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The New Bankruptcy Code

Status of legislation:

April 20, 2005: Bankruptcy Bill becomes Law.  President Bush signed the The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 on Wednesday, April 20, making it law.  At the signing, he said, ''The act of Congress I sign today will protect those who legitimately need help, stop those who try to commit fraud and bring greater stability and fairness to our financial system."  The House voted to pass S. 256, on Thursday, April 14, 2005, by a vote of 302 to 126.  The Senate approved the bill by a vote of 74-25 on March 10.

Effective date:  Section 1501 of Senate bill S. 256 makes the general provision that the legislation is effective as to cases which are filed 180 days after enactment (cases filed Monday, October 17,  2005).  However, the following sections will become effective immediately unless otherwise noted:   308, 322, 330, made effective by 1501(b)(2) [limits Homestead Exemption to $125,000 under certain circumstances]; 324 [re district court's exclusive jurisdiction over professionals employed in bankruptcy]; 325 [US Trustee & filing fees]; 434, effective 60 days after date rules become effective for new forms under 28 USC 2075 [reporting requirements for small business debtors in Ch 11]; 601 effective 18 months after enactment [compiling data in consumer cases]; 603 effective 18 months after enactment [random audits of Ch 7 & 13 cases]; 1001 [permanently reenacting Ch 12]; 1213 [overruling DiPrezio rule]; 1221 [re transfers made by non-profit debtors]; 1223 [re additional judgeships]; 1234 [re involuntary cases]; 1301-1306 [amendments to Truth in Lending Act]; 1401 [increasing cap on wage priority and expanding look-back period]; 1402 [expanding look-back period for fraudulent transfers from 1 to 2 years and avoidability of insider transfers; look-back change effective 1 year after enactment]; 1403 [re reinstatement of employee benefit plans]; 1404 effective date unclear [amending 523(a)(19) re securities fraud debt]; 1405 [requiring appointment of trustee when fraud, dishonesty or criminal conduct suspected of corporate officials].  For details, see the CLLA report (pdf format).

Background:  Previous versions of the bill were stalled in the Senate (105th, 107th and 108th Congress).  In the 107th and 108th Congress, a dispute between pro-choice and pro-life appeared to be the only thing holding up passage of the bill in both houses.  The bill's supporters could not overcome pro-life opposition to an amendment added by Sen. Charles Schumer (D-N.Y.) which would prevent the discharge of fines and damages arising out of abortion clinic violence.  The present bill does not include the Schumer amendment.  When the bill was passed by the 106th Congress, it was pocket-vetoed by President Clinton.  President Bush has made the bill a priority in his legislative agenda, so it is expected that he will promptly sign the legislation into law.   (The National Association of Bankruptcy Attorneys has reported that the primary sponsor of the bill, MBNA, was the single largest contributor to President Bush's 2000 election campaign.)   Most provisions of the new law will be effective for cases filed 6 months after it becomes law.

Other status updates may be found at the Commercial Law League of America website.

The full text of  the new Bankruptcy Code relating consumer cases (including chapters 7 and 13), with an option to see a redline version showing what sections have changed can now be reviewed on our new Bankruptcy Code page.

Full text of "Bankruptcy Abuse Prevention and Consumer Protection Act of 2005," S. 205 (109th Congress, 1st Session), passed March 10, 2005.  Caution:  Before you click on the link you might want to know that it's 512 pages long. 

A redline version of the bill can be found in the House Judiciary Committee Report [link to copy on our site].  Search for "XV", for the beginning of the interlineations.  It may also be found at .  Attorneys Davis Polk and Wardwell have also posted a blacklined version of the bill in pdf format at , and attorney William D. Weber has a web page version at

The bill is essentially a reintroduction of previous legislation proposed since the 105th Congress.

Changes in the Bankruptcy Code Enacted by 107th Congress of the United States

It appears that the new bankruptcy code will include the changes described below, with links to the applicable statutory amendments.  This is not an exhaustive list of all changes.  NOTE:  Although very similar--identical in most respects--this is NOT S. 256 passed by the 109th Congress.

Click for the Flowchart to the new Bankruptcy Code.

Establishing a Needs Based Bankruptcy 

  • Excusing Debtors Having Income Below the Median Income in the State - If a debtor's income for the 6 months preceding the filing of a bankruptcy is less than the median income in the state, the Means Test (below, and under Chapter 13) will not apply.  Explanation of the Median Income  707(b)(7)
  • The Means Test - If the debtor's income is more than the median income in the state, any creditor, the trustee or the court may force conversion of a Chapter 7 to Chapter 13 or 11 if the amount of the debtor's income left after deducting allowed expenses over 60 months is greater than $6,000.  If income less expenses times 60 is between $6,000 and $10,000, conversion is required only if it is more than 25% of the nonpriority unsecured claims.   Explanation of the Means Test with Median Income and Allowable Deduction Estimates  707(b)
    The Chapter 7 Trustee and the US Trustee are to apply the Means Test.  704
    The clerk is to notice all creditors if there is a presumption of abuse.  342(d) 

Credit Counseling Required 

  • Credit Counseling Before Filing - If the United States trustee has approved enough non-profit credit counseling agencies to provide such services, an individual cannot file Chapter 7, 11 or 13 unless he or she has received credit counseling (including phone and internet) during the 180-day period preceding the date of filing of the petition. This requirement may be temporarily waived if the debtor submits a certification describing exigent circumstances meriting the waiver, and stating that the debtor requested credit counseling services, but was unable to receive it within 5-days from the request. The debtor must receive counseling within 30 days of filing the petition, or an additional 15 days if extended by the court.  109(h)
    The court is to approve credit counseling agencies using specific guidelines.  111
    Debtors must file a certificate and the repayment plan from the approved credit counseling agency  521(b)
  • Financial Management Course Required for Discharge - A debtor must complete an instructional course concerning personal financial management to receive a discharge in Chapter 7 or 13.  727(a)(11), 1328(g)(h), & (i)  The United States trustee is to approve credit counseling agencies using specific guidelines.  111

Discouraging Repeat Cases 

  • Time Between Bankruptcy Discharges Increased - The period a debtor must wait after filing a case in which debts were discharged before filing another case is extended from 6 years to 8 years for Chapter 7 cases.  727(A)(8)  For Chapter 13, the House version adds a 5 year period between cases. The Senate version makes this period 3 years from a case under Chapters 7, 11, or 12, and 2 years (or less for an extreme hardship) from a Chapter 13 case. 1328(f) 
  • Termination of the Automatic Stay in Refiled Cases - The automatic stay which stops creditors actions while the case is pending terminates the automatic stay 30 days after the commencement of Chapter 7, 11 and 13 cases if a previous dismissed case was pending within 1 year before the present case.  The stay may remain in effect if the court finds that the present case is in good faith.  If 2 or more previous cases were pending within 1 year before the present case, the stays do not go into effect, but they may be put into effect if the court finds that the present case is in good faith.  362(c)(3) & (4)  In addition, the relief from stays dealing with real property may remain in effect for cases filed within the next two years if it he bankruptcy petition was part of a scheme to delay, hinder, and defraud creditors and involved transfer the real property or multiple bankruptcy filings.  362(b)(20) & (21)

Protecting Child & Spousal Support 

  • Support Must Be Current to confirm a Chapter 13 Plan - Domestic support obligations which are due after a case is filed must be current for a plan to be confirmed.  1325(a)
  • Notice Regarding Domestic Support - The Chapter 7 & 13 trustees must notify holders of domestic support claims of the services of the the State child support enforcement agency, and upon discharge, notify the State agency of the debtor's address and creditors not discharged or reaffirmed.  Creditors are required to disclose the debtor's address on request by the holder of a support claim.  704(c)  1302(d)
  • Priority of Child & Spousal Support Moved Up - The priority of child and spousal support claims, designated domestic support obligations, is moved from seventh to first.  Claims owed to a spouse, former spouse, child, parent or legal guardian or responsible relative of the child are given priority over claims assigned to a governmental unit.  507(a)
  • Partial Payment of Assigned Support Claims in Chapter 13 - As before the amendments, child and spousal support must be paid in a Chapter 13 Plan, but the amendments allow a 5 year plan to pay less than the full balance of domestic support obligations that are assigned to or owed to the government.  1322(a)(4)
  • Domestic Relations Actions Not Stayed - Domestic relations actions in general (paternity, support, custody, visitation, domestic violence) are not stayed by a Bankruptcy.  An action for dissolution of marriage is stayed only to the extent that it seeks to divide property of the estate. 362(b)(2)
  • Collection of Child and Spousal Support Is Not Stayed - The exclusion of actions to collect child support and spousal maintenance from the stay is broadened.  Actions specifically excluded from the stay include withholding of income under a court order; suspension of drivers', professional, occupational and recreational licenses; reporting of overdue support; interception of tax refunds, and enforcement of medical obligations.  362(b)(2)
  • Child and Spousal Support Must Be Paid for Chapter 13 Discharge - A Chapter 13 case may be dismissal or conversion for failure to pay domestic support obligation becoming due after the petition is filed.  1307(c)(11)  The debtor must certify that post-petition child support obligations have been paid to be discharged in Chapter 13. 1328(a)

Additional Rights of Secured Creditors 

  • Dismissal if Statement of Intentions Not Filed - If the Statement of Intentions required under 521(a)(2) is not filed within 45 days of commencement of a Chapter 7 or 13 case, the case will be automatically dismissed.  521(j)
  • Termination of the Automatic Stay if Debt Is Not Reaffirmed - The automatic stay which stops creditors actions while the case is pending terminates as to personal property securing a claim if the debtor does not file and perform under a Statement of Intention.  362(h), 521(a)(6)&(d)
  • Default of Lease -  If the debtor does not timely reaffirm, lease provision placing the debtor in default by filing bankruptcy will apply. 521(d)
  • More Paid on Secured Claims in Chapter 13 Plan - A plan must pay the full balance of purchase money loans on vehicles incurred within 5 years (House version) or 3 years (Senate version) before filing.  The full balance must also be paid for purchase money loans for anything else of value if incurred within 1 year before filing.  The plan must provide for equal monthly payments sufficient to adequately protect the creditor's interest on those claims.  1325(a)
  • Secured Creditors Retain Liens in Chapter 13 - Liens for secured claims are retained until the claim is paid or discharged, and survives conversion or dismissal.  1325(a)(5)(B)(i)
  • Chapter 13 Debtor Must Provide Proof of Insurance - Within 60 days the case is filed, a Chapter 13 debtor must provide the creditor with evidence of required insurance on leased or secured property. 1326(a)4)
  • Secured Claims Protected upon Conversion from Chapter 13 to Chapter 7 - Values of property and claims established in Chapter 13 cases do not apply in the case when converted to Chapter 7.  Secured creditors retain their claims when a case is converted to Chapter 7 unless the claim has been paid in full.  Unless a prebankruptcy default has been fully cured it will be given effect upon conversion.  348(f)
  • Mortgage Excluded from Injunction After Discharge - Creditors holding a security interest in real property that is a debtor's principal residence are excepted from the injunction of 524(a)(2) which prohibits creditors from attempting to collect a discharged debt.  524(j)
  • Failure to Credit Payments May Violate Stay - The willful failure of a creditor to credit payments received is made a violation 524(a)(2), but only if it results in material injury to the debtor, and only if a plan is not dismissed, is not in default, and the creditor has received payments in accordance with a plan.  524(i)

Lessor Protection 

  • Automatic Termination of Stays - If a lease is rejected or not assumed, the stay is terminated.  365(p)(1)
  • Assumption in Chapter 7 - In Chapter 7, the debtor may notify a lessor that the debtor wants to assume a lease, and if the lessor agrees, the lease is assumed.  The lessor may condition the assumption on curing of any default.  365(p)(2)
  • Assumption in Chapter 13 - In Chapters 11 and 13, if a lease of personal property is not assumed in the plan confirmed by the court at the conclusion of the confirmation hearing, the lease is rejected and stays are lifted.  365(p)(3)
  • Assumption by Trustee - Requirements of the trustee to cure non-monetary defaults are modified, and provisions relating to air terminals are deleted.  365(b)(1), 365(c)&(d)

Additional Protection of IRS and State Taxes 

  • Taxes Must Be Filed in Chapter 13 - All required tax returns must be filed for a plan to be confirmed.  1325(a)  362(b)(27)
  • Setoff of Tax Refunds Excluded from Stay - Tax refunds for periods ending before the start of the bankruptcy may be applied to the taxing authority to taxes owed for periods ending before the bankruptcy.  362(b)(27)
  • Stay Reduced for Tax Court - The applicability of the stay to United States Tax Court cases is reduced.362(a)(8)
  • A Chapter 13 Debtor Required to File Returns - A Chapter 13 debtor must file all returns for tax periods ending within the 4 years prior to the filing of the case by the day before the 341 meeting, but the trustee may extend this deadline.  1308

Paying More in Chapter 13 

  • 5 Years of Payments Required in Some Cases - If a debtor's income for the 6 months preceding the filing of a bankruptcy is greater than the median income in the state, a Chapter 13 Plan must be 5 years in duration. 1325(b)(4) Explanation of the Median Income Social Security Benefits are excluded from current monthly income.  101(10A)
  • Amount of Plan Payments Based on IRS Allowances and Other Expenses - The amount of plan payments is the debtor's current monthly income (excluding Social Security and amounts to repay pension loans), based on a 6 month average, less amounts necessary for:
    • The maintenance or support of the debtor or a dependent of the debtor, and
    • A domestic support obligation that first becomes payable after the date the petition is filed,  and
    • Charitable contributions of up to 15 percent of gross income, and
    • Payment of expenditures necessary for the continuation, preservation, and operation of a business.
    Deductions for expenses are to be determined accordance with the Means Test of 707(b)(2) if the debtor's income exceeds the median income in the state.  Explanation of the Means Test and Allowable Deduction Estimates  1322(d) & (f), 1325(b)(2) & (3)
  • Scope of Chapter 13 Discharge Reduced - Debt for fraudulent taxes, fraud or misrepresentation, unscheduled debt, and certain civil restitution & damages for willful or malicious personal injury, which were previously discharged in Chapter 13, are excepted from discharge.  1328(a)

Favorable Treatment of Pension, Profit Sharing, & 401k Loans 

  • Stay Does Not Apply - The withholding of payments on pension, profit-sharing, stock bonus, 401k, etc. loans from the debtor's pay are not stopped by the filing of a Bankruptcy.  362(b)(19)
  • Cannot be Modified by Chapter 13 - A Chapter 13 plan cannot modify repayment of loans from pension, profit-sharing, stock bonus, or other plans.  The payment on such loans is excluded from "disposable income."  1322(f)

Additional Documents Provided by Debtor 

In addition to the list of creditors, schedules of assets, liabilities, income & expenditures, and statement of financial affairs already required, debtors must provide or file:

  • Certificate of Credit Counseling -  The debtor must file a certificate and the repayment plan from the approved credit counseling agency. 521(b)
  • Statement Regarding 342(b) Notice - A statement of the attorney or document preparer that the debtor has been given the notice under 342(b), or if there was no preparer, a statement that the debtor has obtained and read the notice. 521(a)(1)(B)(iii)
  • Pay Stubs - Evidence of payment from employers, if any, received within 60 days before the filing of the petition.  521(a)(1)(B)(iv)
  • Itemized Monthly Income - A statement of monthly net income, itemized to show how the amount is calculated.  521(a)(1)(B)(v)
  • Statement of Anticipated Increases - A statement of reasonably anticipated increase in income or expenditures over year after filing.  521(a)(1)(B)(vi)
  • Tax Return for Last Period - Debtor's tax return or transcript for the latest taxable period prior to filing, which the debtor must also provide to any creditor that request it.  521(e)(2)
  • Tax Returns During Case - Copies of all tax returns which are required to be filed from the commencement of the case to the termination of the case.  The case can be dismissed or converted if required tax returns are not filed.  521(f), 521(k)
  • Income & Expenses - In Chapter 13, an annual statement of income and expenses giving specific information regarding income sources, parties responsible for support of dependants, and contributions to household income.  521(f)(4), 521(g)
  • Disclosure of Educational Account & Tuition Interests - Debtors must disclose interests in education individual retirement account or under a qualified State tuition programs.  521(c)
  • Photo ID - If the trustee requests, a photo identification.  521(i)

Additional Exclusions from Preferences 

The following are excluded as preferential transfers which may be avoided by the trustee:

  • Credit Counseling Payments - Transfer between the debtor and any creditor as a part of an alternative repayment plan of an approved credit counseling agency.547(h)
  • Domestic Support Payments - Transfers in payment of domestic support obligations, broadening the scope of the exclusion of child support and spousal maintenance transfers by removing the exception for support assigned to another entity.  547(c)(7)
  • Perfection of Security Interests - Extending from 10 to 30 days the time in which a security interest must be perfected to be excluded as an avoidable preference.  547(e)(2)
  • Perfection of Purchase Money Security Interests - Extending from 20 to 30 days the time in which a purchase money security interest must be perfected to be excluded as an avoidable preference.  547(e)(2)(C)
  • Payments in Ordinary Course - Changing the language excluding transfers in payment of a debt incurred by the debtor in the ordinary course of business.  547(c)(2)
  • Non-Consumer Transfers Under $5,000 - Transfers effecting an aggregate value of less than $5,000 of property by debtors whose debts are not primarily consumer debts.  547(c)(9)
  • To a Non-Insider that Benefit an Insider - Transfers to a creditor who is not an insider which benefit an insider, which are made between 90 days and 1 year before the date of the filing, but as to the creditor who is an insider the transfer continues to be a preference.  547(i)

Reduction and Changes in Exemptions Available 

  • Time of Residence to Claim a State's Exemption Increased - The domiciliary requirement to claim a state's exemptions, other than the homestead, is increased from 180 days to 730 days (2 years), or if the debtor was not in the state for 2 years, the state where the debtor resided for the majority of the 180 days preceding the 2 year period.  522(b)(3)(A)
  • Homestead Limited to $125,000 in Senate Version - The Senate version of 522(o) limits the state homestead exemption to $125,000, except for the principal residence of a family farmer.
  • Homestead Limited to $100,000 in House Version - 522(p), in the House version only, limits the state homestead exemption to $100,000, except for a homestead owned for 2 years before the bankruptcy, and except for the principal residence of a family farmer.  The House version of 522(o) reduces the exemption to the extent that it comes from property that the debtor disposed of within 7 years before filing bankruptcy if the debtor could not have exempted the property and there was intent to hinder, delay, or defraud a creditor.
  • Limitation of Household Goods on Which Liens May Be Avoided - The household goods on which the debtor may avoid the fixing of a nonpossessory, nonpurchase-money lien are specified by 522(f)(4).
  • Tax Exempt Retirement Benefits are Defined and Limited - 522(b)(3)(C) and 522(b)(4) specify tax exempt retirement benefits which are exempt.  The exemption available to certain individual retirement accounts is limited to $1,000,000. 522(n)

Expanded Exceptions to Discharge 

  • Taxes - The description of taxes not discharged is expanded.  523(a)(1)(B)
  • Luxury Goods or Services and Cash Advances - The exclusion from discharge of debt for "luxury goods or services" and cash advances, previously not dischargeable if more than $1,150 (amount effective April 1, 2001) incurred within 60 days before the bankruptcy, is expanded.  Debts for luxury goods or services owed to a single creditor aggregating more than $250 (House version) or $750 (Senate version)  incurred within 90 days before filing are are presumed to be nondischargeable.  Cash advances aggregating more than $750 within 70 days before filing are presumed to be nondischargeable.  523(a)(2)(C)
  • Death or Injury Caused While Intoxicated - The exception to discharge for debt incurred for death or personal injury caused by the debtor's operation of a motor vehicle while intoxicated is expanded to include the operation of a  motor vehicle , vessel, or aircraft.  523(a)(9)
  • Domestic Support Obligation - The definition of child support and spousal maintenance made not dischargeable in Chapters 7, 11, 12, and 13 by 523(a)(5)  and (18) (referring to support owed to a State or municipality) is replaced by "domestic support obligation" which is defined in 101(14A).
  • Educational Loans - The description of educational loans excepted from discharge by 523(a)(8) is broadened.
  • Debt Incurred to Pay Taxes - The exception from discharge for debt incurred to pay Federal taxes is broadened to include debt to pay taxes of any governmental unit.  523(a)(14A)
  • Debt Incurred to Pay Fines and Penalties - The Senate version adds an exception to discharge for debt incurred to pay fines or penalties imposed under Federal election law.  523(a)(14B)
  • Debt from Divorce, or Separation - Debt incurred in a divorce or separation made non-dischargeable by 523(a)(15) is limited to that owed to a spouse, former spouse, or child.  The limitations regarding the debtor's ability to pay and weighing the benefit of the discharge against the detriment to the spouse or child are deleted.  The court hearing required in 523(c) to determine that such debt is not discharged is deleted.
  • Homeowner Association, Condominium, & Cooperative Fees - Homeowner association, condominium, and cooperative fees incurred after filing, which were previously not discharged only as long as debtor continued to reside in or rent out the unit, are now excluded from discharge as long as the debtor legal, equitable, or possessory ownership interest in the unit. 523(a)(16)
  • Fees on Prisoners - Fees imposed by courts, excepted from discharge by 523(a)(17), are limited to fees "on a prisoner."
  • Pension, Profit Sharing Debt - Debt owed to a pension, profit-sharing, stock bonus, or other plan are excepted from discharge by 523(a)(18).
  • Interference with Lawful Provision of Services - The Senate version only of 523(a)(19) excepts from debts incurred through violation of laws relating to provision of lawful goods or services (directed toward interference with abortion providers).

Additional Property Excluded from the Bankrupt Estate 

The following property is not property of the bankrupt estate:

  • Education IRAs and Tuition Credit Accounts - Education individual retirement accounts and tuition credit accounts in State tuition programs.  541(b)(5) & (6)
  • Employee Benefit Plan Health Insurance Deductions - Amounts withheld or received by an employer from the wages of employees for an employee benefit plan and for health insurance plans.  Amounts withheld for benefit plans are also excluded from disposable income as defined in 1325(b)(2)541(b)(7)
  • Assets Transferred for Securitization - Eligible asset transferred to eligible entities in connection with an asset-backed securitization before the commencement of the case.  541(b)(8)  Eligible assets entities are defined in 541(f)
  • Pawned Property - Personal property held by a licensed lender and pledged to the lender as collateral for a loan, if the debtor has no obligation to repay the loan, and the right to redeem is not timely exercised.  541(b)(9)

Additional Limits and Penalties for Bankruptcy Petition Preparers 

  • Exclusion of Attorney's Employees - An employee of an attorney is excluded from the definition for "bankruptcy petition preparer" only if the employee is under the direct supervision of the attorney for the debtor.  110(a)(1)
  • Signature of Preparer - Requires an officer, principal, responsible person, or partner of the preparer to sign the document if the preparer is not an individual, and to print the name and address of that party on the document.  110(b)(1)
  • Notice to Debtor - Before preparing forms or accepting fees, the preparer must give written notice on an official form, signed by the to debtors and the preparer.  The notice is to inform the debtor that the preparer is not an attorney and may not  give legal advice.  The notice, prepared by the Judicial Conference of the United States may contain a description of examples of legal advice that a bankruptcy petition preparer is not authorized to give.   110(b)(2)
  • Identification Numbers - Identifying numbers, instead of a Social Security Number,  for a bankruptcy petition preparer who is not an individual are specified.  110(c)
  • No Legal Advice - Bankruptcy petition preparers are prohibited from giving legal advice and the kinds of advice which a preparer cannot give is itemized.  110(e)(2)
  • Maximum Fees - The court may set the maximum fees that a bankruptcy petition preparer may charge.  The preparer may forfeit fees for violations of 110.  110(h)
  • Damages for Violations - The debtor, trustee, United States trustee, or bankruptcy administrator, may move for the court to order the preparer to pay the debtor damages for any violation of 110 or for any act that the court finds to be fraudulent, unfair, or deceptive.  Dismissal because of the failure to file bankruptcy papers is removed as a specific basis for sanctions.  Although creditors are removed as a party that may move for damages, language remains in subsection (2) requiring the award of $1,000 to creditors who file the action.  110(i)
  • Injunctions - The bases for injunctive relief are expanded by adding 110(i)(3), and deleting the requirement that violations subject a person to criminal penalty in 110(j)(2)(I).
  • Fines - Fines of $500 for each violation of 110 may be tripled if the preparer has advised the debtor to omit assets or income, or use a false Social Security number, or has failed to inform the debtor that the debtor was filing for bankruptcy or has failed to the preparer's identity.  Fines in a district that has a U.S. Trustee are to be paid into a fund to enforce 110.  110(l)

Requirements for Attorneys, Bankruptcy Petition Preparers, and Other Debt Relief Agencies 

A "debt relief agency" is defined by 101(12A) to be anyone who provides bankruptcy assistance for money, specifically including "bankruptcy petition preparers" defined in 110(a)(1), and presumably includes attorneys, but does not include "any person that is an officer, director, employee or agent" of the debt relief agency, nonprofit organizations, creditors, or authors of copyrighted materials.

  • Prohibitions - A Debt Relief Agency cannot:
    • Fail to perform a service it informed the assisted person it would perform.  526(a)(1)
    • Make a false or misleading statement.  526(a)(2)
    • Counsel an assisted person to make a false or misleading statement in a bankruptcy document that is untrue and misleading or that the agency should have been known upon exercise of reasonable care to be untrue or misleading.  526(a)(2)
    • Misrepresent the services the agency will provide or the benefits and risks if a person becomes a debtor.  526(a)(3)
    • Advise a person to incur more debt prior to filing.  526(a)(4)
    • Advise a person "to pay an attorney or bankruptcy petition preparer fee or charge for services performed as part of preparing for or representing a debtor in a case under this title."  526(a)(4)
  • Liability for Intentional or Negligent Acts - A "debt relief agency" is liable to the assisted person for fees charged, actual damages, and attorneys fees, if the agency is found to have:
    • Intentionally or negligently failed to comply with 526, 527, or 528526(c)(2)(A)
    • Provided assistance in a case dismissed or converted because of the agency's intentional or negligent failure to file required documents.  526(c)(2)(B)
    • Intentionally or negligently disregarded material requirements of the bankruptcy code or rules. 526(c)(2)(C)
  •  Disclosures - A debt relief agency must make numerous disclosures at various times, including:
    • Under 527(a)(1), to provide the written notice which the court is required to give under 342(b)(1), which includes:
      • A description of chapters 7, 11, 12, and 13 and the general purpose, benefits, and costs of proceeding under each of those chapters.
      • A description of the types of services available from credit counseling agencies;
      • A statement that  a person who knowingly and fraudulently conceals assets or makes a false oath or statement under penalty of perjury in connection with a bankruptcy case shall be subject to fine, imprisonment, or both; and
      • A statement that all information supplied by a debtor in connection with a bankruptcy case is subject to examination by the Attorney General.
    • Under 527(a)(2), within 3 days after first offering to provide bankruptcy assistance, the agency must also advise assisted persons that:
      • All information that the assisted person is required to provide with a petition and thereafter during a case under this title is required to be complete, accurate, and truthful;
      • All assets and all liabilities are required to be completely and accurately disclosed in the documents filed to commence the case, and the replacement value of each asset as defined in section 506 of this title must be stated in those documents where requested after reasonable inquiry to establish such value;
      • Current monthly income, disposable income, are required to be stated after reasonable inquiry; and
      • Information may be audited, and that failure to provide such information may result in dismissal of the case under this title or other sanction including, in some instances, criminal sanctions.
    • Under 527(b), before commencement of the case (presumably since that is when the clerk is to give the notice required under 342(b)(1), although no time is specified when the agency must give the same notice, and this notice is to be given at the same time as the agency is to give that notice), the agency is to give a specific notice stated in 527(b) in a separate document including:
      •  The debtor may represent himself, can hire an attorney, or bankruptcy petition preparer.
      • That the law requires a written contract specifying what the cost will be and what the attorney or preparer will do.
      • That the debtor or the attorney should analyze the debtor's eligibility.
      • That a Petition, Schedules and Statement of Financial Affairs, as well as in some cases a Statement of Intention need to be prepared correctly.
      • The debtor will have to attend the required first meeting of creditors.
      • That in chapter 7 the debtor may be asked to reaffirm a debt.
      • That in chapter 13 the debtor will repay creditors what the debtor can afford over 3 to 5 years.
      • That the bankruptcy case may also involve litigation.
      • That only attorneys, not bankruptcy petition preparers, can givelegal advice.
    • Under 527(c), except to the extent the debt relief agency provides the required information itself, reasonably sufficient information on how to provide required information, including:
      • How to value assets at replacement value, determine current monthly income and deductions, and in a chapter 13 case, how to determine disposable income.
      • How to complete the list of creditors.
      • How to determine what property is exempt and how to value exempt property at replacement value.
    • Within 5 days after the first date that the agency provides bankruptcy assistance services, but prior to a petition being filed, execute a written contract that explains the services that the agency will provide and the fees, charges, and terms of payment and provide the assisted person with a copy of the contract.  528(a)(1)
    • Disclose in advertisements that services are with respect to bankruptcy relief.  528(a)(2)
    • Include the statement "We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code" in advertisements.  528(b)

Other Changes 

  • Chapter 13 Play May Pay Interest on Nondischargeable Debt - A plan may pay interest on nondischargeable claims after full payment of all allowed claims. 1322(b)(10)
  • Denial of Discharge for Misstatement in Audit - The failure to explain misstatement in audit and failure to make available records requested in audit is added as a basis to deny discharge.  727(d)(4)
  • Landlord Protection - Under certain conditions, forcible detainer actions under residential rental agreements are excluded from the stay.  362(b)(22), (23) & (24)
  • Reduction of Unsecured Claims of Creditors Refusing to Negotiate - Unsecured claims may be reduced by 20% if the creditor unreasonably refused to negotiate with an approved credit counseling agency proposing payment of 60% of the debt over the period of the loan, or a reasonable extension. The proposal must have been made at least 60 days before the filing of the petition.  502(k)
  • Minor Children's Names Not Disclosed - The debtor cannot be required to disclose the name of minor children in public records. 112
  • Court to Give Additional Notice -
    • The notice that the clerk is to give to debtors is expanded.  342(b)
    • The clerk is to notice to all creditors if there is a presumption of abuse under is 707(b)342(d)
    • A creditor may file with a notice with the court stating its address for notice in cases under chapters 7 and 13, and the court is then required to give notice of new cases to that address.  342(f) 
  • Debtors to Give Additional Notice - Including debtor's name, address, and taxpayer identification number of the debtor is required.  Notice to creditors is to include account numbers and to be sent to creditors at address they have listed in at least 2 communications sent to the debtor within 90 days prior to filing.  342(c)(2)
  • Damages from Intoxication Given Priority - A tenth priority is added for death or personal injuries resulting from the operation of a motor vehicle or vessel if such operation was unlawful because the debtor was intoxicated from using alcohol, a drug, or another substance.  507(a)(10)
  • Expanded Disclosure for Reaffirmation Agreements - Disclosure required for reaffirmation agreements, 524(c), are expanded to include "Amount Reaffirmed," "Annual Percentage Rate," security, repayment schedule in addition to other requirements.  524(k)

Sections of the Bankruptcy Code Amended by the Bankruptcy Reform Act/Bankruptcy Abuse Prevention and Consumer Protection Act 


101. Definitions
109. Who may be a debtor
110. Penalty for persons who negligently or fraudulently prepare bankruptcy petitions
111. Credit counseling agencies; financial management instructional courses [New Section]
112. Prohibition on disclosure of identity of minor child [New Section]


342. Notice
348. Effect of conversion
365. Executory contracts and unexpired leases


502. Allowance of claims or interests
507. Priorities
521. Debtor's Duties
522. Exemptions
523. Exceptions to discharge
524. Effect of discharge
526. Restrictions on debt relief agencies [New Section]
527. Disclosures [New Section]
528. Requirements for debt relief agencies [New Section]
541. Property of the estate
547. Preferences


704. Duties of trustee
706. Conversion
707. Dismissal of a case or conversion to a case under chapter 11 or 13
727. Discharge


1106. Duties of trustee and examiner
1115. Property of the estate [New Section]
1129. Confirmation of plan


1202. Trustee
1208. Conversion or dismissal
1225. Confirmation of plan
1228. Discharge


1302. Trustee
1307. Conversion or dismissal
1308. Filing of prepetition tax returns  [New Section]
1322. Contents of plan
1324. Confirmation hearing
1325. Confirmation of plan
1326. Payments
1328. Discharge
1329. Modification of plan after confirmation

28 USC 1334. Bankruptcy cases and proceedings

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This page was last revised: 05/31/05