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Compact Guide to the Bankruptcy Reform Act with
Complete Text of Title 11 as Amended
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Includes explanation of Means Test and Projected Disposable Income
Sample - page 6:
Debt Relief Agencies (debtor’s counsel) must give assisted persons required disclosures no later than three (3) days after they first offer to provide any bankruptcy assistance services.
You are required to provide the statement in the sample client materials in the Appendix to assisted persons within three days after you first offer (not first provide) services to them. As soon as a prospective client visits or calls your office you need to give or mail the notice to them. The best practice is to mail the disclosure at the time that the first appointment is made, and have the client bring signed copies to the initial conference.
WARNING – THE NOTICE MUST BE PROVIDED ON A SEPARATE SHEET WITHIN 3 DAYS AFTER YOU FIRST OFFER TO PROVIDE BANKRUPTCY SERVICES. DO NOT GIVE ANY ADVICE BEFORE THE NOTICE IS SIGNED.
You MUST consult the UST website [http://www.usdoj.gov/ust] for the current Bankruptcy Information Sheet; review the final bankruptcy forms from [http://www.uscourts.gov/] for the revised Notice to Individual Consumer Debtors [Clerks will probably e-sign these for you to download as needed]; and monitor national and local rules for any additional requirements and changes to the forms and procedures.
ALERT - IT IS GENERALLY AGREED THAT YOU MUST NOT GIVE ADVICE OVER THE PHONE OR OTHERWISE UNTIL ALL DISCLOSURE REQUIREMENTS ARE SATISFIED.
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The Act is not clear about the notice requirements For example, the Act requires that the Clerk give a notice to a filer before commencement of a case without saying how that might be accomplished. Nonetheless, all experts agree that it would be very dangerous for an attorney not to provide disclosures immediately before giving initial advice of any kind, even trivial, to a potential client. Since you must provide the new form, we strongly suggest you also provide a combined 342(b)(1) Notice to Individual Consumer Debtors and modified Bankruptcy Information Sheet, with duplicates that the clients sign and return (see Appendix).
The new disclosure about bankruptcy assistance services MUST be a single document separate from other documents or notices provided to the assisted person. Presumably this means that it cannot be stapled or attached to other papers. You are required to keep a copy of the notices for 2 years after the date you give them to your clients. The copies MUST be signed and dated by the clients to prove receipt.
Samples of all suggested notices are included. The samples may include more than is absolutely required, however we strongly suggest that you not edit them unless you carefully consider all of the possible consequences.
`Sec. 527. Disclosures [selected text from section]
`(a) A debt relief agency providing bankruptcy assistance to an assisted
person shall provide--
`(1) the written notice required under section 342(b)(1); and
`(2) to the extent not covered in the written notice described in paragraph (1),
and not later than 3 business days after the first date on which a debt
relief agency first offers to provide any bankruptcy assistance services to
an assisted person, a clear and conspicuous written notice advising assisted
persons that—
`(A) all information that the assisted person is required to provide with
a petition and thereafter during a case under this title is required to be
complete, accurate, and truthful;
`(B) all assets and all liabilities are required to be completely and
accurately disclosed in the documents filed to commence the case, and the
replacement value of each asset as defined in section 506 must be stated
in those documents where requested after reasonable inquiry to establish
such value;
`(C) current monthly income, the amounts specified in section 707(b)(2),
and, in a case under chapter 13 of this title, disposable income
(determined in accordance with section 707(b)(2)), are required to be
stated after reasonable inquiry; and
`(D) information that an assisted person provides during their case may be
audited pursuant to this title, and that failure to provide such
information may result in dismissal of the case under this title or other
sanction, including a criminal sanction.
`(b) A debt relief agency providing bankruptcy assistance to an assisted
person shall provide each assisted person at the same time as the notices
required under subsection (a)(1) the following statement, to the extent
applicable, or one substantially similar. The statement shall be clear and
conspicuous and shall be in a single document separate from other documents or
notices provided to the assisted person:
[TEXT OF REQUIRED NOTICE IS SHOWN ON SAMPLE FORM AND NOT REPEATED HERE]
`(d) A debt relief agency shall maintain a copy of the notices required under
subsection (a) of this section for 2 years after the date on which the notice
is given the assisted person.'.
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Step 3 – Can the Client be a Debtor, & if so, What Relief do They Get?
The length of time between multiple filings determines what, if any, relief can be obtained.
If your client has been in any kind of bankruptcy in the last 8 years use this list to find the possible consequences:
8 years –
A client cannot file a Chapter 7 case if they received a discharge in a Chapter 7 case filed within 8 years (as measured from the filing date). §727(a)(8)
4 years -
A Debtor cannot receive a discharge in a Chapter 13 case if they received a discharge in a case that was filed under chapters 7, 11, or 12 during the 4-year period preceding the date of filing in the current Chapter 13 case (as measured from the filing dates). §1328(f)
2 years -
A Debtor cannot receive a discharge in a Chapter 13 case if they received a discharge in a case that was filed under chapters 13 during the 2-year period preceding the date of filing in the current Chapter 13 case (as measured from the filing dates). §1328(f)
A “Chapter 20” filing (a Ch 7 case to eliminate unsecured debt followed immediately by a Ch 13 case to allow mortgage arrearages to be cured, etc.) should still be available under the 4 & 2 year rules because the point of the follow-up Ch 13 case is usually to pay an arrearage, secured debt, etc., and not to get a discharge from that debt. In fact, the rather strange limits on obtaining Chapter 13 discharges may have almost no effect on filing decisions?
2 years - Automatic Stay and Real Property
If the court finds that a Debtor filed a petition to delay, hinder, and defraud creditors through a scheme to transfer real property without the consent of a secured creditor or court approval, or through filing multiple bankruptcy cases affecting the same real property, then the Court may Order that the Relief from Stay remain binding in any case filed by the Debtor over the next 2 years. If such an Order is in effect, there is no stay in the subsequent case to prevent enforcement of any lien against, or security interest in, the real property. A debtor may, within 30 days of filing a subsequent case, move for relief from such order based upon changed circumstances or for good cause shown. Debtor’s Attorney MUST be alert as to any existing Order under this section and whether there is a need to immediately request a stay to stop a foreclosure sale. §362(d)(4)
1 year – a single prior case was dismissed
The Act provides that if a Ch 7, 11, or 13 case is filed within 1 year of the dismissal of a single prior case (other than a Ch 7 case refiled after dismissal under 707(b) – the median income bankruptcy “abuse” section) then the stay will be automatically lifted on the 30th day after the filing date. On the motion of a party in interest, the court may extend the stay as to any or all creditors, subject to conditions or limitations, if the party demonstrates that the current filing is in good faith as to the specific creditors to be stayed. This section will probably not have a significant impact on Chapter 7 cases where the stay would be terminated only slightly earlier than usual, and will not adversely affect Ch 11 and Ch 13 cases where confirmed plans effectively act as a continuing stay. Debtor’s Attorney MUST be alert to any need to request extensions of the stay. §362(c)(3)
1 year – 2 or more Ch 7, 11, or 13 cases had been pending
The Act provides that if 2 or more Ch 7, 11, or 13 cases had been pending within 1 year of the filing date of the current case (other than a Ch 7 case refiled after dismissal under 707(b) – the median income bankruptcy “abuse” section) the automatic stay does not go into effect when the current case is filed. Within 30 days after filing the court may order the stay to take effect as to any or all creditors, subject to conditions or limitations, if the party demonstrates that the current filing is in good faith as to the specific creditors to be stayed. Again, Debtor’s Attorney will have the added duty to be alert to the need to immediately request imposition of a stay. §362(c)(4)
180 days –
The Act provides that there is no stay to prevent enforcement of any lien against, or security interest in, real property where the person filing a petition is ineligible to be a Debtor because within 180 days a previous case was dismissed by the court for willful failure to abide by orders of the court or to appear, OR within 180 days the debtor requested and obtained the voluntary dismissal of the case following the filing of a motion for relief from stay, OR the subsequent case was filed in violation of an order prohibiting the petitioner from being a debtor in the case. §362(b)(21)
WARNING - IF YOU HAVE A CLIENT WHO IS SUBJECT TO ANY OF THE LIMITATIONS ON THE AUTOMATIC STAY, AND WHO WANTS TO STOP A FORECLOSURE, YOU MUST BE SURE YOU ADVISE THEM THAT THERE IS NO STAY, YOU MAY NOT BE ALLOWED TO REQUEST A STAY, AND THAT EVEN IF YOU CAN, THE COURT MAY REFUSE TO STOP THE FORECLOSURE.
_________________________________________________________________________
Unless there is clear and convincing evidence to the contrary, for the purposes of paragraphs (B) in §362(c)(3) & §362(c)(4) the current case is presumptively not filed in good faith as to all creditors if the Debtor had 2 or more pending cases in the preceding year; or a case was dismissed during that year for failure to file or amend without substantial excuse - not including inadvertence, or negligence except by debtor's attorney; failure to provide adequate protection; failure to perform under a confirmed Ch 13 plan; or where there has not been a substantial change in the financial or personal affairs of the debtor or any other reason to conclude that the current case will be successfully concluded; or, as to a specific creditor, the creditor in the previous case had a motion for relief pending or granted on the date of dismissal of the prior case.
You need to study these convoluted sections carefully, for example, it can make a difference if one of the dismissed cases was a Ch 12. These provisions make it difficult for an individual to refile within a year after dismissal and obtain the benefit of a stay, even if a §109(g) 180 day restriction is not in effect.
WARNING - IF POSSIBLE ALL CASES SHOULD BE COMPLETED AND NOT DISMISSED.
It is important for debtors to time their initial filing so as to maximize the chance that it will be successfully concluded (i.e.- don’t file until required documents are collected, circumstances favor funding of a Ch 13 plan, etc.)
[text of relevant code sections follows every summary]
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CONTENTS
1. Debt Relief Agencies – Debtor’s Counsel 4
2. Debt Relief Agencies – Prohibitions 5
3. Debt Relief Agencies – Disclosures 6
4. Debt Relief Agencies – Client Contract 8
5. Debt Relief Agencies – Advertising 9
6. Debt Relief Agencies – Penalties 10
7. Credit Counseling Agencies – Pre-Petition Certification 12
8. Credit Counseling Agencies – Post-Petition Education 16
9. Bankruptcy Petition Preparers 18
9. Debtor’s Counsel – Duties & Penalties 22
10. Can the Client be a Debtor – Multiple Filings & the Automatic Stay 25
11. Landlords and Writs of Possession 29
12. Involuntary Petitions 32
13. The Automatic Stay 33
14. Notice to Creditors 36
15. Median Income & Means Tests 38
16. Median & Means Test Results – Who Can Move to Dismiss 48
17. Schedules I & J 54
18. Document to be Filed 55
20. Tax Returns 59
21. Domicile for State Exemptions 63
22. Limits on Homestead Exemption 64
23. Lien Avoidance for Household Goods 66
24. Contributions to Retirement & 401k Plans 67
25. Contributions to Employee Plans 68
26. Transfers to Asset Protection Trusts 69
27. Student Loans 70
28. Taxes 72
29. Luxury Goods & Cash Advances 74
30. Preferences – Ordinary Course of Business 75
31. Fraudulent Transfers 76
32. Reaffirmation Agreements 77
33. Valuation of Security & Redemptions 83
34. Reaffirm, Redeem, or Ride-Through 84
Chapter 13 Cases
35. Disposable Income in Chapter 13 87
36. Chapter 13 Plan Length 91
37. Adequate Protection 93
38. Lien Retention & the Effect of Conversion 95
39. Confirmation Hearing 97
40. Domestic Support Obligations – Dischargeability 98
41. Domestic Support Obligations – First Priority 100
42. Priority Claims for Wages, Salaries, & Commissions 101
43. Administrative Expenses 102
44. Retirement, Pension, & Profit Sharing Plans 104
45. Property Settlements 106
46. Chapter 13 Discharges 107
47. Discharge Hearing in Ch 13 Cases 109
48. Annual Reports 111
49. Trustee Fees & Duties 112
50. Motor Vehicles & PMSI’s – 910 days & 1 Year Rules 113
51. Interest & Penalties on Non-Dischargeable Debt 115
52. Proof of Insurance 116
53. Summary of Changes to Dischargeability 117
54. Miscellaneous Provisions 121
55. Small Business Debtor – Ch 11 123
56. Audits & Appeals 129
Appendix 131
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