Changes in Bankruptcy
Laws: Implications for
A NeighborWorks America Briefing Paper
December 12, 2005
Creditors have better memories than debtors.
~ Benjamin Franklin
At the end of the day, it is law-abiding, bill-paying citizens
who pay for the bankruptcy of others.
~ Senator Orrin Hatch
Changes in bankruptcy laws have two impacts on NeighborWorks organization and similar
housing counseling agencies. First, clients in financial crisis seeking assistance may have
more difficulty filing bankruptcy than under previous regulations. Second, the new law
requires credit counseling and debtor education, services which some nonprofit
organizations may decide to provide. Organizations need to understand the new provisions
of the law to guide existing counseling programs, and should thoroughly analyze the
requirements for providing counseling or education services before considering entering the
bankruptcy counseling field.
On April 20, 2005 President Bush signed into law the Bankruptcy Abuse Prevention and
Consumer Protection Act of 2005, which will take effect on October 17, 2005. This is the
most significant change in U.S. bankruptcy laws since the late 1970s. Of course, the
financial markets have changed dramatically since that time. Supporters suggest the new
provisions have updated bankruptcy provisions for the current environment. Detractors
counter the law is punitive towards borrowers and will create generous profits for credit
providers. While the long-standing controversy about bankruptcy “reform” continues,
practitioners working with clients on financial issues should take this opportunity to re-
familiarize themselves with the
bankruptcy process and the
implications of the new law.
Total Non-business Filings by chapter of the Bankruptcy Code
Types of Bankruptcy:
In 2004, 1.6 million personal (non-
business) bankruptcies were filed in