Key Highlights of the Bankruptcy Reform Bill

The House of Representatives recently approved legislation to reform the nation's bankruptcy laws, making it harder for debtors to wipe out their debts without paying them off.

Below are a few highlights of this law.

  • The bill calls for debtors to complete personal financial management courses before their debts are discharged in bankruptcy;

  • Increase the priority of child-support and alimony payments;

  • Defines what is a realistic amount to pay for food, transportation, housing and clothing, and requires the debtor to live within those guidelines unless there is a good reason not to;

  • Makes it more difficult to guard assets by moving to a state with a high homestead exemption and buying an expensive house;

  • Forces the debtor to pay the full cost of an auto loan or lose the vehicle to repossession, even if the vehicle isn't worth the outstanding balance on the loan;

  • Shields money that has been put into education IRAs;

  • Places a cap of $1 million on the amount in Roth and regular IRAs that can be shielded from creditors;

  • Requires bank regulators to examine whether credit card companies are offering credit haphazardly, without regard to whether consumers can repay their debt, and whether the resulting debt is contributing to bankruptcies;

  • Calls for debtors to pay all charges that were incurred three months before filing for bankruptcy;

  • Gives landlords more flexibility to evict bankrupt tenants who are behind on their rent;

  • Lets creditors ask the court to dissolve the bankruptcy plan if a debtor is late in filing paperwork, such as copies of paycheck stubs and tax returns;

  • Requires credit card issuers to disclose how long it will take to pay off a balance if you pay just the minimum every month, and prohibits the issuer from closing your account just because you pay off the balance every month and don't pay interest.

  • Instructs the Federal Reserve to find out whether people are going bankrupt because of credit card debt amassed in college.

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