Work on reforming the nation's bankruptcy laws had been going on for over eight years. Bankruptcy reform was originally introduced during the Clinton Administration, and it died at one stage or another in the last several Congresses. The new, sweeping bankruptcy reforms were passed by the Senate as the "Bankruptcy Abuse Prevention and Consumer Protection Act of 2005", was then passed by the House without modification, and signed by President Bush on April 20th. Most of the changes will begin taking effect in mid-October. The new legislation is the most dramatic restructuring of the bankruptcy laws in a generation.

The Act has already been widely derided by both the media and by consumer groups as bad legislation that will unfairly penalize those needing and deserving the protection and clean start that have been provided by our nation's bankruptcy laws for over two hundred years. This criticism is largely due to changes requiring bankruptcy filers to undergo credit counseling, and will force many debtors into Chapter 13 repayment plans when they previously would have qualified for Chapter 7 proceedings that would eliminate most debts.

Despite these criticisms, the new Act introduces many long-needed changes. Securities clearing firms will gain the ability to close out the complex offsetting arbitrage positions of their client hedge funds, such as the ones that threatened the total meltdown of the New York financial market during the Long Term Capital Management crisis.

In response to Enron and corporate scandals, those committing investment frauds will no longer be able to easily wipe out civil liability and criminal fines. Frequent filers and debtors buying or leasing new cars or financing exotic tours by drawing on their credit cards prior to filing for bankruptcy protection will find it to be more difficult to receive full discharges.

In part two of a series on the new Bankruptcy act, information will be provided on how it will impact estate or asset protection planning.

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