New Bankruptcy Law

Consumers Will Find Filing Difficult

Increased fees and required credit counseling classes could make filing impossible for those who really need it, not the deadbeats that the law supposedly targets. Estimates are that legal fees will double from $750-$1,500 to $1,500-$3,000. In addition, consumer mandated credit counseling classes will cost $50. Add it all up and the costs for filing may run $3,100+, which may push bankruptcy beyond the means for many.

Winners: Collection Agencies

Collection agencies could well be the winners. With no solutions to their debt crunch, consumers may end up in default on their repayment plans. Agencies may well reap a windfall of new accounts that will cost consumers more and destroy credit ratings more than a bankruptcy ever could.

Losers: Smaller Retail Merchants

Because the new bankruptcy law will push many consumers into Chapter 13 repayment plans, rather than file Chapter 7, which wipes the slate clean and allows them to start over, they’ll have less disposable income. Consequently local retail merchants and small businesses will face losses from cash-strapped prior customers unable to shop or purchase services.

Small Business Easier Defense Against Preference Claims

The new law bankruptcy requires preference claim lawsuits to be filed in the state where your business is located, rather than in the city where the bankruptcy filer resides. Before the change in the law, this required hiring attorneys at a distance to defend your business from the lawsuit. This was both costly and presented difficulties since long-distance defenses are communicationally challenged, not to mention expensive, both in long distance phone charges and attorneys billing by the minute for update calls. The usual procedure before the changes in the new law was to write-off any preference claim and eat the expense.

Shipped Products May Be Recovered

The current law only allows you 10 days to submit a written demand for return of your product shipped to a bankrupt company. The new bankruptcy law extends this to 45 days. Should your demand somehow not be submitted in a timely manner, you may still be able to get an administrative expense claim from the bankrupt company on products they bought within 20 days prior to filing for bankruptcy. All you have to do is prove that the products were sold under normal business procedures. This will help offset any sudden large orders that you somehow approved. For more information on how to avoid this sudden order syndrome and protect yourself from unscrupulous business owners, see Bankruptcy Law Abuses.

Commercial Landlord-tenant Relationships Will Change

Commercial landlords are currently frustrated by the older bankruptcy law that allows a bankrupt commercial tenant 60 days from the date of their bankruptcy filing to decide whether or not to keep their lease. They can also apply for and get several extensions from the courts, in effect, staying in place for months or years.

Under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, a bankrupt commercial tenant will only have 120 days from their bankruptcy filing date to decide to stay or go. The new bankruptcy law only allows one 90-day extension. Only landlords can grant additional extensions which gives them more control of their properties allowing for quicker turnaround of underused properties.

One other change regards judgments. The current law stops eviction proceedings for any tenant after they have filed for bankruptcy, voiding the time and money invested by the landlord to initiate the eviction procedure. The new law doesn’t stop the eviction process if a judgment was obtained prior to the bankruptcy.