TheWeekInCongress.com
Week Ending April 15, 2005
S 256 Bankruptcy Abuse Prevention and Consumer Protection Act of 2005
BRIEF
The House report on the bill included a quote from testimony during committee hearings on the bill. The quote is as follows. :
|
[S]hoplifting is wrong; bankruptcy is also a moral act. Bankruptcy is a moral as well as an economic act. There is a conscious decision not to keep one's promises. It is a decision not to reciprocate a benefit received, a good deed done on the promise that you will reciprocate. Promise-keeping and reciprocity are the foundation of an economy and healthy civil society. Bankruptcy Reform: Joint Hearing Before the Subcomm. on Commercial and Administrative Law of the House Comm. on the Judiciary and the Subcomm. on Administrative Oversight and the Courts of the Senate Comm. on the Judiciary, 106th Cong. 98 (1999) (statement of Prof. Todd Zywicki). |
SENATE
The one week delay on passage last week in the Senate due to numerous amendments was minor compared to the seven years and many variations the bill has taken on its’ way to final passage this week. Facing a filibuster and defeat of the bill without a vote, the majority did succeed in gathering enough minority votes to invoke cloture and pass the bill.
A lengthy bill, its’ primary aim appears to increase the requirements necessary for a bankruptcy petitioner to succeed in discharging all debts through Chapter 7 filing. Instead, the petitioner must first show that paying back some of the debt is not possible otherwise the case is likely to be converted to a Chapter 13 filing in which a schedule of payments is set up and governed by the court. The main provision governing a conversion is the right given to “…creditors, the trustee, or any party in interest to challenge a debtor’s eligibility to file under chapter 7.”
The bill fine tunes what is and is not a debt that can be discharged and what is exempt from creditors: Specific household goods and other assets that would be protected from creditors include: “…clothing, furniture, appliances, 1 radio, 1 television, 1 VCR, other electronic entertainment equipment with a market value of under $500, linens, china, crockery, kitchenware, educational materials used by minor dependent children, medical equipment and supplies, furniture used exclusively by minors and disabled or elderly dependents, personal effects, 1 personal computer and antiques and jewelry with a value less than $500.” In an effort to block the common practice of hiding all assets in a home in a State that protects 100 percent of the homestead value from creditors, equity in a home is protected only up to $125 thousand - no matter what the State law allows - if the home was purchased within 1215 days or less (3.3 years) prior to the filing. Educational loan debts can not be discharged. Election law fines can not be discharged. “Consumer debts owed to a single creditor for more than $550 for “luxury goods” incurred within 90 days of filing; and cash advances for more than $750 under an open end credit plan within 70 days of filing…” can not be discharged. Liability as a result of driving while intoxicated can not be discharged. Non-taxable retirement funds are only protected up to the first $1 million but more can be protected by the court “…if the interests of justice so require” the bill text says. Other protected assets include child support, Social Security benefits, payments to victims of international terrorism, and payments to victims of war crimes or crimes against humanity.
The bill takes into account some consumer issues as well: The filer must undergo credit counseling within 180 days of filing; a creditor who unreasonably refuses to negotiate a credit counselor’s 60% settlement offer might see a 20% reduction in the debt; the names of minor children can be protected from public record disclosure; landlords may continue eviction action towards a filer despite an automatic stay on such an effort; fees for filing could be waived for a petitioner whose income is 150% below the official poverty line and families with an income at or above the State median income would have five years of payments ahead. Those earning under the median would have three years of payments.
Much was made of the reportedly extensive lobbying effort from the credit card industry in support of the bill. Two amendments attempted to counter that influence. One to require notification on credit card bills of the time and cost of paying only minimum payments and another that would prohibit credit card companies from raising interest rates if they find that the card holder was late in a payment other than to the Credit card company. Both amendments were defeated.
Although the bill would include medical bills as acceptable debts to be discharged, reference was frequently made by minority opposition to a Harvard University study concluding that over fifty percent of those who filed bankruptcy did so because medical bills became so overwhelming they had no choice. Bill supporters, however, held that the study was not accurate because they understood it included gambling and drug abuse as evidence of medical problems leading to the overwhelming debts.
HOUSE
The House made virtually no changes in the bill. The bill is now cleared for the President’s signature.
Sponsor: Senator Chuck Grassley (R-IA)
Vote: Passed Senate 74 to 25, 1 not voting (Mar. 10, 2005 (RV 44); Passed House 302 to 126 (RC 108) (April 14, 2005) A motion to Recommit the bill with instructions failed 200 to 229 (RC 107) April 14, 2005). Signed by President Bush as Public Law 109-8 (April 20, 2005)
Cost to the taxpayers: “CBO estimates that implementing S. 256 would cost $392 million over the 2006-2010 period primarily to pay for increased responsibilities of the United States Trustees (U.S. Trustees).
“At the same time, the bill would slightly increase the fees charged for filing a bankruptcy case and would change how some of these fees are currently recorded in the budget. We estimate that implementing the bill would increase the amount of bankruptcy fees that are treated as an offset to appropriations by $246 million over the five-year period, resulting in a net increase in discretionary spending of $146 million over this period.
“In addition, CBO estimates that enacting this bill would decrease governmental receipts (revenues) by $226 million over the 2006-2010 period, and by $456 million over the 2006-2015 period because bankruptcy fees that are currently recorded as revenues would be reclassified as offsetting collections and offsetting receipts. Finally, enactment of S. 256would result in filling additional judgeships, and we estimate that their mandatory pay and benefits would cost $26 million over the next five years and $45 million over the 2006-2015 period.”
## All Rights Reserved. © 2005 TheWeekInCongress.com No reproduction or distribution without written permission from TheWeekInCongress.com.
Senate AMENDMENTS (there were no House Amendments)
HOUSE REPORT SUMMARY AND OTHER PROVISIONS
SELECTED PROVISION IN THE BILL FROM THE CONGRESSIONAL RESEARCH SERVICE REPORT.
HOMESTEAD EXEMPTION ‘LOOPHOLE’.
HOUSE REPORT SUMMARY
S. 256, the `Bankruptcy Abuse Prevention and Consumer Protection Act of 2005,' is a comprehensive package of reform measures pertaining to both consumer and business bankruptcy cases. The purpose of the bill is to improve bankruptcy law and practice by restoring personal responsibility and integrity in the bankruptcy system and ensure that the system is fair for both debtors and creditors.
With respect to the interests of creditors, the proposed reforms respond to many of the factors contributing to the increase in consumer bankruptcy filings, such as lack of personal financial accountability, 1
[Footnote] the proliferation of serial filings, and the absence of effective oversight to eliminate abuse in the system. The heart of the bill's consumer bankruptcy reforms consists of the implementation of an income/expense screening mechanism (`needs-based bankruptcy relief' or `means testing'), which is intended to ensure that debtors repay creditors the maximum they can afford. S. 256 also establishes new eligibility standards for consumer bankruptcy relief and includes provisions intended to deter serial and abusive bankruptcy filings. It substantially augments the responsibilities of those charged with administering consumer bankruptcy cases as well as those who counsel debtors with respect to obtaining such relief. In addition, the bill caps the amount of homestead equity a debtor may shield from creditors, under certain circumstances.
[Footnote 1: As one academic explained:]
[S]hoplifting is wrong; bankruptcy is also a moral act. Bankruptcy is a moral as well as an economic act. There is a conscious decision not to keep one's promises. It is a decision not to reciprocate a benefit received, a good deed done on the promise that you will reciprocate. Promise-keeping and reciprocity are the foundation of an economy and healthy civil society.
Bankruptcy Reform: Joint Hearing Before the Subcomm. on Commercial and Administrative Law of the House Comm. on the Judiciary and the Subcomm. on Administrative Oversight and the Courts of the Senate Comm. on the Judiciary, 106th Cong. 98 (1999) (statement of Prof. Todd Zywicki).
S. 256 also includes various consumer protection reforms. The bill penalizes a creditor who unreasonably refuses to negotiate a pre-bankruptcy debt repayment plan with a debtor. It strengthens the disclosure requirements for reaffirmation agreements (agreements by which debtors obligate themselves to repay otherwise dischargeable debts) so that debtors will be better informed about their rights and responsibilities. The legislation requires certain monthly credit card billing statements to include specified explanatory statements regarding the increased amount of interest and repayment time associated with making minimum payments. The bill requires certain home equity loan and credit card solicitations to include enhanced consumer disclosures. It also prohibits a creditor from terminating an open end consumer credit plan simply because the consumer has not incurred finance charges on the account. S. 256 allows debtors to shelter from the claims of creditors certain education IRA plans and retirement pension funds. It requires debtors to receive credit counseling before they can be eligible for bankruptcy relief so that they will make an informed choice about bankruptcy, its alternatives, and consequences. The bill also requires debtors, after they have filed for bankruptcy, to participate in financial management instructional courses so they can hopefully avoid future financial distress.
With respect to business bankruptcy, S. 256 includes several significant provisions intended to heighten administrative scrutiny and judicial oversight of small business bankruptcy cases, which often are the least likely to reorganize successfully. In addition, it contains provisions designed to reduce systemic risk in the financial marketplace, the enactment of which Federal Reserve Board Chairman Alan Greenspan described as being `extremely important.' 2
[Footnote] The bill includes heightened protections for family farmers facing financial distress and allows family fishermen to qualify for a specialized form of bankruptcy relief currently available only to family farmers. The bill also includes provisions concerning transnational insolvencies, bankrupt health care providers, the treatment of tax claims, and data collection. In response to the exponential increase in bankruptcy filings, the bill authorizes the creation of 28 additional bankruptcy judgeships.
[Footnote 2: Letter from Alan Greenspan, Chairman, Federal Reserve Board, to F. James Sensenbrenner, Jr., Chairman, Committee on the Judiciary (Sept. 3, 2002) (on file with the Subcommittee on Commercial and Administrative Law).]
DISSENTING VIEWS, CONCERNS AND OBJECTIONS
In addition to the concerns raised in the general dissenting views, we remain disappointed by the Committee's consistent refusal to put an end to two of the most notorious abuses of the bankruptcy system--the financial planning strategy by which debtors are able to purchase expensive homes in States which allow a debtor to exempt an interest in a primary residence of a unlimited dollar value, 1
[Footnote] and the development of `asset protection trusts,' which would allow individuals to set up a trust for which they are the sole beneficiaries, and potentially place substantial assets outside the estate, and beyond the reach of the creditors.
[Footnote 1: The following are the States that have unlimited homestead exemptions: Florida, Iowa, Kansas, South Dakota, Texas, and the District of Colombia.]
The unlimited homestead exemption, known s the `millionaires' loophole,' has allowed the very wealthy to shield from their creditors vast sums of money in palatial homes. The current Code allows a debtor to claim a State's exemptions. 2
[Footnote] A State may `opt out' and bar a debtor from using the federal exemptions in sec. 522(d), which are, in many cases, lower than exemptions allowed under State law. 3
[Footnote]
[Footnote 2: 11 U.S.C. 522(b)(2)(A).]
[Footnote 3: 11 U.S.C. 522(b)(1).]
Over the years, many of us have offered amendments that would have placed an overall limit on State homestead exemptions, or repealed State opt-out so that debtors would be able to avail themselves of the federal exemptions if they are higher than applicable State law. 4
[Footnote] In each case, these proposals have been rejected. A proposal to place an absolute cap on State homestead exemptions in the amount of $1 million was even rejected by House conferees to H.R. 333 in the 107th Congress. Apparently, the proponents of this legislation believe that there is no amount too high for the wealthiest debtors to shelter in their homesteads, and that the poorest debtors are not entitled to even the modest floor provided by federal law. 5
[Footnote]
[Footnote 4: Rep. Waters offered an amendment setting a $30,000 Federal minimum homestead exemption for debtors 62 and older to protect some or all of the value of their homes from credentials in bankruptcy. The amendment was rejected by voice vote. Rep. Berman and Rep. Meehan offered an amendment to create a uniform Federal floor for homestead exemptions of $150,000 for debtors with substantial medical debts or a substantial loss in income, alimony, or child support due to medical problems. The amendment was rejected with 13 ayes and 18 noes.]
[Footnote 5: 11 U.S.C. 522(d)(1) allows a debtor to exempt up to $18,450 in value in the debtor's residence.]
These proposals would have, respectively, helped to eliminate the biggest loophole in the Bankruptcy Code, and eliminate a significant inequity for homeowners of the most modest means. The proposals reflect the recommendations of the National Bankruptcy Review Commission, that Congress provide a meaningful cap on homestead exemptions as well as a federal floor. 6
[Footnote]
[Footnote 6: BANKRUPTCY: THE NEXT TWENTY YEARS, FINAL REPORT OF THE NATIONAL BANKRUPTCY REVIEW COMMISSION, Recommendation 1.2.2, at 125-133 (Oct. 20, 1997). The Commssion recommended a national cap of $100,000, and a national floor of $20,000.]
The rationale that has been given for the so-called `needs-based' reforms proposed in S. 256 is to eliminate abuses of the bankruptcy laws-abuses which proponents of the legislation have characterized as the use of the Bankruptcy Code as a `financial planning tool.'
Yet while the bill would presume that debtors of modest means are abusing the system if they can pay general unsecured creditors as little as $100 a month in chapter 13, it continues to permit, indeed it endorses--the most notorious abuse of the consumer bankruptcy system of all.
If the sponsors were truly serious about curtailing abuses in bankruptcy, this is the place to start. Some of the more notorious cases have included:
ĚMarvin Warner, a former ambassador to Switzerland and the owner of a failed Ohio Savings & Loan, who paid off only a fraction of $300 million in bankruptcy claims while keeping his multi-million-dollar horse ranch near Ocala, Florida. 7
[Footnote]
[Footnote 7: Larry Rohter, `Rich Debtors Finding Shelter Under a Populist Florida Law,' N.Y. Times A-1 (July 25, 1993).]
ĚMartin A. Siegel, a former Wall Street investment banker convicted of insider trading. While facing a $2.75 billion civil suit, he bought a $3.25 million, 7,000-square-foot beachfront home in Ponte Vedra Beach. 8
[Footnote]
[Footnote 8: Id.]
ĚFormer baseball commissioner Bowie Kuhn, whose Manhattan law firm went into bankruptcy. After creditors seized his weekend house in the Hamptons and were about to attach his $1.2 million home in Ridgewood, New Jersey, Kuhn acquired a million-dollar house in Florida with five bedrooms and five baths. 9
[Footnote]
[Footnote 9: Id.]
ĚDr. Carlos Garcia-Rivera, a Miami physician with no malpractice insurance, who was named in four separate malpractice actions, filed for bankruptcy protection, and kept a $500,000 home with a 100-foot swimming pool. 10
[Footnote]
[Footnote 10: David J. Morrow, `Key to a Cozier Bankruptcy: Location, Location, Location,' N.Y. Times, A-1 (Jan. 7, 1998).]
ĚDallas developer, Talmadge Wayne Tinsley, who filed under chapter 7 after incurring $60 million in debts. Tinsley objected to the Texas law that permitted him to keep only one acre of his $3.5 million, 3.1-acre magnolia-lined estate. But that acre included a five-bedroom, six-and-a-half-bath mansion with two studies, a pool and a guest house. 11
[Footnote]
[Footnote 11: Id.]
ĚMovie actor, Burt Reynolds, who declared bankruptcy in 1996, claiming more than $10 million in debt. Reynolds kept a $2.5 million home--appropriately named `Valhalla'--while his creditors received 20 cents on the dollar. 12
[Footnote]
[Footnote 12: Eliot Kleinberg, `Reynolds Gets Out from under Bankruptcy,' The Palm Beach Post, (Oct. 8, 1998)]
ĚPaul Bilzerian, who used Florida's unlimited homestead exemption to avoid his creditors. He filed for bankruptcy in 1991, and filed again last month. He retains his $5 million Florida home, and can completely avoid the $200 million in debt owed his creditors, including the IRS. 13
[Footnote]
[Footnote 13: Hearing Before the Senate Committee on the Judiciary on S. 220, (Written statement of Brady C. Williamson), at 6 (Feb. 8, 2001).]
The situation in Florida has become so notorious that one Miami bankruptcy judge told the New York Times, `You could shelter the Taj Mahal in this State and no one could do anything about it.' 14
[Footnote]
[Footnote 14: Judge A. Jay Cristol, quoted in Rohter, supra note 6.]
As the Wall Street Journal noted recently concerning the Kuhn case, `the bill that Congress will soon send to a welcoming President Bush would make [pre-bankruptcy planning using the unlimited homestead exemption] more difficult, but that's symbolic. Few people anticipating bankruptcy have the cash to pull off that maneuver. This is a national problem that demands a uniform solution. Without a nationwide cap, debtors who live in the 45 States that cap the exemption at $200,000 or less are free to relocate to one of the five so-called `debtors' paradises `that have no cap at all.' 15
[Footnote]
[Footnote 15: Footnote 10: David Wessel, `A Law's Muddled Course,' The Wall Street Journal, at 1 (Feb. 22, 2001).]
Indeed, the Florida Supreme Court has ruled that even fraudulent transfers are protected by the unlimited homestead exemption under that State's constitution. 16
[Footnote]
[Footnote 16: Havoco of America, Ltd. v. Hill, No. SC 99-98 (June 21, 2001).]
The sponsors try to claim that they have closed the loophole by placing certain restrictions on State homestead exemptions. While true, these restrictions still leave the unlimited homestead exemption largely intact for most wealthy debtors. To the extent that the restrictions may prevent some forms of abuse, they will also have unintended consequences that might harm innocent debtors who inadvertently run afoul of the complex new rules attached to exempt property.
The bill does not place an absolute national dollar cap on homestead exemptions. People who, with the exceptions made in the bill as described below, would otherwise be entitled to an unlimited homestead exemption, would still be able to claim the exemption.
The bill does not alter the opt out rule in the Bankruptcy Code, so there is still no federal floor.
Domiciliary Requirement: The domiciliary requirement determines which State's exemptions the debtor is allowed to claim.
Sec. 307 of the bill requires a debtor to claim as a domiciliary the place of residence for the greater part of the 730 days preceding the date of the filing of the petition. This applies for claiming any property exemptions, not just the homestead exemption. Current law is 180 days.
While it would make pre-bankruptcy planning more difficult for a wealthy debtor seeking a jurisdiction with generous property exemptions, it would also have a substantial impact on a debtor who moves from a jurisdiction with a low exemption to a jurisdiction with a high exemption.
For example, a debtor who lives in New York and retires to Florida would get caught in this net. If the debtor sold her home in New York, moved to Florida, and purchased a home in Florida with the proceeds of the sale, became sick and had to file for bankruptcy (which is a common occurrence) within the 730 period, she would not be able to use the Florida exemption and keep the full value of her home. Instead, she would have to use the New York exemption of $10,000. The rest would be available to pay her creditors. If there is excess value (above the equity and transaction costs) the trustee would have a duty to sell the home to generate funds to pay creditors. The debtor would get a check for $10,000, and lose her home. This would be even less than the federal exemption of $18,450, so she would be harmed even more by the failure of Congress to adopt a federal floor.
Converting a non-exempt asset into an exempt homestead asset: The bill provides, in sec. 308, that a debtor who converted a non-exempt asset into an interest in an exempt homestead within the ten year period ending on the date of the filing of the petition, would have the allowed exemption reduced by the amount of that additional interest. This provision requires proof that the debtor did so with the intent to hinder, delay or defraud a creditor. Because this is such a high standard of proof, it is likely that this provision will be rarely enforced.
Example: Debtor has $100,000 in a bank account. Debtor closes the account and uses it to pay down a mortgage on her residence. She now $150,000 in the home, all of which is exempt. The debtor would get to claim the full amount as exempt unless a creditor is able to prove that the debtor moved the funds from the non-exempt asset (the bank account) to the exempt asset (the homestead) with the intent to hinder delay and defraud a creditor. If the creditor is able to meet that burden of proof, the debtor may claim only the $50,000 interest in the homestead as exempt.
Another domiciliary requirement and conversion of non-exempt assets limitation: Sec. 322 limits a debtor to $125,000 in a homestead exemption for any interest in a homestead that was acquired 1215 days before the date of the filing of the petition that exceeds in the aggregate $125,000 in value. It does not apply to a debtor who is a family farmer under ch. 12 of the Code, or a debtor who acquires the interest within the same State. It only applies to a debtor who acquires the interest in a homestead in a State other than the State in which the debtor lived within the look-back period. Thus, if a debtor who lived in Texas acquired an interest in a homestead in Texas during the look-back period, the $125,000 cap would not apply. It would, however, apply to a New York senior who sold her home, moved to Florida, purchased a home in Florida with the proceeds from the sale of the New York home, got sick and had to file within the 1,215-day period. Because she would have acquired an interest in the property in excess of $125,000, she would be limited to $125,000. The rest of her equity could be used to pay her creditors.
Cap on homestead exemption for certain types of wrongdoing: Sec. 322 also caps a debtor's homestead exemption at $125,000, if:
ĚThe court, after notice and a hearing, determines that the debtor has been convicted of a felony, as defined in 18 U.S.C. 3156, which, under the circumstances, demonstrating that the filing of the case was an abuse of the provisions of the Code;
ĚThe debtor owes a debt arising from a violation of the Federal or State securities laws; fraud, deceit or manipulation in a fiduciary capacity or in connection with he purchase or sale fo any security registered under section 12 or 15(d) of the Securities Exchange Act of 1934, or section 6 of the Securities Act of `1933; any civil remedy under 18 U.S.C. 1964 [the RICO statute]; any criminal act, intentional tort, or willful or reckless misconduct that caused serious physical injury or death to another individual in the preceding 5 years. The last clause does not include simple negligence resulting in serious physical injury or death. This reflects a concern among some proponents of the bill that doctors whose malpractice caused serious physical injury or death not lose their unlimited homestead exemption. The limitations due to securities violations and the RICO judgments were added in response to concerns that former Enron Chairman Kenneth Lay would be entitled to an unlimited homestead exemption in his native Texas should he file for bankruptcy. Mr. Lay has not, however, filed for bankruptcy, and it is not yet clear whether he will be found by a court to have run afoul of any of the enumerated offenses.
There is also a savings clause that a debtor who owes a debt of the kind described above would not lose her homestead exemption over $125,000, to the extent that the equity is reasonably necessary for the support of the debtor and any dependent of the debtor. It is an outrage that the same `reasonably necessary standard' that would protect the unlimited homestead exemption is the same one that the drafters of the bill specifically chose to remove from the Code, in favor the means test in sec. 102 of the bill, and the IRS standards to determine a debtor's allowed expenses.
While these amendments may eliminate a few of the abuses, they do not solve the problem. Wealthy debtors who are able to afford skillful legal advice, and are sophisticated enough to engage in complex pre-bankruptcy planning, will, in many cases, will be able to evade the paltry restrictions in this bill. Truly needy debtors, the kind whose life savings may be bound up in their residence, and who can afford neither sophisticated legal advice, or complex pre-bankruptcy planning, will get caught in the many twists and turns that will now be added to the Code. Far from eliminating the abuse of the unlimited homestead exemption, this bill will have the perverse effect of perpetuating it while creating new traps for the truly needy unsophisticated debtor.
What message does it send when Congress subjects middle-class debtors to a means test and other onerous changes to the Code, while permitting the wealthy to continue to place their millions out of reach of their creditors? A bill this rife with favoritism toward wealthy debtors and against middle class families is anything but a `Bankruptcy Abuse Prevention and Consumer Protection Act.'
If Congress is serious about curbing abuse, a national, absolute dollar amount cap, without any loopholes, is the only way to do it. The bill, as reported, fails this test and so bears the burden of treating poor and middle class families harshly while letting the wealthiest individuals, who are clearly abusing the system and defrauding their creditors, shelter millions of dollars.
Although this legislation is exceedingly draconian with respect to low and middle income debtors, the sponsors have consistently resisted amendments that would close loopholes for the wealthiest debtors.
One such loophole is the so-called `asset protection trusts,' which, under the law of five States, allows an individual to set up a trust account for which the person establishing the trust would also be the beneficiary. 17
[Footnote] Trusts, established under non-bankruptcy law, are not treated a property of the bankruptcy estate, and so are beyond the reach of creditors. 18
[Footnote] A debtor may, under the laws of these five States, establish such a trust, solely for the benefit of the debtor, and may be able to shield unlimited amounts of money from creditors. So long as the funds were not placed in the trust by means of a fraudulent transfer, the trustee might have no power to recover them for the benefit of the creditors.
[Footnote 17: Gretchen Morgenson, Proposed Law on Bankruptcy Has Loophole, N. Y. TIMES, Mar. 2, 2005, at C1.]
[Footnote 18: 11 U.S.C. 541(c)(2) (2004).]
Senator Schumer offered an amendment that would have limited the value of assets that could be shielded in these trusts to $125,000, if transferred within the ten years preceding the filing of the petition. 19
[Footnote] Rep. Delahunt offered a similar amendment during the Judiciary Committee's markup, limiting such trusts up to $125,000, while protecting conventional retirement funds currently exempt from federal taxation, charitable trusts, and educational trusts. The amendment was rejected with 10 ayes and 15 noes.
[Footnote 19: 151 CONG. REC. S1981 (daily ed. March 2, 2005) (statement of Sen. Schumer). The amendment excludes from its coverage trusts not for the benefit of the debtor that would otherwise be excluded from the estate, and trusts established for retirement purposes under the new 11 U.S.C. 522(d)(12).]
The rejection of these reasonable amendments by the Senate and by the House Judiciary Committee again demonstrate that, despite its lofty title, the bill does not target bankruptcy abuse by the wealthy and well connected.
Bankruptcy should provide a safety net for families truly in need of relief.
This legislation, which imposes stringent new rules on financially distressed
families, should not leave the most notorious loopholes for the very wealthy.
John Conyers, Jr.
Jerrold Nadler.
Robert C. Scott.
Melvin L. Watt.
Martin T. Meehan.
Anthony D. Weiner.
Chris Van Hollen.
While I agree with the Minority Views to S. 256, I want to submit additional views to explain my dissent.
Once again we are attempting to push through the Bankruptcy Abuse Prevention and Consumer Protection Act, which despite its name provides little meaningful protection for consumers. We all can agree that the system needs revision, but this legislation is not the answer.
Bankruptcy filings have risen slightly in recent years and while some who file for bankruptcy have not been financially responsible, the overwhelming majority of people who file for bankruptcy do so as the result of a divorce, major illness or job loss. Many people are just one paycheck, job loss or medical catastrophe away from bankruptcy. We know at the present time there are 1.6 million people who go into bankruptcy every year. Half of those people go into bankruptcy because of medical bills. About three-quarters of those individuals who go into bankruptcy because of medical bills have health insurance, but nonetheless, the explosion of costs in health care have added such a burden to these families that they have had to go into bankruptcy.
If the purpose of this legislation is to try to deal with spendthrifts and those who are abusers of credit, we ought to be able to distinguish them from hard-working Americans who unfortunately became ill, those who have had an unforeseen change in their employment, and those whose spouses experienced business failures. Unfortunately, this legislation does not make those distinctions.
I believe that any meaningful bankruptcy reform ought to ensure that individuals are afforded the protection of Chapter 7 bankruptcy and are exempt from dismissal or conversion if: (1) a substantial portion of the indebtedness is due to business losses incurred by a spouse who has died or deserted the debtor; (2) a substantial portion of the indebtedness was incurred as a result of illness of the debtor, a dependant of the debtor, or the debtor's spouse if not a dependant of the debtor; or (3) a substantial portion of the indebtedness was a result of unforeseen loss of employment through no fault of the debtor.
Another category of citizens who will be adversely impacted by this legislation are small business entrepreneurs who go into business considering a risk/benefit ratio that includes the possibility of making a lot of money but also includes the possibility of losing everything and ending up in bankruptcy. With the passage of this legislation, those entrepreneurs and their families risk not only losing everything, but also remaining destitute.
Finally, we should consider the impact on society of increasing the number of people who conclude that they have nothing left to lose. It is ironic that the last time we debated bankruptcy reform on the Floor of the House of Representatives, a farmer had driven his tractor into a pond near Washington's monuments, tying up traffic in D.C. for several days. He was quoted as saying, `I'm broke. I'm busted.' He was also quoted as saying, `I've got the rest of my life to stay right here. I'm not going anywhere.' People who feel they have nothing left to lose often lack any incentive to be a productive member of society, and this can also create a potential danger to society. Denying bankruptcy protection to people who need a fresh start will only increase this category of citizens. Instead we should be providing them with the assistance they need to get back on their feet.
While the bankruptcy code clearly could benefit from reform and modernization,
this legislation does not differentiate between those who abuse the system and
those who truly need the aid it provides.
Robert C. Scott.
AMENDMENTS
2.
S.AMDT.15 to
require enhanced disclosure to consumers regarding the consequences of making
only minimum required payments in the repayment of credit card debt, and for
other purposes.
Sponsor: Sen. Daniel Akaka, Daniel K. [D-HI]
Failed by Yea-Nay Vote. 40 - 59. RV 15
3. S.AMDT.16 to protect service members and veterans
from means testing in bankruptcy, to disallow certain claims by lenders charging
usurious interest rates to service members, and to allow service members to
exempt property based on the law of the State of their pre-military residence.
Sponsor: Sen. Richard Durbin [D-IL]
Failed by Yea-Nay Vote. 38 - 58. RV 13
4. S.AMDT.17 to provide a homestead floor for the
elderly.
Sponsor: Sen. Russell D. Feingold [D-WI]
Failed by Yea-Nay Vote. 40 - 59. RV 14
10. S.AMDT.23 to clarify the safe harbor with
respect to debtors who have serious medical conditions or who have been called
or ordered to active duty in the Armed Forces and low income veterans.
Sponsor: Sen. Jeff Sessions [R-AL] (introduced 3/1/2005)
Passed by Yea-Nay Vote. 63 - 32. RV 12.
15. S.AMDT.28 to exempt debtors whose financial
problems were caused by serious medical problems from means testing.
Sponsor: Sen. Edward M. Kennedy [D-MA]
Failed by Yea-Nay Vote. 39 - 58. RV 16
16. S.AMDT.29 to provide protection for medical debt
homeowners.
Sponsor: Sen. Edward M. Kennedy [D-MA]
Failed by Yea-Nay Vote. 39 - 58. RV 17
19. S.AMDT.32 to preserve existing bankruptcy
protections for individuals experiencing economic distress as caregivers to ill
or disabled family members.
Sponsor: Sen. Jon S. Corzine [D-NJ]
Failed by Yea-Nay Vote. 37 - 60. RV 18
24. S.AMDT.37 to exempt debtors from means testing if their financial
problems were caused by identity theft.
Sponsor: Sen. Bill Nelson [D-FL]
Failed by Yea-Nay Vote. 37 - 61. RV 21
25. S.AMDT.38 to discourage predatory lending practices.
Sponsor: Sen. Richard Durbin [D-IL]
Failed by Yea-Nay Vote. 40 - 58. RV 22.
27. S.AMDT.40 to amend the Fair Credit Reporting Act to prohibit the use
of any information in any consumer report by any credit card issuer that is
unrelated to the transactions and experience of the card issuer with the
consumer to increase the annual percentage rate applicable to credit extended to
the consumer, and for other purposes.
Sponsor: Sen. Mark L. Pryor [D-AR]
Senate amendment proposed (on the floor)
29. S.AMDT.42 to limit the exemption for asset protection trusts.
Sponsor: Sen. Charles E. Schumer [D-NY]
Failed by Yea-Nay Vote. 39 - 56. RV 23
31. S.AMDT.44 to amend the Fair Labor Standards Act of 1938 to provide
for an increase in the Federal minimum wage.
Sponsor: Sen. Edward M. Kennedy [D-MA]
Senate amendment proposed (on the floor)
35. S.AMDT.48 to increase bankruptcy filing fees to pay for the
additional duties of United States trustees and the new bankruptcy judges added
by this Act.
Sponsor: Sen. Arlen Specter [R-PA]
Passed by Unanimous Consent.
36. S.AMDT.49 to protect employees and retirees from corporate practices
that deprive them of their earnings and retirement savings when a business files
for bankruptcy.
Sponsor: Sen. Richard Durbin [D-IL]
Failed by Yea-Nay Vote. 40 - 54. RV 25
11. S.AMDT.24 to amend the wage priority provision and to amend the
payment of insurance benefits to retirees.
Sponsor: Sen. John D. Rockefeller, IV [D-WV]
Failed in Senate by Yea-Nay Vote. 40 - 54. (RV 24)
13. S.AMDT.26 to restrict access to certain personal information in
bankruptcy documents.
Sponsor: Sen. Patrick J. Leahy, [D-VT]
Amendment SA 26 as modified agreed to in Senate by Unanimous Consent.
18. S.AMDT.31 to limit the amount of interest that can be charged on any
extension of credit to 30 percent.
Sponsor: Senator Mark Dayton, [D-MN]
Failed in Senate by Yea-Nay Vote. 24 - 74. (RV 20).
34. S.AMDT.47 to prohibit the discharge, in bankruptcy, of a debt
resulting from the debtor's unlawful interference with the provision of lawful
goods or services or damage to property used to provide lawful goods or
services.
Sponsor: Senator Charles E. Schumer, [D-NY]
Failed in Senate by Yea-Nay Vote. 46 - 53. (RV 28).
49. S.AMDT.62 to provide for the potential disallowance of certain
claims.
Sponsor: Senator Barbara Boxer, [D-CA]
Failed in Senate by Yea-Nay. 40 - 60. (RV 33).
53. S.AMDT.66 to increase the accrual period for the employee wage
priority in bankruptcy.
Sponsor: Senator Tom Harkin, [D-IA]
Failed in Senate by Yea-Nay Vote. 48 - 52. (RV 32)
54. S.AMDT.67 to modify the bill to protect families, and for other
purposes.
Sponsor: Senator Christopher J. Dodd, [D-CT]
Failed in Senate by Yea-Nay. 42 - 58. RV34.
55. S.AMDT.68 to provide a maximum amount for a homestead exemption under
State law.
Sponsor: Senator Edward M. Kennedy, [D-MA]
Failed in Senate by Yea-Nay. 47 - 53. RV 35.
56. S.AMDT.69 to amend the definition of current monthly income.
Sponsor: Senator Edward M. Kennedy, [D-MA]
Failed in Senate by Yea-Nay Vote. 41 - 58. RV 37.
57. S.AMDT.70 to exempt debtors whose financial problems were caused by
failure to receive alimony or child support, or both, from means testing.
Sponsor: Senator Edward M. Kennedy, [D-MA]
Failed in Senate by Yea-Nay Vote. 41 - 58. RV 36.
70. S.AMDT.83 to modify the definition of disinterested person in the
Bankruptcy Code.
Sponsor: Senator Patrick Leahy, [D-VT]
Failed in Senate by Yea-Nay Vote. 44 - 55. RV 39.
74. S.AMDT.87 to amend section 104 of title 11, United States Code, to
include certain provisions in the triennial inflation adjustment of dollar
amounts.
Sponsor: Senator Russell D. Feingold, [D-WI]
Amendment SA 87, previously agreed to, was modified by Unanimous Consent.
76. S.AMDT.89 to strike certain small business related bankruptcy
provisions in the bill.
Sponsor: Senator Russell D. Feingold, [D-WI]
Failed in Senate by Yea-Nay Vote. 41 - 59. RV 30.
78. S.AMDT.91 to amend section 303 of title 11, United States Code, with
respect to the sealing and expungement of court records relating to fraudulent
involuntary bankruptcy petitions.
Sponsor: Senator Russell D. Feingold, [D-WI]
Agreed to in Senate by Unanimous Consent.
79. S.AMDT.92 to amend the credit counseling provision.
Sponsor: Senator Russell D. Feingold, [D-WI]
Agreed to in Senate by Unanimous Consent.
92. S.AMDT.105 to limit claims in bankruptcy by certain unsecured
creditors.
Sponsor: Senator Daniel K. Akaka, Daniel K. [D-HI]
Failed in Senate by Yea-Nay. 38 - 61. RV 38
97. S.AMDT.110 to clarify that the means test does not apply to debtors
below median income.
Sponsor: Senator Richard Durbin, [D-IL]
Failed in Senate by Yea-Nay Vote. 42 - 58. RV 31
99. S.AMDT.112 to protect disabled veterans from means testing in
bankruptcy under certain circumstances.
Sponsor: Senator Richard Durbin, [D-IL]
Passed Senate by Yea-Nay. 99 - 0. RV 40.
108. S.AMDT.121 to deter corporate fraud and prevent the abuse of State
self-settled trust law.
Sponsor: Senator Jim Talent,[R-MO]
Passed Senate by Yea-Nay. 73 - 26. RV42.
115. S.AMDT.128 to promote job creation, family time, and small business
preservation in the adjustment of the Federal minimum wage.
Sponsor: Senator Rick Santorum, [R-PA]
Amendment SA 128 withdrawn in Senate.
116. S.AMDT.129 to limit the exemption for asset protection trusts.
Sponsor: Senator Charles E. Schumer, [D-NY]
Failed in Senate by Yea-Nay. 43 - 56. RV 41
DATA FROM THE CONGRESSIONAL RESEARCH SERVICE COVERING SEVERAL PROVISIONS
Selected Provisions S. 256, the Bankruptcy Abuse Prevention and Consumer protection Act of 2005, 109th Congress, 1st Session.
MEANS TESTING
Means test, 11 U.S.C. § § 704, 707:
Implementation Would amend 11 U.S.C. § 707 to permit creditors, the trustee, or any party in interest to challenge a debtor’s eligibility to file under chapter 7. If indicated, the
U.S. trustee must file a statement that the debtor’s case is a presumed abuse of chapter 7. § 102.
Definition of “current monthly income”
Excludes Social Security benefits; payments to victims of war crimes or crimes against humanity; and payments to victims of international terrorism. § 102.
Presumed abuse Debtor presumed to be abusing chapter 7 if current monthly income, excluding allowed deductions, secured debt payments, and priority unsecured debt payments, multiplied by 60, would permit a debtor to pay not less than the lesser of (a) 25% of non-priority unsecured debt or $6,000 (or $100 a month), whichever is greater, or (b) $10,000.
In addition to the means test, the court may find that the debtor’s filing was in bad faith or that the totality of the circumstances demonstrates abuse. § 102.
CRS-3
3 Charitable contributions are permissible under current law, 11 U.S.C. § 707(b), and would not be altered by the bill.
Calculation of permissible monthly living expenses
Expenses to be calculated as specified under the National Standards and Local Standards, and the debtor’s actual monthly expenses for the categories specified as Other Necessary Expenses issued by the Internal Revenue Service for the area in which the debtor resides. A debtor may also subtract, if reasonably necessary, an allowance of up to 5% of the IRS food and clothing categories.
Individualized expenses may include debts incurred to protect the debtor’s family from domestic violence; actual expenses for the care and support of nondependent, elderly, ill or disabled household or family members; private or public school tuition of up to $1,500 per year; administrative expenses for chapter 13 candidates; average monthly expenses for secured and priority debts; actual expenses for housing and utilities, if reasonably necessary; and, charitable contributions of up to 15% of gross income.3 Dollar amounts will be adjusted at three-year intervals in accordance with the Consumer Price Index. § 102.
To rebut the presumption of abuse A debtor must demonstrate and justify “special circumstances” in order to adjust current monthly income determination. § 102.
CRS-4.
Safe harbor exemption from the means test
Only the judge, U.S. trustee or bankruptcy administrator may bring a substantial abuse motion if the debtor’s current monthly income is less than the highest national or the applicable State median family income.
No party may make a motion to convert the debtor to chapter 13 if the debtor (and spouse combined) have a monthly income equal to or less than the state median household income reported by the Bureau of the Census.
The U.S. trustee may also decline to file a motion to convert if the debtor’s monthly income is between 100% and 150% of the national or applicable State median income, and would permit a debtor to pay the lesser of (a) 25% of non-priority unsecured debt or $6,000, whichever is greater, or (b) $10,000. § 102.
IRS Living Standards applicable to chapter 13 reorganization plan
A chapter 13 debtor’s “disposable income” which may be directed to the repayment plan will be calculated in accordance with IRS Living Standards if the debtor meets the applicable means test for state median family income. A chapter 13 debtor may deduct from plan payments the costs of health insurance; domestic support obligations; charitable contributions of up to 15% of gross income; and expenses necessary to operate a business. § 102.
CRS-5
Attorney sanctions for improper motion
If a panel trustee brings a successful motion for dismissal or conversion, counsel for the debtor may be liable to reimburse the trustee for costs, attorneys’ fees, and payment of a civil penalty if the court finds a violation of Bankruptcy Rule 9011. An attorney’s signature on the bankruptcy petition certifies that the attorney has performed an investigation into the circumstances that gave rise to the petition; that the attorney has determined that the petition is well grounded in fact and is warranted by existing law; and that the attorney has no knowledge after an inquiry that the information in accompanying
schedules is incorrect. § 102.
Creditor sanctions for an improper motion
The court may award the debtor costs for contesting an unsuccessful motion to convert if the court finds that the motion violated Rule 9011, or was intended to coerce the debtor into waiving rights under the Bankruptcy Code. A small business creditor whose claim is less than $1000 is not liable for sanctions. § 102.
Dismissal of filings by persons convicted of violent crimes or drug trafficking
A crime victim or party in interest may request dismissal of the voluntary bankruptcy case of the convicted debtor. The court must grant the dismissal unless the filing is necessary to satisfy a domestic support obligation. § 102.
Mandatory credit counseling
Debtor must undergo credit counseling within 180 days of filing, and may not obtain a discharge until completion of a personal financial management instructional course.
The jurisdictional filing requirement may be waived for 30 to 45 days if the debtor certifies exigent circumstances or was denied service from an approved counseling agency.
The U.S. trustee or bankruptcy administrator for the judicial district is directed to oversee and approve nonprofit budget and credit counseling agencies. § 106.
CRS-6
Promotion of alternative dispute resolution
A creditor’s allowable claim may be reduced by 20% if a court finds that the creditor “unreasonably refused to negotiate a reasonable alternative repayment schedule proposed by an approved credit counseling agency that provides repayment of at least 60% of the
debt, and the debtor can prove by “clear and convincing” evidence that a creditor unreasonably refused to consider the offer.” § 201.
Reaffirmation agreements
Imposes enhanced requirements for approval of a reaffirmation agreement when the debtor is not represented by counsel but exempts credit unions from creditor disclosure requirements; requires U.S. Attorney and FBI to investigate abusive reaffirmation
practices. § 203.
Preserving defenses against predatory lenders
Amends 11 U.S.C. § 363 to add a new subsection preserving defenses that a party to a consumer credit transaction may have if the contract is sold by a debtor in bankruptcy. § 204.
GAO reaffirmation study Requires a study of reaffirmation practices and a report to Congress. § 205.
Domestic support owed to individuals and government units made first priority
Would move domestic support obligations to first priority, which is currently allocated to administrative expenses of the bankruptcy estate. Administrative expenses would become second priority. However, if a trustee is appointed under chapter 7, 11, 12, or 13, the trustee’s expenses may be paid before domestic support. § 212.
Trustee notification of child support claim holders
Would direct the trustee to notify a priority child support recipient of the existence of a state child support enforcement agency, and, upon discharge, the existence of non-dischargeable and reaffirmed debt. § 219.
Priority assigned to claims for liability incurred by the debtor
DUI
A new § 507 tenth priority is created for unsecured claims for liability incurred by a debtor from operating a vessel while under the influence of alcohol or drugs. Claims of this nature are also non-dischargeable. § 223.
CRS-7
Retirement savings exemption broadened
Would clarify and expand the law to provide that retirement accounts that are tax exempt under the Internal Revenue Code are exempted from the debtor’s estate up to a $1,000,000 cap, which may be increased if “the interests of justice so require.” § 224.
Exemption for saving for postsecondary education
Subject to certain IRS requirements, excludes funds up to $5000 per specified beneficiary made within a year of filing in an education individual retirement account and/or any funds used to purchase a tuition credit or certificate under a qualified state tuition
program. §225.
Protection of nonpublic personal information and consumer privacy ombudsman
Prohibits the transfer by the debtor of personal customer information unless approved by the court. Provides for the appointment of a consumer privacy ombudsman if a debtor wishes to sell or lease such information. §§ 231,232.
Prohibition on disclosure of identify of minor children
Debtor may not be required to disclose the name of a minor child in public records. U.S. trustee or auditor may have access to nonpublic records maintained by the court. § 233.
Lien stripping on security interests in consumer goods (cramdown)
Chapter 13 debtors would not be permitted to bifurcate security interests in an automobile purchased within 910 days (2˝ years) before the filing; or in other consumer goods purchased within 1 year of the filing. § 306.
CRS-8
Homestead exemption Definition of “debtor’s residence” includes mobile homes or trailers. § 306.
Imposes lengthened residency requirements to qualify for state exemption. § 307.
Reduces the value of the exemption if the value is attributable to property that the debtor disposed of within 10 years of bankruptcy with the intent to hinder, delay or defraud a creditor. § 308.
Debtors’ electing a state homestead exemption may not exempt any interest acquired within 1215 days (3.3 years) of filing which exceeds in the aggregate $125,000, unless the value in excess of that amount occurs from a transfer of residences within the same state.
Exempts family farmers from the limit. Limitations may not apply to amounts reasonably necessary to support the debtor and any dependents. Imposes a firm $125,000 cap on an individual who is convicted of specified felonies (including violations of federal securities laws) or who commits criminal acts, intentional torts, or willful or reckless misconduct that caused serious physical injury or death within 5 years preceding the bankruptcy filing. § 322.
Residential lease excepted from the automatic stay
Adds new provisions permitting a landlord/ lessor to bypass the automatic stay to continue with a residential eviction of a tenant/lessee. § 311.
Restrictions on chapter7 and chapter 13 filings.
Extends time within which a debtor who has received a chapter 7 discharge may not receive another from 6 to 8 years.
Amends chapter 13 to disallow discharge if the debtor filed under chapters 7, 11, or 12 within 4 years prior to the 13 filing, or under chapter 13, within 2 years of the subsequent filing. § 312.
CRS-9
Definition of “household goods”
Defines household goods to include clothing, furniture, appliances, 1 radio, 1 television, 1 VCR, other electronic entertainment equipment with a market value of under $500, linens, china, crockery, kitchenware, educational materials used by minor dependent children, medical equipment and supplies, furniture used exclusively by minors and disabled or elderly dependents, personal effects, 1 personal computer and antiques and jewelry with a value less than $500. § 313.
Debtor’s duty to disclose tax filings.
Modifies debtor filing requirements under 11 U.S.C. § 521 to include federal tax returns. § 315.
Plan duration Chapter 13 plans to have 5 year duration for families whose monthly income is not less than the highest state median family income. Families below the highest state median income would have 3 year plans. § 318.
Wages withheld by an employer for contributions to employee benefit plans
Withheld wages for contributions to employee benefit plans would be excluded from the debtor (employer’s) estate. § 323.
Valuation of collateral
A secured creditor’s allowable claim would be the retail cost to replace the item without deduction for costs of sale or marketing. Personal property’s replacement value would be the price a retail merchant would charge for like items. § 327.
Wages and benefits awarded as back pay
Makes specified pre-petition and post-petition wages and benefits awarded as back pay in a judicial proceeding a high-priority administrative expense. § 329.
Audits The Attorney General is directed to establish a procedure to ensure random audits of no less than 1 out of every 250 individual filings; the U.S. trustee is authorized to enter into contracts with auditors, and to take action when misstatements in the debtor’s
petition and schedules are identified. § 603.
CRS-10
Debts to government units for domestic support
Defines “domestic support obligation” to include debts owed to or recoverable by a governmental unit. §§ 211, 215.
Expanded definition of student loan
Adds qualified educational loans as defined under § 221 of the IRC to those educational loans that are currently non-dischargeable. § 220.
Loan repayments to debtor’s retirement savings or thrift plan
Makes non-dischargeable, i.e., allows an employer to continue to withhold, loan repayments to debtor’s savings/retirement plan from debtor’s wages. § 224(c).
Consumer debts presumed fraudulent
Consumer debts owed to a single creditor for more than $550 for “luxury goods” incurred within 90 days of filing; and cash advances for more than $750 under an open end credit plan within 70 days of filing are presumed to be non-dischargeable. § 310.
Debts incurred to pay non-dischargeable debts are non-dischargeable
Debts incurred to a third party to pay a tax to a state or local government unit become non-dischargeable. § 314.
Expanded definition of non-dischargeable condominium and homeowners association
fees
Expands the types of post-petition condo and homeowners association fees that are
Non-dischargeable by omitting requirement that in order to be non-dischargeable the debtor must reside in the residence post-petition. § 412.
FEC penalties non-dischargeable
Fines and penalties under federal election law are made non-dischargeable. § 1235.
CRS-11
Amendments to the Truth in Lending Act (TILA)
TILA amended to require enhanced minimum payment disclosures under an open end credit plan; enhanced disclosures regarding the tax deductibility of credit extensions which exceed the fair market value of a dwelling for credit transactions secured by the consumer’s dwelling; disclosures related to introductory “teaser” rates; disclosures related to Internet-based open end credit solicitations; and disclosures related to late payment deadlines and penalties. TILA would be amended to prohibit termination of a credit account because the consumer has not incurred finance charges. §§ 1301-1306.
Study of bankruptcy impact of credit extended to dependent students
The Board of Governors of the Federal Reserve is directed to study bankruptcy impact of credit extensions to students in postsecondary school. § 1308.
Consumer credit studies The Board of Governors of the Federal Reserve is directed to study existing protections for consumers for unauthorized use of a dual use debit card. § 1307.
Business bankruptcy
Increased employee wage and benefit priority
Increases the high-priority categories for employee wages and benefits from $4925 earned within 90 days of filing to $10,000 earned within 180 days of filing. § 1401.
Trustee to appoint retiree committees
Amends 11 U.S.C. § 1114 to provide that in the event that a retiree committee is appointed, the appointment of members will be made by the U.S. Trustee, not thecourt. § 447.
Retiree insurance benefits
Amends 11 U.S.C. § 1114 to allow the court to reinstate retiree benefits that are modified by a debtor within 180 days prior to the bankruptcy filing unless the court finds that the balance of equities supports such modifications. § 1404.
Avoidable preferences Amends 11 U.S.C. § 547 to liberalize the rules for defending against an avoidable transfer in the ordinary course of business; creates a new preference exception to aggregate transfers of less than $5,000. § 409.
CRS-12
Fraudulent transfers Amends 11 U.S.C. § 548 to increase the time period for setting aside certain fraudulent transactions from one year to two and expressly includes certain
transfers made pursuant to an employment contract. § 1402.
Small business bankruptcy
Subtitle B of Title IV has provisions defining a “small business” for chapter 11 purposes as one with debts under $2,000,000. The debtor’s period of exclusivity to file a reorganization plan is 180 days. A plan and disclosure statement must be filed within 300 days of the initial filing. A plan must be confirmed within 45 days of filing in
bankruptcy. § 438.
Provisions require establishment of uniform accounting and reporting standards for small businesses. Grounds for appointment of a trustee and the trustee’s general supervisory duties are expanded, as are grounds for dismissal or conversion of the case. §§ 431-442.
Health care business bankruptcy
Defines a broad variety of service-providing health care business, including skilled nursing facilities, assisted-living facilities and homes for the aged. Provides for the disposition and disposal of patient records and for the costs of closing the facility, including the transfer of patients. Permits the court to appoint a patient care ombudsman to monitor patient care and represent the interest of patients. Excludes participation in medicare from the automatic stay. §§ 1101- 1106.
Trustee to appoint retiree committees
Amends 11 U.S.C. § 1114 to provide that in the event that a retiree committee is appointed, the appointment of members will be made by the U.S. Trustee, not the court. § 447.
CRS-13
Chapter 11 corporate non-dischargeability
Confirmation of a plan under chapter 11 would not discharge a corporate debtor from debts under 11 U.S.C. § 523(a)(2) that are owed to a domestic governmental unit for property obtained by false pretenses or representations; or owed to an individual under subchapter III of chapter 37 of Title 31, U.S.C.; or any debt for taxes for which the debtor willfully attempted to evade or made a fraudulent return. § 708.
Title X dealing with chapter 12 family farmers
Makes chapter 12 permanent. Measure to be effective upon enactment; includes jurisdictional debt limit in amount subject to readjustment in accordance with CPI; subordinates certain high priority unsecured claims owed to the government to non-priority claims. Measure to take effect upon enactment, but will not apply to pending cases. §§ 1001-1003.
Raises jurisdictional debt limit of family farmers to $3,237,000 and lowers percentage requirement of income derived from farming and expands the time frame for measuring farm income from one to three years. §§ 1004, 1005.
Prohibits retroactive assessment of disposable income.§ 1006
Amends chapter 12 to include “family fishermen.” § 1007.
CRS-14
In forma pauperis filings Directs the Judicial Conference to prescribe procedures for waiving bankruptcy fees for an individual debtor under chapter 7 whose income is less than 150% of the official poverty line and who is unable to pay the fee in installments. § 418.
Bankruptcy judgeships Creates new temporary bankruptcy judgeships for designated districts. § 1223.
Procedure to certify appeals from a bankruptcy court to a court of appeals
Establishes procedures to permit direct appeals from a bankruptcy court to a court of appeals if the decision involves a substantial question of law for which there is no controlling decision; a question requiring resolution of conflicting decisions; or, a matter of public importance. §1233.
Involuntary Bankruptcy Makes technical corrections made to 11 U.S.C. § 303 dealing with involuntary bankruptcy. Measure applies upon enactment, but not to pending cases. § 1234.
General effective date Subject to express provisions otherwise in specified titles, the new law will take effect 180 days after enactment and will not apply to cases commenced
before the effective date. § 1501.
## All Rights Reserved. © 2005 TheWeekInCongress.com.
No reproduction or distribution without written permission from TheWeekInCongress.com.