BANKRUPTCY REFORM BILL WILL MAKE IT HARDER TO FILE CHAPTER 7 BANKRUPTCY
Senate Republicans are fast tracking the bill into legislation without significant update or consumer protection provisions. Once this legislation becomes law, many Americans may face a lifetime of debts without access to relief. Your Money or Your Life
In the Bill's latest form, S 256, its provisions remain largely unchanged and nearly identical to H.R. 975. The latter was broadly opposed by coalitions of labor, women's groups, consumer groups, senior organizations, faith communities, civil right organizations, law scholars, bankruptcy trustee, retired bankruptcy judges, economists and editorial boards of major national newspapers and regional papers.
SUDDEN ACTION ON BANKRUPTCY REFORM BILL
In 2004 House Republicans tried to circumvent the Senate
Bankruptcy Media
On March 19, 2003, the House passed H.R. 975, which sought to reform bankruptcy legislation of greatest relevance to the banking industry. Though the purpose of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2003 was to curb alleged abuse of bankruptcy relief, it affects strongest hard working low to middle income families and individuals. What's Wrong with H.R. 975, Let Us Count the Ways ...
This Bill fails to update for recent years' massive layoffs, outsourcing of jobs, corporate scandals and ravaged pension and 401(k) plans. The banking industry and Congress will make it harder for families hit by financial misfortune to get back on their financial feet.
BANKRUPTCY ABUSE PREVENTION AND CONSUMER PROTECTION ACT OF 2005
WHAT WAS WRONG WITH H.R. 975
CONTINUES TO BE WRONG IN S 256!
The new legislation makes it harder for a lot of folks to obtain financial relief by filing Chapter 7 bankruptcy.
Bankruptcy and Abuse Prevention Act of 2003: presumes abuse based on the debtor's financial means. There is a three-prong test for an automatic presumption of abuse (according to Sec. 707(b) - Sec. 102). If the monthly income reduced by expenses and multiplied by 60 is not less than the lesser of either (A)(1) the greater of 25 percent of general unsecured claims, or (A)(2) $6,000 or (B) $10,000. New Bankruptcy Laws; Means Testing.
The bill provides that a consumer Chapter 7 case may be dismissed for "abuse" on a motion by the court or "by the U.S. Trustee, trustee, bankruptcy administrator, or any party in interest." There is a presumption in favor of dismissal if the consumer fails the "means test" and has income above the median income in his or her state. Current law has a presumption against dismissal this is overcome by a showing of "substantial abuse."
Under the new legislation, individual debtors must submit to the trustee their tax returns, or tax transcript, for the most recent filed year (or for the most recent year in which a return should have been filed). The debtor would continue to submit returns while the bankruptcy case is pending. Additionally, for confirmation of a Chapter 13 plan, debtors must have filed tax returns within the prior four taxable years.
Individual debtors filing under Chapter 7, must receive credit counseling consisting of "an individual or group briefing that outlined the opportunities for available credit counseling and assisted that individual in performing a related budget analysis"; and, must "complete an instructional course concerning personal financial management" from an approved credit counselor. (Sec. 106.)
In order for a state's exemptions to apply, the debtor must have lived there for two years immediately preceding the bankruptcy filing, or the exemptions of the state where the debtor lived during the six months (or the majority of that time) just before the two-year period must be used.
Under the new bill, IRAs would be exempt. This would apply even if the debtor were otherwise using state law exemptions. The exemption would be capped at $1 million as to amounts that are not "attributable to rollover contributions" from various types of retirement plans listed in the bill.
Luxury goods costing $500 or more, incurred within 90 days prior to filing for bankruptcy would be presumed as nondischargeable. Cash advances of $750 or more obtained within 70 days of filing would also be presumed as nondischargeable. In contrast to the current law, wherein the presumption of nondischargeability applies to debts for luxury items and cash advances of more than $1,075 incurred within 60 days of filing. Additionally, the changes expand the list of nondischargeable debts in Chapter 13's to be similar to those of Chapter 7's: e.g., debts for willful or malicious injury, debts obtained by false pretenses.
Under the new bill, property settlements in divorce could no longer be discharged in Chapter 7. Currently, they can be discharged if the debtor meets a "balancing of the hardships" test in the Code.
Under the new bill, filing for bankruptcy would not stay an eviction. The bill would also restrict the granting of an automatic stay if the debtor has already had a stay, and the case was dismissed, within the past year.
"Strip down" or "cram down," which reduce the amount of a secured debt to the value of the collateral, would be prevented in Chapter 13 filings unless the debt is more than five years old for automobiles or one year old for other property. (Sec. 306(b), 306(c), 327.)
After obtaining a discharge under any chapter, debtors would be barred from using Chapter 7 for eight years (presently the filing bar is for six years), and Chapter 13 cases filed within four years of prior Chapter 7, 11, or 12 case in which a discharge was entered and within two years of prior Chapter 13 (presently there is no filing bar).
The new bill provides that after a debtor files a Chapter 13 case, his or her wages can still be garnished to pay a pre-bankruptcy debt for alimony or support. Under current law, it's not clear whether this can be done. Additionally, full payment of alimony and support debts would be a requirement to obtain a Chapter 13 discharge. Under current law, an ex-spouse can agree to a discharge even though a portion of an alimony or support debt has not been paid.
For individuals who file Chapter 11, the rules would be changed to make the process more similar to Chapter 13.
Business Bankruptcy
Within seven days after filing under Chapter 11, a "small business" - defined as any business with debt of $3 million or less - must file its most recent balance sheet, statement of operations, cash-flow statement and federal income tax return, or else file a sworn statement that such documents have not been prepared. Additionally, a plan must be confirmed within 175 days, in contrast to the current law that allows 120 days to file a plan and 60 additional days to confirm it.
While the case is pending, the business must also file periodic financial statements, including information on profitability and projected cash receipts and disbursements.
In small business cases, a court can determine that a separate "disclosure statement" is not necessary because the reorganization plan the business submitted provides enough information. Alternatively, a court can conditionally approve the business's disclosure statement and combine the hearing on the statement with the hearing on confirmation of the plan.
The bill lists new grounds on which a Chapter 11 case could be dismissed or converted under Sect. 1112. The list includes: (1) unauthorized use of cash collateral harmful to one or more creditors; (2) failure to maintain appropriate insurance that poses a risk to the estate or to the public; (3) failure to provide information or attend meetings reasonably requested by the U.S. Trustee or the bankruptcy administrator.
If one of the listed grounds is shown to exist, the debtor would have the burden of proving by a preponderance of the evidence that (1) there is a reasonable justification and the problem will be fixed within a reasonable period of time, and (2) a plan with a reasonable possibility of being confirmed will be filed within a reasonable period of time. Under current law, there are more limited grounds for dismissing or converting a case, and the burden of proof is on the creditor.
Currently, no corporate debt is nondischargeable but under the new bill such debt would be nondischargeable if incurred through fraud or false pretenses.
If a Chapter 11 debtor is leasing non-residential real property, the debtor would have to either assume or reject the lease, having only 120 days (possible extension of 90 days) after filing for bankruptcy to decide rather than the present 60 days (with no limitation on possible extensions that the court may grant).
The shortened time period will pose a major problem for many debtors: (1) many businesses need more time to decide whether keeping the lease fits into their reorganization plan; (2) they may be interested in assuming the lease and then assigning it to another business, and they may need to wait for favorable market conditions to develop, he says. The shortened time frame will have the biggest impact on large retail chains, which have many leases, but it could also be important for a small business with just one or a handful of leases, says Chicago bankruptcy attorney John Collen. Bankruptcy Law Changes
