject of dispute and interpretation when the revisions become effective this fall.