New Bankruptcy Legislation Aims to Help Bankrupt Debtors

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By Ryan Blay, W M Law Attorney at Law

With pressing major legislation and partisan conflict, Congress does not always take the time to review bankruptcy legislation.  When it does, however, it has taken some steps to make bankruptcy a little less onerous for debtors.

President Trump recently signed some bankruptcy legislation passed by Congress.  The summary of each act is as follows:

#1. Effective immediately, family farmers with up to $10 million in debt can proceed with a Chapter 12 farm reorganization bankruptcy.  Previously, the debt limit was $4.4 million.  That seems like an enormous amount of money to most consumer debtors, but for farmers with larger operations and heavily secured equipment and collateral, that number prevented many farmers from using Chapter 12.  They would have had to proceed in more complex and expensive Chapter 11 reorganizations or risk losing their farms.

#2. Also effective immediately, veterans who receive disability payments do not have to count any of these disability payments for means testing or “disposable income”.  Please note:  If you are in a current bankruptcy and previously had to count these disability payments toward your disposable income, please contact us to discuss the possibility of dismissing your case and refiling.  Also, remember that some disabled veterans do not need to complete Chapter 7 means testing at all!

#3. Chapter 11 helps businesses reorganize.  But a chapter that envisions reorganizations for huge businesses like Enron, General Motors, and Lehman Brothers and smaller businesses does not always make sense.  The rules should be different for smaller businesses.  New rules, going into effect next February, would allow businesses with less than about $2.7 million in debt to skip some administrative hurdles and move quickly through the process.  The new subchapter requires a plan to be filed by the debtor within 90 days, appoints a standing trustee like Chapter 13 cases, allows for adjustments to mortgages on the debtor’s principal residence if the loan was in connection with the business, and insists on a plan paying all disposable income for 3 to 5 years, much like a Chapter 12 or 13 plan.

#4. Finally, the last update involves preferential transfers, which trustees (and committees for unsecured creditors) sometimes pursue to recover money paid to specific creditors in the months leading up to a bankruptcy filing.  The new rules require the trustee to perform due diligence about possible defenses to the preference recovery actions, and require suits for $25,000 or less to be filed in the district where the defendant is located.

Bankruptcy law is constantly changing and may continue to change.  For questions about these changes or any other questions about bankruptcy law, please speak with one of our experienced bankruptcy lawyers  at W M Law today.

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