Bankruptcy laws are constantly evolving. This is particularly true after the change of the Bankruptcy Code in October 2005. You want to hire a knowledgeable lawyer and be actively involved in bankruptcy law to defend your legal rights. At Los Angeles Bankruptcy Attorney, we’re devoted to helping clients filing for bankruptcy in Los Angeles obtain their deserved debt relief. We understand the latest bankruptcy laws and know how to apply them. We also help them try other options if need be. Reach out to us right away if you wish to file for bankruptcy or need an interpretation of these laws.
History of California Bankruptcy Law
The national bankruptcy law governs most bankruptcy-related aspects in California. Thus, any changes made to federal law impact California bankruptcy filing. The first law to govern bankruptcy in the U.S was affected in 1800 by Congress. It was referred to as the Bankruptcy Act of 1800. The law was lender-oriented, and it only allowed involuntary bankruptcy filing by business debtors.
There weren’t any provisions for individual debtors to declare bankruptcy independently. Some cunning debtors realized they could request a friendly lender to instigate a bankruptcy case. But because of several complaints of favoritism and corruption, this Act was repealed in 1803.
In 1837, there was a financial panic, and after this panic, congress enacted another law known as the Bankruptcy Act of 1841. It was the first law to allow debtors to declare individual voluntary bankruptcy without a lender initiating it. Debtors could declare bankruptcy and obtain a debt discharge.
Additionally, any person could become a debtor, not only merchants, like under the previous statute. The authority to pass judgment over bankruptcy matters and discharge debts lied with the U.S District Courts. Unluckily, however, lenders saw this law as giving fewer payments to them and forgiving so much debt for so many debtors. Consequently, Congress repealed the law in 1843.
After the Civil War and a second financial panic, Congress tried again and enacted The Bankruptcy Act of 1867. This law was more detailed and addressed a range of situations. It was the first to permit involuntary bankruptcy filing for any person and not only merchants. The U.S District Courts had to select a ‘register in bankruptcy’ to perform bankruptcy-related duties. Essentially, these registers were the first bankruptcy judges. Unluckily, this law was also brought down in 1878 due to the same complaints and criticisms that brought down earlier national bankruptcy laws.
In 1898, Congress enacted the first national detailed bankruptcy law, which essentially became permanent. This law was known as the Bankruptcy Act of 1898 or the Nelson Act. Even though this law was replaced and amended several times, there haven’t been further repeals or periods when the national government didn’t have operational bankruptcy laws.
After amending the 1898 statute severally, congress enacted the Bankruptcy Reform Act of 1978, which comprehensively changed the federal bankruptcy system. It brought the Bankruptcy Code into existence. This Act made several changes, including increasing the range of the bankruptcy judges’ power.
The Bankruptcy Abuse Prevention and Consumer Act of 2005
Again, The Bankruptcy Reform Act of 1978 was changed with the enactment of the (BAPCPA) Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 after years of research on reforming the bankruptcy system in the best possible way. This is the major recent change concerning bankruptcy, and it brought several critical amendments to the U.S Bankruptcy Code. For instance, the law made it harder to declare a Chapter 7 bankruptcy by introducing the means test.
Per the BAPCPA, if you wish for your debts to be forgiven under a Chapter bankruptcy, you’ll have to undergo a means test. A means test is a random calculation of your expenses and income to establish whether your income is low enough for you to declare a Chapter 7 bankruptcy.
It is a formula meant to prevent high-income earners from declaring themselves bankrupt under chapter 7. Any high-income filer who fails this test can file chapter 13 bankruptcy and pay off part of his/her debt but won’t be capable of filing chapter 7 bankruptcy to discharge all of his/her debts.
But having to undertake a means test does not mean you have to be penniless to declare yourself bankrupt under Chapter 7. You could earn a significant monthly salary and still qualify for Chapter 7 bankruptcy if you have so many expenses like taxes, a car loan and high mortgage loan payments (even though they have to be reasonable), and any other costs.
Most debtors pass this test. Some potential chapter 7 filers do their research of the means test and deduce that they aren’t eligible. But we recommend that even if you do your independent research and find that you don’t qualify, you should also consult an attorney. You may be surprised to discover that you were wrong and that you are eligible for Chapter 7 bankruptcy after talking to a lawyer.
Other changes the BAPCPA brought to bankruptcy law include:
Introduction of The Automatic Stay
The BAPCPA allows for an automatic stay to be imposed on lenders. An automatic stay refers to a court order that prevents creditors from collecting after a debtor declares bankruptcy. But we have instances where this court-order doesn’t go into effect or is delayed. The court can also lift this court order, but this rarely happens. For example, it could remove the automatic stay in a divorce case.
We have exceptions to the automatic stay rule. The exceptions are called serial filings, and they limit automatic stay timelines. For example, if you file two bankruptcy cases in a year, the second case’s automatic stay lasts only 30 days, except if you successfully persuade the judge that you require the extended time frame.
And if you file three cases in a year, the automatic stay won’t go into effect after filing the third case. But you could request a hearing to persuade the court that all of the three filings are reasonable depending on your financial state and that you aren’t trying to take advantage of the bankruptcy system.
Note that BAPCPA also restricts the automatic stay applicability in case of an eviction. An eviction proceeding can’t be halted if your landlord had already acquired a judgment of possession before your bankruptcy filing. Also, the automatic stay can’t be applied if eviction is dependent on the endangerment of a rented property or unlawful use of controlled substances.
Exemptions are what enable a debtor to retain property in a bankruptcy case. The BAPCPA provides a chance to exempt a few of your property. Some states allow debtors to select between federal and state bankruptcy exemption laws, but California is not one of them. In California, you have to use state exemption law.
However, you will still be capable of selecting the exemption that works best for you. California is the only state that has two exemption systems— 703 exemptions and 704 exemptions. You could also opt to use the federal non-bankruptcy exemptions.
However, federal non-bankruptcy exemptions are available for persons who work in specific professions, including railroad workers, military service members, government employees, persons who receive social security, and seamen. They also apply to individuals with particular circumstances like those receiving retirement benefits, disability or death benefits, or survivor’s benefits.
Mandatory Pre-Bankruptcy Credit Counseling
Per the BAPCPA, you must now undergo and complete a counseling course by phone or online before filing for bankruptcy under any chapter. This course generally costs up to fifty dollars and has to be availed for free if you do not have the capability of paying for one. Usually, the compulsory credit counseling program lasts forty-five to sixty minutes and could be taken 24/7. It provides insight on budgeting, consumer protection, money management, setting and achieving financial goals, and saving money.
You’ll be issued a certificate upon completing the course. You have to submit this certificate to court as one of the conditions to file your case. Failing to file the certificate of completion on time leads to an automatic dismissal of your case.
A credit counseling course is very educational and enlightening. It gives you an idea of whether you need to declare bankruptcy or just an unofficial repayment plan would be enough to help you repay your debts.
Counseling is necessary even if it is evident that a repayment plan is not feasible (i.e., your income is too low and your debts too high) or you’re facing unfair debts and do not want to repay. The counseling organization usually comes up with a budget depending on your expenses and income then reviews your options for paying off the debt. The organization mostly concludes that you do not have feasible alternatives for managing your debts apart from declaring bankruptcy.
The BAPCPA only requires that you undertake the credit counseling course, not that you agree with whatever the counseling organization is proposing. Even if a repayment plan is feasible, it isn’t a must that you agree to it. But if the organization develops a plan for you, you have to file it together with your other bankruptcy documents.
We have exceptions to the requirement to undergo credit counseling. For example, you won’t have to complete the course if the U.S Trustee confirms there’s no credit counseling agency in your bankruptcy district. But as we mentioned, counseling could be through the phone or online. Thus, it’s unlikely that the counseling course will be unavailable.
You could also avoid the counseling course if you show that you needed to declare bankruptcy to evade immediate foreclosure. Should you prove that you can’t take the program because of this, you’ll have to take the program within 30 days. You could request the deadline to be extended by 15 days in case you can’t comply with the 30-day deadline.
Note that if you’re declaring bankruptcy under Chapter 7, you have 60 days after having your initial meeting with your landers to complete the credit counseling program and present the completion certificate to the court. And if you’re declaring bankruptcy under Chapter 13, you must file the certificate of completion before bringing a discharge motion or before your latest repayment plan. If you fail to file on time, your case will be dismissed without prejudice.
The BAPCPA made specific debts non-dischargeable that weren’t dischargeable under the previous law. But only a few cases are affected by this change— only about one out of 100 bankruptcy cases. Thus, unless you’ve committed fraud or any other misconduct, you do not need to worry about this change.
Compulsory Debt Management
As with mandatory credit counseling, the new law also requires you to complete a mandatory debt management program after you’ve filed your bankruptcy case. The same time frames and fees that apply to credit counseling apply here too. This course is also beneficial as far as bankruptcy is concerned as it explains how you can budget and plan your money to become successful.
When you are filing Chapter bankruptcy, you have to present the last year’s tax returns certificate, but only if you filed returns. If you failed to file returns, you have to submit a declaration instead. And if you are declaring bankruptcy under Chapter 13, you have to present the previous two years’ certificates, and possibly up to the most recent four years of tax returns, based on the circumstances.
The new bankruptcy law now allows you to file for bankruptcies multiple times but under given time frames. Based on the Chapter of bankruptcy you wish to declare, the following time frames apply between bankruptcy filings:
- Chapter 13 to Chapter 13: two years
- Chapter 13 to Chapter 7: four years or seven years based on the situation
- Chapter 7 to Chapter 13: four years
- Chapter 7 to Chapter 7: eight years
The new law also allows the creditor and debtor to enter a reaffirmation agreement. When you enter a reaffirmation agreement, you agree to pay a debt that otherwise would’ve been discharged in your bankruptcy case. This agreement may be disadvantageous since it puts you back on the hook to be responsible for the debt and defeats the primary purpose of filing for bankruptcy.
Moreover, per the new law, you now have to attend a compulsory hearing with your lawyer before the bankruptcy judge. There’s an additional charge to draft the agreement and attend the hearing. And finally, Bankruptcy Courts don’t always approve reaffirmation agreements. Even though most bankruptcy lawyers and creditors will say that you have to reaffirm your car debt or lose the auto, provided you maintain insurance and remain current, you’ll retain the property and ultimately own it after you’ve paid the debt in full.
There may be other ways of renegotiating payments with lenders without signing a reaffirmation agreement.
Under the law, a bankruptcy lawyer is now responsible for you. If you make a representation, hide an asset, or lie, your lawyer, just like you, can be sanctioned. The new law now permits lawyers to face sanctions if they assume you’re truthful.
For instance, suppose you tell your lawyer that you’ve never declared yourself bankrupt before. The lawyer doesn’t believe you and asks you five more times if you’ve ever filed for bankruptcy in the past years. Each time, you deny having declared bankruptcy. Finally, the lawyer trusts that you’re telling the truth. He/she files your case without carrying out a bankruptcy search. In this case, the lawyer can be subject to sanctions.
Surprisingly, the new statute also requires a lawyer to assume you’re lying; otherwise, he/she will be sanctioned. Therefore, lawyers now have to ask debtors to provide several new documents and conduct internet identity searches before a bankruptcy filing.
Proposed Changes to Consumer Bankruptcy Law – the Consumer Bankruptcy Reform Act (CBRA) of 2020
On 9th December 2020, Congress members, including Jerrold Nadler and Elizabeth Warren, proposed sweeping changes that would overhaul consumer bankruptcy law. Generally, the proposed changes would make it easier for consumers to access the bankruptcy system and discharge their debts. The following critical changes were proposed in the CBRA.
- No more credit counseling
- Chapters 13 and 7 be replaced with new Chapter 10
- Focus on consumers’ capability of repaying instead of choices of expenses
- Remote 341 meetings that don’t conflict with consumers’ employment schedules
- Three forms of Chapter 10 Plans— general repayment plans for paying off unsecured debts or property and residence plans for secured debts
- Debtors' lawyers paid overtime.
- Student loan debts can be discharged.
- Some consumers receive immediate discharges without making any payments.
- Other federal consumer protection financial laws are amended.
- Consumers with minimum payment obligations receive discharges upon plan confirmation.
Find an Experienced Bankruptcy Lawyer Near Me
Bankruptcy has always been a complicated topic and became even more intricate after the enactment of the BAPCPA. That is why you want to have a lawyer by your side helping you with bankruptcy-related issues. And considering that new amendments to the bankruptcy law have been proposed and the law is always evolving, you want to work with an attorney who is actively involved in bankruptcy matters.
At the Los Angeles Bankruptcy Attorney, we’re conversant with the latest changes made to bankruptcy law, and we can help you file your case. Call us at 424-285-5525 for a comprehensive case review and insight on how we could help you leave your financial hardship behind and start on a clean slate.