The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) brings the most substantial change to the bankruptcy laws in 27 years. BAPCPA was enacted in part to make it more difficult for higher income consumer debtors to file bankruptcy and in response to a perception that too many individuals were improperly filing bankruptcy. As stated by one of the bill’s sponsors, the bankruptcy system functions such that “deadbeats can get out of paying their debt scott free while honest Americans who play by the rules foot the bill.”
BAPCPA significantly alters the standard for determining whether or not a filing constitutes a "substantial abuse." If the debtor’s current monthly income (CMI) does not exceed the median state income. then a presumption of abuse does not arise. The income amounts are stated on the United States Trustee’s website (http://www.usdoj.gov/ust/eo/bapcpa/index.htm). Social Security is the major exclusion from the definition of CMI.
If your income exceeds the mean income, then I must complete an analysis of your expenses. The expense amounts at set forth in local, regional and national IRS standards. National standards are established for food, housekeeping supplies, wearing apparel, and personal care products. Housing and transportation expenses are on a regional standard. The expense information is also available at the United States Trustee’s website. Other necessary expenses may also be allowed. The debtor is allowed an additional 5% above the IRS guidelines if the debtor can show that the expenses are reasonable and necessary. Reasonable and necessary expenses for the care and support of an elderly, chronically ill or disabled household member or a member of the debtor’s immediate family may also be included. The person for whom the debtor provides care must be unable to care for him/herself. The 10% chapter 13 standing trustee commission may also be deducted (but not the debtor’s counsel’s fees). The debtor may also deduct the actual expense for the cost of providing an education for a minor child up to $1,500 per child per year. The debtor is also permitted to deduct charitable contributions.
Next, the debtor is permitted to deduct all contractually due secured debt payments to be paid over the 60 month period after filing. For example, if the debtor has been making 5 years worth of payments on a 30 year mortgage, then the average monthly payment will be the same as the monthly payment. If the debtor has only one year left on a 60 month car payment, then the average will be much less than the present payment ($200 monthly payment divided by 12 is $40 per month).
The amount due for any priority claims (typically taxes and child support) are then divided by 60. Abuse is presumed if the debtor’s monthly available income exceeds certain amounts.
|CMI less Deductions
||Presumption of Abuse
|Less than $100
||Arises unless debt exceeds $24,000
||Arises unless debt exceeds $36,000
||Arises unless debt exceeds $39,998.40
|More than $166.66
In other words, if a debtor is able to pay $10,000 to his unsecured creditors over 60 months, abuse is always presumed. If the debtor clears an amount between $100 and $166.66 per month, then abuse is presumed if the amount paid over 60 months is greater than 25% of the unsecured debt.
Within 180 days of filing, the debtor must have had an individual or group briefing from an approved nonprofit budget and credit counseling agency. There is an exception for situations in which the debtor was not able to obtain a briefing within 5 days of the request or there are exigent circumstances (e.g. you call me on Friday afternoon at 4:30 and tell me that there is a foreclosure sale on Monday at 10:00 am). The briefing may be obtained 30 days after filing and an additional 15 days if a motion to extend is filed. It is very possible that such a briefing may be available online. The U.S. Trustee is charged with approving non-profit credit counseling agencies and financial management courses. The list of approved agencies is available at http://www.usdoj.gov/ust/eo/bapcpa/ccde/cc_approved.htm.
A debtor will not be entitled to a discharge unless they complete a personal financial management course. The Financial Management Course is intended to help the debtor identify and correct the financial mistakes that led to bankruptcy. The U.S. Trustee’s office is required to develop a financial management training curriculum to be tested in 6 judicial districts beginning no later than 270 days after enactment of the act and to continue for 18 months. The bankruptcy court may waive the requirement for credit counseling and/or attending a financial management course if the Court finds that the individual is unable to complete those requirements because of incapacity, disability, or active military duty in a military combat zone.
Notice to a Particular Address
Section 342 is amended to require service of a notice by the debtor to the address provided to the court by the creditor (if the creditor enters his appearance) or to the address provided in two communications sent to the debtor by a creditor within the 90 day period prior to filing. If the notice is defective, the monetary damage may not be awarded for a violation of the stay. It is unclear if this rule applies to notices served by the clerk (that are generated by the matrix prepared by the debtor).
Tax Return Copies
Section 521 requires that the debtor provides a copy of his most recent tax returns to the trustee and a creditor that requests a copy prior to the 341 meeting . The Wyoming trustees always require tax returns copies for 2002-2004 regardless. A transcript is permitted if the debtor is not able to file the return. The IRS is presently not charging for transcripts.
BAPCPA reverses the holding in In re West, 882 F.2d 1543 (10th Cir. 1989). In re West permitted the debtor to "retain and keep current." The debtor must reaffirm, redeem or surrender the collateral within 30 days after the 341 meeting. Failure to do so within 45 days after the 341 meeting results in a termination of the automatic stay. If a creditor violates the stay in the good faith belief that the Debtor failed to timely file a statement of intention or to take the action specified in the statement, recovery is limited to actual damages. Disclosures are required to be given to any debtor who reaffirms a debt. A temporary presumption arises that a debtor cannot afford a reaffirmation agreement if the debtor's income minus the debtor's expenses leaves insufficient funds to make the payments, unless the creditor is a credit union. If such a presumption arises, the court may disapprove a reaffirmation agreement, even if the debtor is represented by an attorney.
A chapter 7 debtor will be denied a discharge if he received a chapter 7 or 11 discharge within 8 years (the existing period is 6 years). In chapter 13, a debtor may not be granted a discharge if the debtor obtained a discharge in a chapter 7, 11 or 12 case in the last 4 years from the filing of the present case and two years if a prior chapter 13 case was filed. The debtor can file the chapter 13 although a discharge may not be obtained.
Section 362 is also amended to provide that if a 7, 11, or 13 case is filed within one year of the dismissal of any earlier case, the automatic stay terminates 30 days after filing unless a party in interest demonstrates that the second case was filed in good faith. If a second filing occurs within the same one year period, the automatic stay will not go into effect unless a party interest demonstrates that the filing was in good faith.
CPAs or licensed public accountants will audit 0.4% of all consumer cases. The debtor’s failure to cooperate is a ground for revocation of the debtor’s discharge. The Attorney General and the Judicial Conference are given 2 years to develop bankruptcy auditing standards. The auditing provisions become effective 18 months after enactment.