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OTHER IMPORTANT CHANGES UNDER BAPCPA
1. NEGOTIATION WITH DEBTORS
a. BAPCPA requires that unsecured creditors negotiate a reasonable alternate repayment schedule with debtors.
b. An unsecured creditor’s claim for payment of a consumer debt may be reduced by up to 20% by the Court on the debtor’s motion, after a hearing, if:
(1) the creditor unreasonably refused to negotiate a reasonable alternative repayment schedule proposed on behalf of debtor by an approved non-profit budgeting and credit counseling agency (as defined by § 111 of the revised Bankruptcy Code); and
(2) the offer of the debtor
(a) was made at least 60 days prior to the bankruptcy filing; and
(b) provided for payment of at least 60% of the amount of the debt over a period of time not to exceed the repayment period of the loan, or a reasonable extension thereof.
c. This requirement to negotiate is inapplicable to a creditor holding a debt that is not dischargeable in bankruptcy.
d. The debtor has the burden of proving, by clear and convincing evidence that:
(1) the creditor unreasonably refused to consider the debtor’s proposal; and
(2) the proposed repayment schedule was offered more than 60 days prior to the bankruptcy filing
e. Issues:
(1) What is the repayment period for a revolving line of credit such as a credit card?
(2) Will judges impose additional sanctions against creditors who show a pattern of repeated unreasonable failure to negotiate
(3) Identification of “approved” credit counseling agencies
2. NOTICE TO CREDITORS
a. Notices from Debtors:
(1) Any notice sent by the debtor to a creditor in a bankruptcy case must contain:
(a) debtor’s name; and
(b) debtor’s address; and
(c) last four digits of debtor’s social security number.
(2) In many cases under the current law, debtors send notices to creditors at an address that is not set up to receive and process the information, such as a lockbox or payment address.
(3) The new law provides that a debtor MUST send a creditor any notice mandated by the Bankruptcy Code or Rules to an address SELECTED BY THE CREDITOR, if within 90 days prior to the bankruptcy filing:
(a) the creditor sent the debtor at least 2 communications containing:
(i) debtor’s account number, and
(ii) the address where the creditor wishes to receive correspondence.
(4) If non-bankruptcy law prohibited communication during the 90 days prior to the bankruptcy filing, then the debtor will be required to send notices to the address provided by the creditor if, more than 90 days prior to the bankruptcy filing:
(a) the creditor had sent the debtor at least 2 communications containing:
(i) debtor’s account number, and
(ii) the address where the creditor requires bankruptcy notices to be sent.
b. Notices from the Court:
(1) BAPCPA provides creditors with the opportunity to specify the address at which they would like to receive notices from the Court.
(2) In Individual Cases
(a) A creditor may, at any time, supply the Court and the debtor with a notice of the address to be used for notices sent in an individual case.
(3) Blanket Notice
(a) Any entity, including a creditor, may file a notice of address with any bankruptcy court, which specifies the address where all notices sent by the Court in all cases under Chapter 7 or 13 pending in that Court should be sent (for those cases in which the entity is listed as a creditor).
(4) Any notice given to a creditor that is not in accordance with these requirements is not effective until the notice is “brought to the attention of the creditor.”
c. Designation of person or division responsible for receiving notice
(1) The creditor may designate either a person or division of its organization to be responsible for receiving notices and establish “reasonable procedures” to ensure that bankruptcy notices are delivered to that person or division.
(2) Notice is not considered to have been “brought to the attention of the creditor” until received by such person or division.
d. No monetary damages for violation of automatic stay
(1) If the creditor supplies an address for notices as described above, it will not be subject to monetary damages for a violation of the automatic stay for actions taken after the bankruptcy filing but prior to the bankruptcy being “brought to the attention of the creditor.”
3. DEBTORS’ DUTIES
a. BAPCPA imposes many additional duties on the consumer debtor, including requirements that the debtor deliver certain documents to Court, the Trustee and/or to requesting creditors.
b. Documents to be filed with Petition:
(1) Copies of all payment advices or other evidence of payment received from any employer of the debtor in the 60 days prior to the bankruptcy filing;
(2) A statement of the amount of monthly net income, itemized to show how the amount is calculated;
(3) A statement disclosing any reasonably anticipated increase in income or expenditures over the 12 month period following the date of the bankruptcy filing;
(4) A certificate from an approved nonprofit budget and credit counseling agency that provided the debtor with required pre-filing budget counseling; and
(5) A copy of the debt repayment plan, if any, developed by the nonprofit budget and credit counseling agency that provided the debtor with required pre-filing budget counseling.
c. Failure of the debtor to file documents:
(1) If the debtor fails to file the documents listed above, within 45 days of the filing of the petition:
(a) the debtor’s bankruptcy case shall be automatically dismissed on the 46th day after the date on which the bankruptcy was filed,
(b) unless the debtor can show that he/she made a good faith effort to file all of the information required and the trustee represents to the Court that he/she believes that the best interests of the creditors will be served by allowing the case to proceed.
(c) The Court may also grant the debtor an extension of not more than 45 days to file all required information
d. Documents to be provided to Trustee:
(1) Federal tax return for the most recent tax year ending immediately prior to the bankruptcy filing, to be delivered to the trustee not later than 7 days after the 341 meeting of creditors.
(2) A creditor may also request a copy of the tax return, and the debtor must send the creditor a copy at the same time that such return is delivered to the Trustee.
(3) Failure of the debtor to deliver a copy of the required tax return to the Trustee or the requesting creditor, will result in dismissal of the debtor’s bankruptcy case, unless the debtor is able to show that the failure is due to circumstances beyond the debtor’s control.
e. Other Documents to be provided upon request to the Court, Trustee or requesting parties in interest:
(1) Copies of each federal income tax return required under applicable law with respect to each tax year of the debtor ending while the case is pending (to be filed at the same time that such returns are filed with the IRS);
(2) Copies of each federal income tax return required under applicable law that had not been filed as of the filing of the bankruptcy petition and that was subsequently filed for any tax year in the 3 year period ending on the date of the bankruptcy filing (to be provided at the same time that such returns are filed with the IRS); and
(3) Copies of each amendment to any federal income return filed with the Court.
(4) Annually in a chapter 13 case:
(a) A statement, under penalty of perjury, showing:
(i) Income and expenditures of the debtor during the tax year of the debtor most recently concluded;
(ii) Monthly income of the debtor, itemized to show how the income, and expenditures are calculated;
(iii) The amount and sources of the income of the debtor;
(iv) The identity of any person responsible with the debtor for the support of any dependent of the debtor; and
(v) The identity of any person who contributed, and the amount contributed, to the household in which the debtor resides.
f. Failure to file tax returns:
(1) If the debtor fails to file a tax return that becomes due after the filing of the bankruptcy petition, the taxing authority may request that the bankruptcy be converted or dismissed.
(2) If the debtor fails to file the required tax return within 90 days after a request is filed by the taxing authority, the court shall convert or dismiss the case, whichever is in the best interests of the creditors and the bankruptcy estate.
4. DEBTORS’ ELIGIBILITY
a. BAPCPA sets out several new requirements that debtors must satisfy in order to file a bankruptcy petition, including a “means test” for eligibility to file a Chapter 7 petition, mandatory credit counseling, and further limits on the length of time required between obtaining bankruptcy discharges.
b. Means Test
(1) Abuse is presumed to exist if the debtor does not pass the “means test.”
(2) This test is designed to ensure that debtors who have the ability to repay creditors are either filing for bankruptcy under a chapter other than 7, or that they are not allowed to proceed with a Chapter 7 filing.
(3) The test involves a complex formula for determining a debtor’s ability to pay, considering multiple factors, including income, allowable expenses, and the geographic location of the debtor.
(4) The three primary components of the test are:
(a) Determination of the debtor’s current monthly income;
(b) Extent of allowable deductions from income; and
(c) Defined levels at which the amount of the debtor’s remaining income results in a presumption of abuse.
c. Implications of the Means Test:
(1) Congress intends for the Means Test to force more consumer debtors into Chapter 13 filings where the debtor will be required to repay at least a portion of his/her debts.
(2) More individual Chapter 11 filings? Due to the debt limits imposed by Chapter 13, and due to the Means Test, more individuals may elect to file for bankruptcy using Chapter 11.
d. Mandatory Credit Counseling
(1) Before an individual can be eligible to file a bankruptcy petition, they must, within 180 days prior to the bankruptcy filing, receive:
(a) a briefing that outlines the opportunities for available credit counseling; and
(b) assistance in performing a budget analysis.
(2) Required counseling and budget assistance must be received from an approved, non-profit budget and credit counseling agency.
(3) The agency providing the counseling must be approved by the U.S. Trustee.
(4) The counseling may be done individually, in a group, by phone, or via the internet.
(5) Debtors may be excused from this requirement if the U.S. Trustee determines that there are no suitable agencies in the debtor’s district, or if the Court is satisfied that the debtor could not obtain the counseling due to exigent circumstances.
(6) With limited exceptions, the debtor must complete a course in personal financial management prior to receiving a discharge.
e. Time between Discharges
(1) Chapter 7
(a) A debtor may not receive a Chapter 7 discharge within 8 years of a previous Chapter 7 discharge.
(2) Chapter 13
(a) A debtor may not receive a Chapter 13 discharge if he received a discharge under Chapter 7, 11 or 12 within the 4 years before the date on which the current Chapter 13 case was filed.
(b) A debtor may not receive a Chapter 13 discharge if he received a discharge under Chapter 13 within the 2 years before the date on which the current Chapter 13 case was filed.
5. PRIVACY
a. The New Law contains numerous provisions strengthening privacy related protections for parties involved in bankruptcy proceedings. Among provisions are the following:
(1) The Court may enter Orders necessary to protect any individual from publication of information that could lead to identity theft.
(2) The identity of a minor child of the debtor may not be part of the public record of the case.
(3) The Court may permanently seal the record of an involuntary petition that contains erroneous consumer credit information.
(4) New restrictions regulate the sale of consumer information that the debtor holds and may appoint a consumer privacy ombudsman to represent the interest of consumers whose information may be sold.
b. Patient Care Ombudsman
(1) The Court is required to appoint a patient-care ombudsman in the Chapter 7, 9 or 11 case of a healthcare business. Additional provisions direct the Trustee how to dispose of patient records in a healthcare Chapter 7, 9 or 11 case.
6. MISCELLANEOUS PROVISIONS
a. There are numerous miscellaneous changes to the bankruptcy code contained in the new law. These changes include the following:
(1) Bankruptcy petition prepares are more closely regulated.
(2) A corporation be represented by an individual who is not an attorney at a 341 meeting of creditors and one individual can represent more than a single corporation at a meeting of creditors.
(3) With the exception of certain fees and expenses owed to a Trustee, domestic support obligations will be entitled to the highest priority in payment from a Trustee.
(4) The Code now contains numerous provisions regulating and overseeing debt relief agencies.
For more information or to request a presentation regarding BAPCPA, please contact Spotts Fain attorneys, Robert H. Chappell, III (804) 697-2025 or Jennifer J. West (804) 697-2094.
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