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Bankruptcy Laws Changed to Harm Consumers and Pump Debt!


President George W. Bush signed on April 19, 2005 new legislation that substantially amended the Bankruptcy Code, and primarily affects consumer filings, making it more difficult for a person or estate to file for Chapter 7 bankruptcy. The BAPCA impacts business filers as well with the heaviest impact on smaller (those listing less than $2 million in debt) businesses. Specifically, the BAPCPA initiated a means test to determine if the filing will be made under Chapter 7 or Chapter 13. The BAPCAalso necessitates that those filing for bankruptcy protection undergo credit counseling and, further, participate in personal financial management education. Additional changes include an increased emphasis on executive accountability and transparency of the bankruptcy process. The BAPCA also calls for more hoops to jump through before a Key Employee Retention Plan (KERP) can be implemented.

Most people forget, forgot, were not informed, or were misinformed as to the drastic changes in the bankruptcy laws. These unspoken of and un-noticed changes in the bankruptcy law effectively at first, then with amendments made to the law in 2007, literally stripped consumers of the protections previously afforded debtors through the bankruptcy courts. The total forgiveness of debt by filing for Chapter Seven, Chapter Eleven, Chapter Thirteen, and other bankruptcy protection laws used to serve as the ultimate market check against bad debt mortgages, predatory loans, and the creation of bad debt investment products by Wall Street. The way this was accomplished was by ensuring lenders, creditors, and banks would experience true risk in lending, and could suffer the financial costs of making irresponsible loans to unworthy parties or individuals.

Prior to the changing of the laws, an American consumer could have debt erased or forgiven by filing for bankruptcy in court. This meant that companies and banks had to conduct true research into the credit worthiness of those they extended credit to. Companies and Banks were faced with the very real possibility that an individual would file for bankruptcy, and the debt owed that company would be erased by the court. However, this fair and natural protection for consumers and the American economy, which had always been a present and standard “invisible market force, “was touted and portrayed as an evil and bad market influence by the lobbyists for those whom sought to destroy America’s economy. However, the risk that a debtor may default or fail to repay a loan or credit is a concept as old as the notion of credit or lending itself. Moreover, these risks of default, properly carried by those whom make loans or extend credit, served as the ultimate and natural market check to ensure that lenders did their proper due diligence and research into the credit worthiness of an individual. If they did not conduct proper check into an individual’s credit worthiness, then the loaning party face the very real possibility of losing not only the profit they intended to make by lending the money, but the original principle sum as well.

For centuries this concept of properly placed and distributed level of financial risk which is naturally assigned to those individuals or parties whom seek to lend money for profit served capitalist economies and countries well as the ultimate market check. The risk of loss by the lender served as a better check on negligent, predatory, or criminal lending practices, than any regulation or law ever could. However, with the change of the law by the legislator, the protective hands of the Judiciary have been tied. The courts can no longer erase the debt of individuals seeking the protection of the Courts, and instead a corrupt and unfair industry of Credit Rehabilitation replaced true risk to the lenders. This was done by convincing the public and legislature that there were bankruptcy abuses occurring at aerate that threatened the American economy. There of course were no abuses, and certainly no abuses that rivaled the level of corruption and abuse carried out by lenders and creditors once the risks to themselves was removed, as this country both witnessed and experienced first-hand with the mortgage meltdown.

The way this was done is debt, even bad debt, began to be treated like guarantees on paper. The reason why is because debt now could never be forgiven, wiped clean, and (At least on paper.) never not be repaid, and even a bankruptcy courts (now powerless) can do little more than restructure and consolidate debts and send consumers to debt rehabilitation companies. This gave Wall Street Invention is all the mathematical hocus-pocus they needed, as the laws now made debt forgiveness impossible, and removed any risk what-so-ever that had prevented loans to non-credit worthy parties since biblical times. After that they were off and running. Why not make predatory loans to individuals you know can’t repay the loan, because that loan can now never be forgiven. Even if it takes their entire lifetime, starving the individual and their family, the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCA) of 2005 enslaves American consumers in debt. Just some of the horrible things the law passed are below. The only true way to save our economy is to undue the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCA) of 2005, and make lenders bare the risk of bad loans and negligent lending practices once again!

On April 19, 2005, President George W. Bush signed the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCA) of 2005 into law. The U.S. Department of Justice asserts that the BAPCA "opens a new era in the history of bankruptcy law and practice." On October 17, 2005 the BAPCA became effective. As he signed the bill, President Bush declared, "Under the new law, Americans who have the ability to pay will be required to pay back at least a portion of their debts. Those who fall behind their state's median income will not be required to pay back their debts. The new law will also make it more difficult for serial filers to abuse the most generous bankruptcy protections. Debtors seeking to erase all debts will now have to wait eight years from their last bankruptcy before they can file again. The law will also allow us to clamp down on bankruptcy mills that make their money by advising abusers on how to game the system."

Passage of this bill came after nearly eight years of Congressional debate about the future of bankruptcy legislation. The new legislation substantially amended the Bankruptcy Code, and primarily affects consumer filings, making it more difficult for a person or estate to file for Chapter 7 bankruptcy. The BAPCA impacts business filers as well with the heaviest impact on smaller (those listing less than $2 million in debt) businesses. Specifically, the BAPCPA initiated a means test to determine if the filing will be made under Chapter 7or Chapter 13. The BAPCA also necessitates that those filing for bankruptcy protection undergo credit counseling and, further, participate in personal financial management education. Additional changes include an increased emphasis on executive accountability and transparency of the bankruptcy process. The BAPCA also calls for more hoops to jump through before a Key Employee Retention Plan (KERP) can be implemented.

In addition to these significant changes and others, the BAPCA also increases the authority of and assigns the U.S. Trustee Program many new responsibilities, including the following: implementing the new "means test" to determine whether a debtor is eligible for Chapter 7 or Chapter 13, supervising random audits and targeted audits to determine accuracy, certifying entities to provide the credit counseling that an individual must receive before filing bankruptcy, certifying entities to provide the financial education that an individual must receive before discharging debts and conducting enhanced oversight in small business Chapter 11 reorganization cases. The Department of Justice explains, "Over the past few years, the U.S. Trustee Program’s civil and criminal enforcement efforts have strengthened the integrity of the bankruptcy system by providing consumer protection and combating fraud and abuse."

Most recently on December 1, 2007, amendments to the Federal Rules of Bankruptcy Procedure became effective following April 2007 U.S. Supreme Court approval. These amendments apply only to cases already pending as of the December 1steffective date and all of those cases filed after the effective. Among other changes the amendments make the following significant adjustments. First, an amendment to Rule 3007 (which is related to form and notice of a claim objection hearing). The new rule institutes formatting standards and the restriction of omnibus objections. Second, the amendment provides clearer disclosure as it relates to cash collateral and debtor-in-possession financing usage. This comes specifically in the form of changes to Rule 4001 (which relates to motions and stipulations for cash collateral and D.I.P. financing). The amended rule requires that specific terms and conditions be further detailed. Third, the amendment offers the addition of Rule 6003 (which provides certain limitations on first day orders). Fourth, the changes further amend Rule 6006(which relates to the rejection of executory contracts and unexpired leases) to provide greater restrictions on omnibus motions. Fifth, these recent amendments adjust Rule 1014, allowing the Court to order a change in venue without separate motions filed by the Debtor or other interested parties.

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