by Elizabeth A. Abdelmasieh
Reed Smith LLP   
New York Office

On April 20, 2005, President Bush signed the Bankruptcy Abuse Prevention and Consumer
Protection Act of 2005 (sometimes referred to as the “Amendments”) which
is perhaps the most sweeping change to the Bankruptcy Code (the “Code”) since the
Amendments of 1994. While the legislation modifies the Code in many ways, most
notable are the changes to provisions related to individual consumer bankruptcies.
The new statute makes it much more difficult for individuals to utilize chapter 7 of
the Code in order to eliminate many of their debts. Under chapter 7 of the Code,
the debtor gives up most of his or her assets (other than those which are exempt)
to repay his/her creditors. Secured creditors are paid first and thereafter unsecured
creditors are paid in the order of their claim’s priority as designated by the Code.
Generally, the debtor then receives a discharge and essentially can start anew without
any lingering debts (other than certain debts which are non-dischargeable).
Under the Amendments, many individuals that would ordinarily seek to wipe away
their debts under chapter 7 will no longer qualify for the protections of chapter 7,
and will have to pay back a large part of their obligations over a period of time under
chapter 13. Under chapter 13 of the Code a debtor formulates a plan of repayments
pursuant to which secured debt and a portion of unsecured debt is repaid
over a period of five years (but in some instances three years). Remaining debts are
then discharged and the individual receives a “fresh start”.
The Amendments also seek to frustrate “serial filings” by individuals by limiting the
number of times that bankruptcy relief may be invoked within a specified period
and by limiting the applicability of the “automatic stay” should several filings occur
by the same debtor(s) within a prescribed time period. The legislation contains
noteworthy changes to provisions pertaining to treatment of secured claims in individual
bankruptcies, treatment of tax liabilities in individual bankruptcies, exemptions,
executory contracts and unexpired leases, treatment of financial contracts
such as derivatives, swap and hedge agreements, and duties of attorneys and other
professionals who assist persons seeking bankruptcy protection.
In addition to the changes to the Code, the Amendments include certain changes
to the federal Truth in Lending Act (“TILA”) which are summarized below. These
changes will require additional disclosures to be made by lenders to consumers in
connection with consumer credit, including mortgage loans and home equity lines
of credit.
Set forth below is a summary of some of the changes brought about by the new legislation.
For additional details, a separate notice will be emailed to you in a few days
providing information on a Reed Smith teleseminar scheduled for noon (EST) on
Wednesday, May 4, 2005. The forum will allow for a question and answer session. If
you should have any questions, please contact kbarauskas@reedsmith.com. A complete
description of the changes to the Code brought about by the Amendments.

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