Bankruptcy laws changed dramatically this year as a result of changes in the Federal Rules of Bankruptcy Procedure that went into effect on December 1, 2011. Next year may be no different, with some states getting new laws passed in 2012 that will go into effect in 2013. Some of these laws are not directly related to bankruptcies but may still cause an increase in bankruptcy cases.
This year, creditors became subject to increased regulations regarding proof of claims. They now must provide information regarding the principal, fees, interest, arrears, and other expenses incurred prior to a petition. Those failing to do so may face sanctions. New rules were also implemented regarding proof of claims in Chapter 13 cases.
Creditors were not the only parties facing changing bankruptcy laws this year. Some 2012 filers were impacted by 2005 reform legislation because their income was too high to pass the Chapter 7 means test. This test include income from the previous six months and some individuals who filed for Chapter 7 during January 2012 suffered as a result.
These folks were paid bi-weekly and because their first September check was dated the 9th, they received 14 paychecks, not 13, during the six-month period from July through December 2011. That extra check caused their income to exceed the Chapter 7 threshold so they were forced to file Chapter 13 and must repay debts over a five-year period, rather than repaying balances immediately through asset sale under Chapter 7. Smart attorneys adjusted filing dates for their clients, saving some of them tens of thousands of dollars.
On December 1, 2012, changes went into effect for the following official forms: Statement of Financial Affairs (Form B7), Notice of Commencement (Form B9), Proof of Claim (Form B10), and Statement of Social Security Number (Form B21). Most notable was the Form B21 change, which reminds debtors not to file this form on the public docket. This protects the debtor Social Security number from public access.
As of January 1, 2013, California will no longer exempt the debt forgiven by property short sale from taxation as regular income. This means that many people planning to put their homes up for short sale will instead contact a bankruptcy lawyer. These folks are already financially strapped and an increased tax bill is the last thing they can afford. This is just one of many new laws expected to increase the number of bankruptcy cases in 2013.