Stites & Harbison, PLLC

Congress has passed and President Bush has signed the first comprehensive amendments to the United States Bankruptcy Code since 1994. Passage of these amendments constitutes the culmination of an eight year effort by the consumer credit industry.

The most highly publicized aspects of the amendments will make Chapter 7 discharge of consumer debts harder for all but the poorest consumers and will require more consumer debtors to use Chapter 13 to repay a portion of their obligations over a period of years up to five years. The title of the Act reflects the principal purpose: the "Bankruptcy Abuse Prevention and Consumer Protection Act of 2005."

However, the 2005 Act contains over 219 sections and 500 pages and they make technical corrections to a broad array of bankruptcy law issues, both business as well as consumer. In addition to consumer bankruptcy revisions, separate titles of the Act address: general business bankruptcy issues; small business bankruptcy cases; bankruptcy tax issues; a new chapter (Chapter 15) to coordinate cross-border jurisdictional issues for multinational debtors; amendments to the Federal Deposit Insurance Act, the Federal Credit Union Act and the Bankruptcy Code to revise the treatment of "financial contracts," such as forward contracts, repurchase agreements, swap agreements, etc.; make Chapter 12 of the Bankruptcy Code permanent for "family farmers" and "family fisherman" effective as of July 1, 2005, adopt provisions relating to healthcare and employee benefits; prevent corporate bankruptcy abuse; prevent consumer bankruptcy abuse; adopt amendments to the Federal Truth In Lending Act to become effective 12 months after passage; and "technical" amendments which will affect both business bankruptcy and consumer bankruptcy provisions.

The principal amendments affecting consumer bankruptcy take effect on October 17, 2005 but new homestead fraud provisions (which exempt claims from discharge relating to transfer of value to unlimited homestead exemption states) apply with respect to new cases filed after April 20, 2005. Other immediate effective dates apply to authorization for new judgeships in 20 federal districts, including four new judges for the Bankruptcy Court in the District of Delaware, an amendment to the section relating to filing involuntary bankruptcy cases and an amendment to increase the federal, fraudulent conveyance look back period from one year to two years, but delaying the effective date of such amendment to cases filed one year or more after the enactment.

For summary of significant amendments which affect consumer bankruptcy cases, click here.

Further Information. Members of the Creditors Rights and Bankruptcy Practice Group (CRABS) of Stites & Harbison are undertaking a thorough review of the bankruptcy amendments to generate authoritative information concerning aspects of the amendments. Feel free to contact any of the members of the practice group in the following offices for more information: Atlanta office — J. Timothy White or Samantha Imber; Jeffersonville office — Allen L. Morris; Lexington office — Elizabeth L. Thompson, Nicole Biddle or Alex Scutchfield; Louisville office — W. Robinson Beard or Erika Barnes; Nashville office – Bradley MacLean, Robert Goodrich, Ronald G. Steen, Madison Martin or Sam Zeigler.