The Law Offices of Ken McCartney P.C.

THE NEW LAW

  

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DISCLOSURES

    

    President George W. Bush signed into law on April 20, 2005, The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Public Law 109-8, 119 Stat. 23. Former Senate Bill 256, now affectionately known as BAPCPA or simply the New Act, contains over five hundred pages of the most significant substantive amendments to Title 11 of the United States Code, since enactment in October of 1979. It becomes effective, for the most part, for cases filed six months thereafter, or October 17, 2005.  [Caution this is a Monday so the close of business Friday the 14th is really the important day to remember]

THE RULES HAVE CHANGED.  

    There will still be credit cards, medical bills, and yes, of course, bankruptcies.    We are finding that for the day to day case, the differences are minor and of not much impact.  Surely the perception of change and raised level of difficulty was higher than our experience is turning out.  Here is a description of some of what you may expect: 

  •      The process is not hugely different:

a. Bankruptcy is still a federal court process started by filing a petition;

b. administered by a trustee, whom debtors meet at a meeting of creditors pursuant to Code Section 341;

c. culminating in a discharge -- permanent injunctive relief-- prohibiting creditors from collecting petition-date unsecured debt.

  •     Credit cards still are discharged despite rumors to the contrary.
  •      Federal taxes are treated as before, for the most part.
  •      The court filing fees are going up:

                                                    From         To               2005    2014

                            Chapter 7       $ 209.00     $ 274.00     $ 306    $335

                             Chapter 11    $ 839.00      $1,039.00   $1213   $1717

                            Chapter 12    $  239.00     $ 235.00      same     $275

                            Chapter 13    $ 194.00       $ 189.00     $281      $310

                       

 

  •  Expect attorney fees to be roughly the same percent higher in Chapter 7's, slightly higher in Chapter 13's, and not effected in Chapter 11.

5 BIG CHANGES      

 

1. Individual debtors will now be required to attend a pre-filing credit counseling session to obtain a certificate that is required to file for any chapter  relief.  If possible, a work out plan will developed during this session which is to be filed with the debtors' schedules.

2. There will be a slightly longer, second seminar, for individuals in all chapters attendance at which is required before the entry of a discharge.

The education for number 1 and 2 have to be independent of debtor' s counsel. There are qualifying programs in person and on the internet.  We will make recommendations and have ratings from clients for your consideration.

3. There are  "Miranda" like disclosures required. You do not have "the right to debtor's counsel if you cannot afford one, and an attorney will not be provided for you," BUT you will be asked to sign a couple pages of information [click here to see what is involved] and there is a mandatory written fee agreement in all bankruptcy cases filed after October 17, 2005. Click here for examples.

CONGRESS OBVIOUSLY WANTS BETTER EDUCATED AND INFORMED DEBTORSS

THE DREADED MEANS TEST

4. All individual debtors are subject to a motion pursuant to Code Section 707( b) by the U.S. Trustee or the court to dismiss a Chapter 7 Bankruptcy for abuse which includes having  "excess disposable income." The solution is to file a Chapter 13 and make monthly payments to gain a discharge. The new Act gives all interested parties, i.e. the Chapter 13 Trustee and every creditor the right to bring  a section 707(b) motion if debtor's earnings are above median income. These incomes are set by the U.S. Census Bureau every ten years and are adjusted by the cost of living index. 

They appear to be:  (Effective April, 2014)

Family Size         Wyoming             Colorado

        1            $ 51,86500           $ 50,978.00

        2            $ 66,193.00           $ 66,663.00

        3            $ 71,349.00           $ 72,180.00

        4            $ 77,235.00           $ 84,551.00

Add $ 8,100.00 for each additional family member 

AND, a  707(b) loser or a voluntary means test failure seeking Chapter 13 relief becomes involved in a mandatory 60 month Chapter 13 Plan as opposed to a normal 36 month payment plan.

As with any governmental requirement, often times the law becomes more clearly viewed by way of the forms that are involved in its implementation. Here are the means test forms for Chapter 7 and Chapter 13 filings.

5. There is a substantial change to the budgeting process used to determine the all important  "disposable income" in Chapter13.  "Disposable" as in  "you have to commit all of it to the Chapter 13 Plan." This is also the budget process used for the means test.  Now Internal Revenue Service Standards are to be used for budget items like housing, transportation, and personal living expenses, rather than actual and historic expenses of the individuals involved. Necessary secured debt payment, tax payments, and 401k loans are allowable, the latter is new to the cases under the New Act.

 

Expect a free "means test calculation" during your initial interview.


LITTLE DIFFERENCES 

     It is probably not possible to list here all of the  little  changes the New Act  brings to the insolvency practice. Because this is what we do, however, here is a growing list:

  Debtors' pre filing requirements:

          

          1.  There are more documents required to file.  These include evidence of income from all sources in the preceding 7 months to make the Means Test possible.  Income evidence from all sources during the 60 days pre filing has to be filed with the court.  The last filed tax return must also be filed with the court.

 

          2.  The new rules on when a debtor can file a second case take effect for all cases filed after October 17th.  No discharge is granted in Chapter 7 cases where any case leading to a discharge has been filed in the eight (8) years pre filing.  No discharge in Chapter 13 if there is a discharge under 7, 11, or 12 in a case filed during the 4 years pre-filing.  No discharge in Chapter 13, if a Chapter 13 discharge, was obtained in a case filed in the preceding 2-year period.

 

               3.  If there is a previously dismissed case the automatic stay goes away in a Chapter 7, 11, or 13, in 30 days absent a showing by the debtor of good faith.  If 2 or more dismissed cases were filed  in the year prior to the current filing there is no automatic stay unless the debtor can talk the court into issuing one. This will probably cut down on repetitive filings.

 

4.   Debtors are now called assisted persons.

 

      5.  Payments made to a creditor in furtherance of credit counseling are excepted from preference avoidance, so are domestic support payments.  Since pre filing educational seminars involve creating a payment program, where possible, one must assume there will be a few debtor want to be's that never become assisted persons.

 

     6.  All new rules about domicile apply.  In addition to venue (where to file) they control exemption claims.  The 180 days period is expanded to 720 days (2 years).  Without a single residence for 180 days a debtor may fall into federal exemptions.

 

            7.  Now 522(f) avoidance applies to a specific list of what is "household goods." Significantly computers are no longer household goods.  Guess they will all belong to the children from now on.

 

8.  Unsecured claims may be reduced by 20% if a creditor refused a best effort debt relief program.  This may siphon off many debtors in the initial pre-filing counseling session.

 

9.  More than ever before the quality of counsel's work and the cost to a client for necessary services will be impacted by how well work sheets and related documents are produced.  

 

 

  Counsel's pre filing requirements:

 

 

 1.  The first difference will be the requirement of disclosures linked above, and for some of us the requirement now for written fee agreements representing debtors in all Chapters.

 

 2.  The means test will have to be performed in Chapter 7 and Chapter 13 cases and care taken with those who fail.

 

   Debtor's filing requirements:

 

1.  The basic filings now include some additional pages and the basic schedules are filled with new boxes to check and information requests.  Despite needing 7 months of income information, only 60 days worth are filed.  Apparently the most recent tax return filed has to be sent to the clerk.  A form B22(A) or (C) declare for all the world to see who passes, and who does not, the means test.Click her to see what we are up against.

 

 

2.  Chapter 13 Debtors have to provide proof of insurance on secured property within 60 days of filing.  

 

      3.  Debtors attorneys are now called  debt relief agencies and have many new disclosure requirements. Although, there are now a few court decisions holding debtors' counsel do not qualify as debt relief agencies.

 

4.  For the first time,  Debtors in all Chapters  have to provide  copies of current tax returns which have to be filed in open cases at the time they are due to be filed with the Service.

 

5.  "Fourth choice districts" (Colorado and Wyoming) (i.e. 1. surrender, 2. redeem, 3. reaffirm, 4.  retain by keeping payments current) lose the fourth choice (keep current).  Expect the reaffirmation business to pick up.  There will be a charge for negotiating a reaffirmation agreement in my office.  Retaining by keeping current is no longer allowed.  Reaffirmation will be required.  

 

6.  Not later than 45 days from the 341 Meeting the automatic stay goes away as to property not reaffirmed or redeemed in the presence of a security agreement.

 

7.  Debtors must file a list identifying educational IRA's and Domestic Support Orders for their trustee's consideration.

 

 

          Counsel's filing requirements:

       

    1.  Much is being said about new language contained on the petition that requires counsel to certify that the lists and schedules are accurate.  There are several references to failures to provide or providing inaccurate information being sanctioned by the courts under Rule 9011 authority.  It is unlikely that 9011 will be invoked where it would not have been before.  It is always there.

 

          2. Getting the elusive tax return to the trustee 7 days before the 341 Meeting may a challenge.  It is required.  Is this a deadline shorter than 10 days so weekend days do not count?

 

 

         Post-Filing requirements:

 

          1.  Reaffirmations will be required in order to hang on to secured property.

 

          2.  The second schooling will be required pre discharge.  Unfortunately this means there will be some folks who never receive a discharge.  The rules being promulgated all call for a flat out dismissal if the schooling is not done relatively promptly .

 

 

 

          Basic Law Changes:

 

        1,  States with large or unlimited homestead exemptions are now limited to $125,000.00.  This does not effect Wyoming ($10,000.00 per person on the deed) or Colorado (one $45,000.00 exemption per household) but it does Nebraska, Texas and Florida for examples.

 

                  2.  One in 250 filings will be audited by the Office of the U.S. Trustee with higher income earners being targeted. This is one a real nuisance, but we will  react to it when the need arises. Expect attorney fees to deal with the complexity.

 

                  3.  Chapter 12 is now permanently re-enacted.  This is good because there are those farmers who can effectively reorganize in Chapter 12.

 

                  4.  Federal tax returns must be filed on time by all debtors with active cases post petition relief in all Chapters.

 

                  5.  Wage priority claims are increased to $10,000.00 earned in the 6 months pre filing..

 

                   6.  Child and spousal support is moved up the food chain to the highest non-administrative priority for trustee payouts.

 

                  7.  Chapter 7 discharges no longer discharge any part of a divorce courts Domestic Support Orders (thank you Congress for Chapter 13!).   The law is not all that much clearer on what constitutes a DSO, so expect some serious litigation on this one.

 

              8.  Chapter 13 loses its super discharge.  Most of what a Chapter 7 discharges stays the same and chapter 13 now parallels the Chapter 7 process.

 

             9.  Chapter 13, always Congress's favorite, lost a little to the automobile finance industry.  Purchase money vehicle loans cannot be crammed down to value in the first 60 months of the pay back period.  Non purchase money  vehicle loans cannot be crammed to value in the first 910 days of the loan (2 and 1/2 years).

 

        10.      Home mortgage lenders do not violate the automatic stay if they send bills.

 

             11.  Income is now determined based on earnings  received during the six months prior to filing, to determine the  means test result and for a Chapter 13 budget, expect post petition changes to matter in the Chapter13 theater.

 

             12.  The window on the timing of the contemporaneous exception to a preference  is expanded from +/- 10 days to +/- 30 days..

 

             13.  The $600.00 limit on a consumer preference remains but it is increased to $5,000.00 for business payments.

 

             14.  All new rules about domicile apply.  In addition to venue (where to file) they control exemption claims.  The 180 days period is expanded to 720 days (2 years).  Without a single residence for 180 days a debtor may fall into federal exemptions.

             

             15.  Debts owed to a pension or profit sharing or other plan is excepted from discharge and an allowed expense in calculating both the means test and necessary disposable income for chapter 13 debtors.

 

             16.  Educational IRAs are exempted from property of a debtors estate if contributed more than two years ago, and  if contributions over a year ago are less than $5,000 they too are exempt.  Watch everything contributed in the last year.

 

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E-Mailed Questions about the new law's effect from referring attorneys  will be promptly answered, clients on a first come first serve basis, and from client want to bees as time permits. Identify yourself, take a look at the disclosures and tell me you did,  first please.

 

 

 

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