updated 3/9/2005 1:30:36 PM ET 2005-03-09T18:30:36

If enacted, the bill would:

  • Set up a new test for measuring a debtor's ability to repay. People with insufficient assets or income could still file a Chapter 7 bankruptcy, which if approved by a judge erases debts entirely after certain assets are forfeited. But those with income above the state's median income who can pay at least $6,000 over five years — $100 a month — would be forced into Chapter 13, where a judge would order a repayment plan. Under current law, a bankruptcy judge determines under which chapter of the bankruptcy code a person falls — whether they have to repay some or all of their debt.
  • Require people filing for bankruptcy to pay for credit counseling.
  • Give top priority to a spouse's claims for child support among creditors' claims on a debtor in bankruptcy.
  • Allow for special accommodations for active-duty service members, low-income veterans and those with serious medical conditions in the new income test for bankruptcy applicants.
  • Restrict the homestead exemption in states to $125,000 if the person in bankruptcy bought his or her residence less than three years and four months before filing. Florida, Iowa, Kansas, South Dakota and Texas have unlimited homestead exemptions that allow wealthy people to file for bankruptcy and keep their mansions in those states sheltered from creditors.

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