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President Signs Bankruptcy Overhaul

Most Provisions Effective October 17, 2005 

President Bush signed the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (S. 256) into law. The new law will make for some of the most significant changes in consumer and business bankruptcy practice. The new law is generally effective in 180 day , applicable only to cases filed on or after the effective date (October 17, 2005).

However, there are some important departures from this default rule, including some provisions that are effective Now . For example,

  • Sections 308 (reduction of the exemption for fraud), 322 (limiting the exemption) and 330 of the bill, relating to the homestead exemption, are effective to cases filed today.
  • Section 324, relating to the courts’ exclusive jurisdiction over matters concerning professional employment, applies to cases filed after today.
  • Section 325, changing the filing fee structure, is effective for the two-year period beginning today (subsections (b) and (c) regarding the U.S. Trustee system fund and the allocation of fees collected by courts).
  • Section 1213, amending Section 547 of the Code, overruling the DiPrezio rule on insider preferences, applies to any case now pending or commenced on or after today, and is thus retroactive.
  • Section 1223, providing for the authorization of new bankruptcy judges, is effective today.
  • Section 1234, amending Section 303 of the Code regarding involuntary cases, is effective today and applies to cases commenced before, on or after today and is thus retroactive.
  • Section 1401, increasing the cap on the wage priority from $4,000 to $10,000 and doubling the look-back period from 90 to 180 days, is effective today, but applies only to cases filed after today.
  • Section 1402, enlarging the look-back period to allow avoidance of certain transfers to or for the benefit of insiders, applies to cases filed on or after today.
  • Section 1403, regarding retiree benefit plans, applies to cases filed on or after today.
  • Section 1404, which makes certain debts nondischargeable if incurred in violation of securities fraud laws, is retroactive to July 30, 2002, the effective date of the Sarbanes-Oxley Act.
  • Section 1405, amending Section 1104 of the Code, requiring the U.S. Trustee to move for the appointment of a trustee where there are “reasonable grounds to suspect” fraud, dishonesty or criminal conduct on the part of certain corporate insiders, is effective today and applicable to cases filed after April 20.

The full text of the new law is available online.

 

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