Summary of Major Provisions in the Bankruptcy Reform Act of 2001
Copyright (c) Bankruptcy Master 2001
Detailed Provisions House Version  Senate Version
Needs-Based Bankruptcy Amends Federal bankruptcy law to revamp guidelines governing dismissal or conversion of a Chapter 7 liquidation petition (complete relief in bankruptcy) to one under Chapter 11 (Reorganization) or Chapter 13 (Adjustment of Debts of an Individual with Regular Income).

Allows a bankruptcy panel trustee and any party in interest to move for such dismissal or conversion (current law prohibits a party in interest from such motions). 

Lowers the "substantial abuse" standard for dismissal or conversion to one of simple abuse. Replaces the presumption in favor of granting the relief sought by the debtor with a presumption that abuse exists if the debtor's current monthly income exceeds an amount determined according to specified formulae.
Means Test The bill would set new standards for how much relief debtors can receive and how much they can be made to repay.

Debtors with income, after subtracting clearly defined living expenses based on those laid down by the IRS, of $100 a month, or $6,000 over five years, would be disqualified from Chapter 7 bankruptcy and put into Chapter 13.

Chapter 7 allows most unsecured debts, such as credit card debts, to be wiped out. Chapter 13 requires debtors to set up a plan to repay some of those debts over several years.

In a ``safe harbor'' for low-income debtors, the changes will not apply to anyone earning less than the median income for their state of residence.
Mandatory Credit Counseling, Financial Education The bill requires that every debtor must receive counseling from an approved credit counseling agency before they can file for bankruptcy. That counseling must include an analysis of their financial situation, how they got into trouble and what other options they might have.

In addition, debtors will not be able to receive a final discharge of their debts unless they take a course in personal financial management after filing for bankruptcy.

Requires the clerk of each district to maintain a public list of credit counseling agencies and instructional courses concerning personal financial management. Prescribes criteria for approval of such agencies and courses.

Prohibits such counseling service from informing a credit reporting agency whether an individual debtor has received or sought personal financial management instruction. Establishes civil penalties for noncompliance.
Extension of Discharge Period The bill extends the minimum time allowed between Chapter 7 filings from six to eight years and, for the first time, sets a limit, of five years, for repeat Chapter 13 filings.
Homestead Exemptions The bill sets a nationwide limit of $125,000 for how much of the value of their homes debtors may shield in bankruptcy. Currently, so-called homestead exemptions are set by the states and range from zero in Maryland and four other states to no limit in Florida, Texas and three others.

Critics say unlimited exemptions let formerly wealthy debtors keep homes worth, in some cases, millions of dollars even as they discharge huge debts, and argue rich deadbeats often move to the states offering them for just that purpose.

Lawmakers from states with unlimited exemptions have vowed to keep fighting the change. They back a compromise, reflected in the House of Representatives version of the legislation, that would set a $100,000 cap, but only for homes purchased within two years of filing for bankruptcy.
Tougher Limits on pre-bankruptcy spending Current law requires the repayment, on the grounds of fraud, of any credit card debts or cash advances of more than $1,075 for nonessential goods and services incurred within 60 days before a debtor files for bankruptcy.

The bill lowers the threshold amount for card purchases and borrowings to $750, and extends the time periods to 90 days and 70 days respectively. The change effectively expands the amount of debt creditors will be able to reclaim.
Auto Loan Changes The bill will end the current practice of allowing debtors filing Chapter 13 bankruptcy to reduce, or ``cram down'', the value of an auto loan from the total remaining balance to the current market value of the vehicle.

Instead, a debtor owing $10,000 on a car currently worth just $7,000 will have to repay the full amount if they want to keep possession of it.
Credit Card Disclosures The bill requires credit-card statements to contain a warning that making only the minimum payment will increase the amount of interest paid and the time it takes to repay the balance.

They must also give an example of how long it would take to repay a stated balance at a stated interest rate, and list a toll-free number consumers can call to get an estimate of how long it would take to repay their own particular balance.
Derivatives netting The bill contains provisions designed to simplify the treatment of complex financial derivatives contracts in the event of the bankruptcy of a major financial company.

Among others things, it would permit the ``netting'' -- or offsetting -- of all derivatives deals between the bankrupt firm and its trading partners to try to avoid having them tied up in court, risking a delay that could spread the firm's problems through the entire financial system.
Debtor's Counsel Responsible Requires debtor's counsel to reimburse the bankruptcy trustee for legal fees in prosecuting a dismissal or conversion motion if the court finds that counsel's filing under Chapter 7 was in violation of certain bankruptcy rules.
Domestic Support Redefines "disposable income" of a chapter 13 debtor to exclude such debtor's domestic support obligation that first becomes payable after the date the petition is filed.
Priority Child Support Revises priority payment guidelines to place within the first priority claim category certain unsecured claims for domestic support obligations, on the condition that funds received by a governmental unit be applied in a prescribed order.
Victim's Rights Requires the court, upon motion by the victim of a crime of violence or a drug trafficking crime (or at the request of a party in interest), to dismiss a voluntary case filed by an individual debtor convicted of that crime (unless the debtor establishes that filing of the case is necessary to satisfy a claim for a domestic support obligation).
Debtors Expenses Clarified Includes within the calculation of debtor's monthly expenses: (1) those expenses incurred to maintain the safety of the debtor and the debtor's family from family violence as identified under the Family Violence Prevention and Services Act or other applicable Federal law; (2) public as well as private school expenses; and (3) continuation of actual expenses paid by the debtor for the care and support of an elderly, chronically ill, or disabled household or non-dependent immediate family member.

Provides that the presumption of abuse may only be rebutted with detailed documentation of special circumstances requiring additional expenses or adjustment of currently monthly total income for which there is no reasonable alternative.
Notice to Individual Consumer Debtor Revises procedural guidelines to mandate a written notice to the individual consumer debtor before commencement of a case stating: (1) the types of services available from credit counseling agencies; (2) the criminal penalties for fraudulent concealment of assets; and (3) that all creditor-supplied information is subject to examination by the Attorney General.
Creditor Cram-Down Cites circumstances under which the court may reduce by up to 20 percent a claim based in whole upon unsecured consumer debts if the debtor can show by clear and convincing evidence that the claim was filed by a creditor who unreasonably refused to negotiate a reasonable alternative repayment schedule proposed by an approved credit counseling agency acting on the debtor's behalf.
Educational Loans Cramdown Makes dischargeable any debts for certain qualified educational loans which, if not discharged, would impose an undue hardship upon either the debtor or the debtor's dependent.
Previous Bankruptcies Terminates the automatic stay 30 days after filing of a petition if a chapter 7, 11, or 13 petition was pending and dismissed the previous year, unless the subsequent filing is in good faith. Delineates conditions under which a history of previous petitions in bankruptcy give rise to a rebuttable presumption that the case is not filed in good faith.
Nature of Debt Reduces from the threshold amounts of luxury goods and consumer credit any consumer debts owed to a single creditor presumed nondischargeable in bankruptcy, if acquired within 90 days and 70 days, respectively, (currently 60 days) before an order for relief is issued.
Exemption of Certain Property Prohibits a debtor from exempting from the estate in bankruptcy any amount of interest acquired during the two years before petition filing that exceeds in the aggregate $100,000 in value in: (1) real or personal property used as a residence; (2) a cooperative that owns property used as a residency by the debtor or debtor's dependent; or (3) a burial plot for the debtor or debtor's dependent.
Bankruptcy Discharge Extends the period between Chapter 7 discharges to eight years, and between Chapter 13 discharges to five years.