BAPCPA Analysis of Consumer Provisions - Michael Barnett, PA

¶1.1 Counsel is now permitted to sharing compensation with a public service attorney referral program operating in compliance with state and local laws regarding referral services and with all bar or other professional conduct rules regarding attorney acceptance of referrals.

§504(c) This section [limiting sharing of compensation] shall not apply with respect to sharing, or agreeing to share, compensation with a bona fide public service attorney referral program that operates in accordance with non-Federal law regulating attorney referral services and with rules of professional responsibility applicable to attorney acceptance of referrals.

¶1.2 Debt Relief Agency

¶1.21 Debtor’s counsel is a generally a debt relief agency, with the possible exception of pro-bono cases. §526 sets out the requirements all debt relief agencies (including debtor’s counsel) must follow.

Cases:

Georgia:

In re Attorneys at Law and Debt Relief Agencies, 332 B.R. 66 (Bankr. S.D. Ga. 2005). Judge Lamar W. Davis, Jr., Chief Judge of the Southern District of Georgia, has ruled that these provisions generally will not cover attorney admitted before his court. The Office of the US Trustee has appealed this order.

In the Middle District, Judge Hershner ruled that he did not have jurisdiction to determine whether debtor’s attorney qualified as Debt Relief Agency under BAPCPA in absence of some party threatening to enforce the DRA provisions against counsel. In re McCartney, 336 BR 588 (Bankr. M.D. Ga. 2006). Debtor’s attorney filed a request to determine counsel’s status, alleging that the DRA provisions of BAPCPA are unconstitutional as applied to attorneys practicing in the court, that the statutory structure indicated that attorneys were not DRA’s, and that legislative history indicated that the provisions were not intended to apply to attorneys. The US Trustee filed a response.

The Court initially determined whether Debtor’s counsel had met the burden of proof of showing that the motion involved a ‘case or controversy’ citing Wolff v. Cash 4 Titles, 351 F.3d 1348, 1353 (11^th Cir. 2003). In order to meet this requirement, the litigant must show ‘an invasion of a legally protected interest’ that is ‘concrete and particularized’ and ‘actual or imminent.’ The litigant must have suffered some threatened or actual injury that is subject to redress by a favorable ruling. The injury or threat of injury must be both real and immediate, not conjectural or hypothetical. Three elements are required to meet the case or controversy requirement: 1) the plaintiff must demonstrate ‘actual injury’; 2) the plaintiff must demonstrate a causal link between the challenged conduct and the injury; 3) it must be likely rather than speculative that the injury will be redressed by a favorable ruling.

Since no one has threatened to enforce the Debt Relief Agencies provisions against the counsel, counsel has not suffered any harm or injury and has not shown that he is at risk of suffering harm or injury. Thus the Court determined it lacked jurisdiction to determine whether the DRA provisions applied to counsel.

§101(12A)The term ‘debt relief agency’ means any person who provides any bankruptcy assistance to an assisted person in return for the payment of money or other valuable consideration, or who is a bankruptcy petition preparer under section 110, but does not include –

(A) any person who is an officer, director, employee, or agent of a person who provides such assistance or of the bankruptcy petition preparer;

(B) a nonprofit organization that is exempt from taxation under section 501(c)(3) of the Internal Revenue Code of 1986;

(C) a creditor of such assisted person, to the extent that the creditor is assisting such assisted person to restructure any debt owed by such person to the creditor;

(D) a depository institution (as defined in section 3 of the Federal Deposit Insurance Act) or any Federal credit union or State credit union (as those terms are defined in section 101 of the Federal Credit Union Act), or any affiliate of subsidiary of such depository institution or credit union; or

(E) an author, publisher, distributor, or seller of works subject to copyright protection under title 17, when acting in such capacity.

¶1.22 DRA’s must show in all advertisements for bankruptcy assistance or the benefits from bankruptcy directed to the general public (including direct mail, websites, and answering machines) that the services are with respect to bankruptcy relief under Title 11. Thus, advertisements simply stating that federal law may permit reduction of debt or stop foreclosures or the like must disclose that the referenced law is the bankruptcy code. The telephone answering machine message may need to be modified to disclose that the firm is involved in assisting individuals in bankruptcy; while at the same time making clear that the firm is not then offering to assist the caller in any matter. For a definition of bankruptcy assistance, see §101(4A) and related discussion. For further statutory expansion of advertisements subject to these sections, see §528(b).

§528(a) A debt relief agency shall-

(3) clearly and conspicuously disclose in any advertisements of bankruptcy assistance services or of the benefits of bankruptcy directed to the general public (whether in general media, seminars or specific mailings, telephonic messages, or otherwise) that the services or benefits are with respect to bankruptcy relief under this title; and

¶1.23 All advertisements subject to §528(a)(3) also must make the a statement substantially similar to the following in such advertisement. “We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.”

Cases:

Requirement is not unconstitutional under 5^th Amendment. Milavetz Gallop & Milavetz, PA v United States, __ U.S. ___, 130 S.Ct. 1324, 176 L.Ed.2d 79 (2010).

9^th Cir.

Requirement not unconstitutional under 1^st Amendment as false speech. Olsen v Holder, 402 F.Appx 311 (9^th Cir. 2010). §528 permits debt relief agencies to customize the required disclosure statement so long as it is ‘substantially similar’ to the statement in the statute, therefore appellee is not compelled to engage in false speech.

§528(a) A debt relief agency shall-

(4) clearly and conspicuously use the following statement in such advertisement: “We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.” or a substantially similar statement.

§528(b)(1) An advertisement of bankruptcy assistance services or of the benefits of bankruptcy directed to the general public includes –

(A) descriptions of bankruptcy assistance in connection with a chapter 13 plan whether or not chapter 13 is specifically mentioned in such advertisement; and

(B) statements such as “federally supervised repayment plan” or “Federal debt restructuring help” or other similar statements that could lead a reasonable consumer to believe that debt counseling was being offered when in fact the services were directed to providing bankruptcy assistance with a chapter 13 plan or other form of bankruptcy relief under this title.

(2) An advertisement, directed to the general public, indicating that the debt relief agency provides assistance with respect to credit defaults, mortgage foreclosures, eviction proceedings, excessive debt, debt collection pressure, or inability to pay any consumer debt shall-

(A) disclose clearly and conspicuously in such advertisement that the assistance may involve bankruptcy relief under this title; and

(B) include the following statement: “We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.” or a substantially similar statement.

¶1.24 DRA’s must perform any service that it informed an assisted person it would perform in connection with a case under this title. §526(a)(1). Thus, if a law firm’s advertisement states same day filing, and it cannot do this for a client that comes in at 5:00pm appointment with none of the required information, that may be a violation of this section. If the ad promises restoration of credit after the bankruptcy, or promises to wipe out debts, or stop foreclosures, or anything related to bankruptcy: and due to the circumstances of the individual case it doesn’t happen: counsel may have violated this section. Therefore it is critical to review any advertising to insure that nothing is promised that cannot be delivered in every case.

§526(a) A debt relief agency shall not-

(1) fail to perform any service that such agency informed an assisted person or prospective assisted person it would provide in connection with a case or proceeding under this title;

¶1.25 It is very important that neither the advertising from counsel nor the initial contact by the staff when the client calls to set an appointment constitutes an offer to provide bankruptcy assistance, since this triggers the additional requirement for the written disclosure of §527(a)(2). Thus, when the law firm gets the call from that client that keeps wanting assurance that counsel can help them before they come in for an appointment, the staff must be firm that the attorney will discuss whether the attorney can help at the appointment, and not before.

¶1.26 DRA’s cannot misrepresent, either directly or by material omission, what services will be provided by the firm and the benefits and risks from filing a bankruptcy. §526(a)(3). ‘Puffing’ or overly optimistic descriptions of what bankruptcy can accomplish, either in advertisements or in oral or written communications with ‘assisted persons’ could violate this section. Be sure you know what your staff is telling potential clients to get them in the door.

§526(a) A debt relief agency shall not-

(3) misrepresent to any assisted person or prospective assisted person, directly or indirectly, affirmatively or by material omission, with respect to –

(A) the services that such agency will provide to such person; or

(B) the benefits and risks that may result if such person becomes a debtor in a case under this title; or

¶ 2 Appointment with Attorney

¶2.1 Limitations on communications:

A DRA is not permitted to recommend that the client/potential client incur additional debt or recommend that such person pay an attorney or bankruptcy petition preparer for services in preparing the petition or representing them in a bankruptcy. Thus, while counsel may recommend that they file bankruptcy, counsel cannot recommend that they pay for it. Counsel may, of course, decline to file the case without payment, can describe the payment that counsel would require to file, but cannot specifically recommend paying such fee. Also, it would appear to be a violation to, for instance, recommend that the client trade in their car for a new car prior to filing. It would even seem to be a violation to recommend that they get insurance on the vehicle or house if any of the insurance is financed. There may be constitutional problems with this section. This section would also seem to prohibit putting a portion of the chapter 13 fee in the plan. Some courts have instituted a procedure determining in the confirmation order that payment of fees in the plan is not a violation of this section. This would then become res judicata preventing future problems in that case on the issue. More courts should be encouraged to emulate such procedure.

Limitation against advice to incur debt is applies only wihen the impetus of the advice to incur more debt is the expectation of the filing for bankruptcy and obtaining the attendant relief. Milavetz, Gallop & Milavetz, PA v. US, 170 L.Ed.2d 79, 130 S.Ct. 1324 (2010). The Bankrutpcy Code authorizes the court to decline to discharge fraudulent debts, §523(c)(2), or to dismiss or convert a case if it finds that granting relief would constitute abuse, §707(b)(1). Attorneys and professionals who give debtors bankruptcy advice must know of these provisions and their consequences for a debtor who in bad faith incurs additional debt prior to filing relief. §707(b)(4)(C) states that an attorney’s signature on bankruptcy filings shall constitute a certification that the attorney has determined that the filing does not constitue an abuse under §707(b)(1). A lawyer shall not counsel a client to engage, or assist a client, in conduct the lawyer knows is criminal or fraudulent, but a lawyer may discuss the legal consequences of any proposed course of conduct with a client and may assist the client to make a good faith effort to determine the validity, scope, meaning or application of the law.

§526(a) A debt relief agency shall not-

(4) advise an assisted person or prospective assisted person to incur more debt in contemplation of such person filing a case under this title or to pay an attorney or bankruptcy petition preparer fee or charge for services performed as part of preparing for or representing a debtor in a case under this title.

¶2.2 Written DRA disclosure regarding accuracy of information: within three days of the first date on which counsel offers to provide bankruptcy assistance the firm must provide the written disclosure required by §527(a)(2). This includes a statement that all information on the petition and later disclosures must be true, accurate, and complete; that all assets and liabilities must be disclosed with replacement value of such assets; income and expenses must be disclosed as required, and all information may be audited, and failure to accurately and completely disclose may result not only in dismissal but criminal sanctions. As to replacement value, the point has been raised that the ‘documents filed to commence the case’ is the voluntary petition, which does not show any values. Even a broader interpretation, to include schedules, §527(a)(2)(B) refers to replacement value ‘in those documents where requested’ but since the schedules do not request replacement value, this may be inapplicable.¹

§527(a)(2) to the extent not covered by 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 an 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 criminal sanction.

¶2.3 DRA disclosure re General Bankruptcy Information: at the same time as a DRA provides the §527(a)(1)/342(b)(1) disclosure, a DRA must provide the §527(b) disclosure. In practical terms, all of these should be provided initially to the potential client at the initial appointment with counsel. The section 527(b) disclosure notes that the client can file pro-se, can file with an attorney, or may be able to file with a petition preparer. Attorneys and petition preparers are required to provide a contract with the client showing what they will do and what it will cost. It notes that either the client or the attorney (but not the petition preparer apparently) should analyze the different cases and the clients eligibility for each, mentions some of the filing documents, reaffirmations, chapter 7 and 13 cases, and notes that petition preparers are not permitted to provide legal advice.

§527(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:

IMPORTANT INFORMATION ABOUT BANKRUPTCY ASSISTANCE SERVICES FROM AN ATTORNEY OR BANKRUPTCY PETITION PREPARER.

If you decide to seek bankruptcy relief, you can represent yourself, you can hire an attorney to represent you, or you can get help in some localities from a bankruptcy petition preparer who is not an attorney. THE LAW REQUIRES AN ATTORNEY OR BANKRUPTCY PETITION PREPARER TO GIVE YOU A WRITTEN CONTRACT SPCIFYING WHAT THE ATTORNEY OR BANKRUPTCY PETITION PREPARER WILL DO FOR YOU AND HOW MUCH IT WILL COST. Ask to see the contract before you hire anyone.

The following information helps you understand what must be done in a routine bankruptcy case to help you evaluate how much service you need. Although bankruptcy can be complex, many cases are routine.

Before filing a bankruptcy case, either you or your attorney should analyze your eligibility for different forms of debt relief available under the Bankruptcy Code and which form of relief is most likely to be beneficial for you. Be sure you understand the relief you can obtain and its limitations. To file a bankruptcy case, documents called a Petition, Schedules and Statement of Financial Affairs, as well as in some cases a Statement of Intention need to be prepared correctly and filed with the bankruptcy court. You will have to pay a filing fee to the bankruptcy court. Once your case starts, you will have to attend the required first meeting of creditors where you may be questioned by a court official called a ‘trustee’ and by creditors.

If you choose to file a chapter 7 case, you may be asked by a creditor to reaffirm a debt. You may want help deciding whether to do so. A creditor is not permitted to coerce you into reaffirming your debts.

If you choose to file a chapter 13 case in which you repay your creditors what you can afford over 3 to 5 years, you may also want help with preparing your chapter 13 plan and with the confirmation hearing on your plan which will be before a bankruptcy judge.

If you select another type of relief under the Bankruptcy Code other than chapter 7 or Chapter 13, you will want to find out what should be done from someone familiar with that type of relief.

Your bankruptcy case may also involve litigation. You are generally permitted to represent yourself in litigation in bankruptcy court, but only attorneys, not bankruptcy petition preparers, can give you legal advice.

¶2.4 DRA disclosure as to how to fill out information: Unless counsel provides the required information for the petition and schedules itself after a reasonably diligent inquiry, counsel must provide another disclosure to the client describing how the client should value assets at replacement value, determine income and expenses in accordance with §707(b)(2) and related calculations, how to complete the list of creditors including amount owed and how to determine the correct address to use; and how to determine exemptions.

An argument has been raised that while §527(c)(1) requires advice to the ‘assisted person’ of how to value assets at replacement value, that is irrelevant for filling out the schedules in the case. See ¶ 2.2 above.

A number of bankruptcy filing programs have an option to order credit reports and asset reports. This will probably be used more after BAPCPA. However, counsel will still need 6 months of statements from creditors (if possible) to determine the correct address for creditors, and should review payroll records to confirm the income and expenses.

§527(c) Except to the extent the debt relief agency provides the required information itself after reasonably diligent inquiry of the assisted person or others so as to obtain such information reasonably accurately for inclusion on the petition, schedules or statement of financial affairs, a debt relief agency providing bankruptcy assistance to an assisted person, to the extent permitted by nonbankruptcy law, shall provide each assisted person at the time required for the notice required under subsection (a)(1) reasonably sufficient information (which shall be provided in a clear and conspicuous writing) to the assisted person on how to provide all the information the assisted person is required to provide under this title pursuant to section 521, including-

(1) how to value assets at replacement value, determine current monthly income, the amounts specified in section 707(b)(2) and, in a chapter 13 case, how to determine disposable income in accordance with section 707(b)(2) and related calculations;

(2) how to complete the list of creditors, including how to determine what amount is owed and what address for the creditor should be shown; and

(3) how to determine what property is exempt and how to value exempt property at replacement value as defined in section 506.

¶2.5 Retention of DRA disclosures: A DRA is required to retain a copy of all the §527 disclosures for 2 years after the date on which the notice is given. It would seem advisable to have the potential client sign and date each notice, acknowledging receipt of a copy of each. Note that copies of all these forms must be retained whether or not the potential client ever retains the firm. The statute does not require that the original be retained, but rather just a copy, so presumably an electronic copy should suffice.

§527(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.

¶3 Contract:

¶3.1 Within 5 days of the first date on which a DRA provides any bankruptcy assistance services (ie any advice regarding bankruptcy) and prior to filing any case, the DRA must execute a written contract with the person explaining the services the agent will provide and the fee or charges for such services as well as the payment terms. It is critical to note this contract must be provided within 5 days of first making any recommendation to the potential client whether or not counsel is employed within the five days. Thus, best practice would seem to be to provide a separate DRA contract at the initial appointment. If counsel advertises free initial consultation the DRA contract may show no fee for initial DRA advice and also set out the fees and costs for representation in the bankruptcy itself, including contingent fees such as for adversary proceedings.

A copy of this contract must be provided to the petition client.

A strict reading of §101(4A) might require that if an attorney ‘covers’ a 341 or other hearing, that attorney must make a separate DRA contract with the client, and have the client sign it, except that such contract must be executed prior to the bankruptcy petition being filed. Presumably, this might apply if a law firm always has another attorney cover their 341s, but hopefully would not apply where counsel only rarely has other counsel cover a hearing due to illness or a scheduling conflict.

§528(a) A debt relief agency shall-

(1) not later than 5 business days after the first date on which such agency provides any bankruptcy assistance services to an assisted person, but prior to such assisted person’s petition under this title being filed, execute a written contract with such assisted person that explains clearly and conspicuously-

(A) the services such agency will provide to such assisted person; and

(B) the fees or charges for such services, and the terms of payment;

(2) provide the assisted person with a copy of the fully executed and completed contract;

§101(4A) The term “bankruptcy assistance” means any goods or services sold or otherwise provided to an assisted person with the express or implied purpose of providing information, advice, counsel, document preparation, or filing, or attendance at a creditors’ meeting or appearing in a case or proceeding on behalf of another or providing legal representation with respect to a case or proceeding under this title.

¶3.2 In determining the fee to be charged the debtor, the court is now required to consider whether the professional is board certified or has otherwise demonstrated ‘skill and experience’ in the field. Thus, board certified or counsel with demonstrated skill and experience may reasonably charge higher rates in their contract for services.

§330(a)(3) In determining the amount of reasonable compensation to be awarded to an examiner, trustee under chapter 11, or professional person, the court shall consider the nature, the extent, and the value of such services, taking into account all relevant factors, including –

(E) with respect to a professional person, whether the person is board certified or otherwise has demonstrated skill and expertise in the bankruptcy field;….

¶3.3 The contract with the client cannot waive any of the client’s right under §526 related to obligations of Debt Relief Agencies.

§526(b) Any waiver by any assisted person of any protection or right provided under this section shall not be enforceable against the debtor by any Federal or State court or any other person, but may be enforced against a debt relief agency.

¶3.4 Any contract between a DRA and client (including between bankruptcy counsel and client) that does not comply with the requirements of §§526, 527, and 528 is void and unenforceable except as by the client against the firm.

Case Law:

Michigan:

The provision of §526(c)(1) making a contract unenforceable against a debtor for noncompliance with §§526-528 only applies to requirements in those sections dealing with the terms of such contract, not with the timing of the execution of such contract. In re Humphries, 452 B.R. 261 (E.D. Mich. 2011). Debtor first met the law firm and attorney on November 17, 2009 where the options for bankruptcy were discussed. The first fee agreement was signed on 15 December 2009. A chapter 13 bankrutpcy was filed on 18 January 2010. The law firm filed a fee application in the chapter 13 on July 28, 2010 requesting fees and costs of $7,349.67 less a $1,000 retainer; which application included $520 in fees incurred prior to the initial contract. The trustee objected 1) to allowance of any fees prior to the signed contract, 2) to fees for review of the unsecured claims, 3) fees in the adversary proceeding caused by errors by the law firm, and 4) fees for review a transfer of a claim. The Bankruptcy Court raised the compliance with §526 sua sponte, found that §528(a) required a contract within five days of the intial advice, that such provision was a material requirement of the contract, and based on such failure the contract was unfenforceable under §526(c)(1). The firm filed a timely appeal of the decision.

The appellate court ruled that the bankruptcy judge could raise the §526(a)(1) issue sua sponte, under its authority to take any action or make any determination necessary to or appropriate to enforce or implement court orders or rules. The law firm argued that the initial meeting consisted solely of an explanation of the bankruptcy process, fees and costs, and did not constitute providing legal services. The appellate court did conclude that not all contacts with a law firm constituted the provision of legal services, however the Court found that the time entry in the fee application indicating initial preparation of the bankruptcy schedules contradicted such allegation.

The last argument by the firm was that the five day requirement was not a material requirement of the contract, citing In re Kinsman, No. 10-57364 (Bankr. E.D. Mich. Dec. 14, 2010). The Kinsman Court determined that if all the requirements in sections 526, 527, and 528 are material, then there is no purpose in the word ‘material’ in §526(c)(1). The appellate court ruled that the focus on materiality was in error.

The District Court ruled that §§526-528 were aimed at curbing ‘abusive practices undertaken by attorneys as well as debt relief agencies.’ Milavetz, 130 S.Ct. at 1332, n. 3. §526(c) prescribes the sanctions and remedies to be imposed if a debt relief agency runs afoul of these requirements. §526(c)(1) deals with contracts for bankruptcy assistance, which may not be enforced against a debtor if not in compliance. §526(c)(2) deals with the conduct of debt relief agencies (including law firms) themselves, and consequences if they fail to comply with the requirements. These sections are separate and distinct, but the bankruptcy court’s treatment of the five day provision in §526(c)(1) conflates the two provisions.

The five business day requirement of §528(a)(1) is directed at the conduct of a debt relief agency, not the contents of the agreement for services. The terms of the agreement are governed by the requirements of §§526-528 that prescribe the mandatory and prohibited terms of the agreement for services. The five business day requirement is not a requirement regarding the terms of the contract, and noncompliance is governed by §526(c)(2) rather than §526(c)(1). The authority to avoid contracts for services is triggered only when the contract does not comply with the material requirements of the statute. The bankruptcy court’s determination that the contract was unenforceable under §526(c)(1) was reversed. The District Court concluded that disallowance of the fees was too harsh a remedy for a technical violation of §528 and remanded the case for determination of the proper fee.

§526(c)(1) Any contract for bankruptcy assistance between a debt relief agency and an assisted person that does not comply with the material requirements of this section, section 527, or section 528 shall be void and may not be enforced by any Federal or State court or by any other person, other than such assisted person.

¶3.5 The notice given to debtors before filing describing the different chapters has changed to include notice regarding the types of services available from credit counseling agencies and warnings regarding the accuracy of the schedules. Since this includes credit counseling disclosures, and is required by the DRA (Debt Relief Agency) disclosure statute, counsel probably should provide this to potential clients prior to or at the time of the initial conference.

§327(a) A debt relief agency providing bankruptcy assistance to an assisted person shall provide –

(1) the written notice required by §342(b)(1),

§342(b) before the commencement of a case under this title by an individual whose debts are primarily consumer debts the clerk shall give to such individual written notice containing –

(1) a brief description of –

(A) chapter 7, 11, 12, and 13 and the general purpose, benefits, and costs of proceeding under each of those chapters; and

(B) the types of services available from credit counseling agencies; and

(2) statements specifying that –

(A) a person who knowingly and fraudulently conceals assets or makes a false oath or statement under penalty of perjury in connection with a case under this title shall be subject to fine, imprisonment, or both; and

(B) all information supplied by a debtor in connection with a case under this title is subject to examination by the Attorney General.

¶4 Sanctions for violation of DRA requirements

¶4.1 If counsel intentionally or negligently fails to comply with the DRA requirements, fails to file any required document resulting in dismissal or conversion of a case, or disregards the material requirements of the Federal Rules of Bankruptcy Procedure applicable to such DRA, then such counsel or firm would be liable to the client for all fees charged, actual damages, and fees and costs. A notice and hearing is required prior to the finding of such liability. Also, the chief law enforcement officer of the state may bring an action to enjoin any violations of §526 (and maybe §527 and 528 through §526(c)(1)) and to seek damages for such violation including fees and costs of such action. State and federal district courts shall have concurrent jurisdiction of such actions. Finally, the Debtor, US trustee, or the court on its own motion may seek an injunction and civil penalty if the court finds that a DRA intentionally violated this section, or engaged in a clear and consistent (though presumably unintentional) pattern or practice of violating this section. Thus, if counsel’s practices are not in conformity with sections 526-528, then they may lose all fees in multiple cases, and face litigation from everyone from their own client, the courts they practice before, and the state attorney general, even if such violation is unintentional.

§526(c)(2) Any debt relief agency shall be liable to an assisted person in the amount of any fees or charges in connection with providing bankruptcy assistance to such person that such debt relief agency has received, for actual damages, and for reasonable attorney’s fees and costs if such agency is found, after notice and a hearing, to have –

(A) intentionally or negligently failed to comply with any provision of this section, section 527, or section 528 with respect to a case or proceeding under this title for such assisted person;

(B) provided bankruptcy assistance to an assisted person in a case or proceeding under this title that is dismissed or converted to a case under another chapter of this title because of such agency’s intentional or negligent failure to file any required document including those specified in section 521; or

(C) intentionally or negligently disregarded the material requirements of this title or the Federal Rules of Bankruptcy Procedure applicable to such agency,

(3) In addition to such other remedies as are provided under State law, whenever the chief law enforcement officer of a State, or an official or agency designated by a State, has reason to believe that any person has violated or is violating this section, the State-

(A) may bring an action to enjoin such violation;

(B) may bring an action on behalf of its residents to recover the actual damages of assisted persons arising from such violation, including any liability under paragraph (2); and

(C) in the case of any successful action under subparagraph (A) or (B), shall be awarded the costs of the action and reasonable attorneys’ fees as determined by the court.

(4) The district courts of the United States for districts located in the State shall have concurrent jurisdiction of any action under subparagraph (A) or (B) of paragraph (3).

(5) Notwithstanding any other provision of Federal law and in addition to any other remedy provided under Federal or State aw, if the court, on its own motion or on the motion of the United States trustee or the debtor, finds that a person intentionally violated this section, or engaged in a clear and consistent pattern or practice of violating this section, the court may-

(A) enjoin the violation of such section; or

(B) impose an appropriate civil penalty against such person,

(d) No provision of this section, section 527, or section 528 shall –

(1) annul, alter, affect, or exempt any person subject to such sections from complying with any law of any State except to the extent that such law is inconsistent with those sections, and tehn only to the extent of the inconsistency; or

(2) be deemed to limit or curtail the authority or ability-

(A) of a State or subdivision or instrumentality thereof, to determine and enforce qualifications for the practice of law under the laws of that State; or

(B) of a Federal court to determine and enforce the qualifications for the practice of law before that court.

¶5 Initial checks

¶5.1 Check whether the debtor has ever filed before. For a national pacer search see https://pacer.login.uscourts.gov/cgi-bin/login.pl?court_id=00idx.

¶5.2 The time between the filing of a prior chapter 7 (or chapter 11) which resulted in discharge and a new chapter 7 has been expanded from 6 to 8 years. (No changes were made to §727(a)(9), thus the time between a prior chapter 12 or 13 and a new chapter 7 remains the same at 6 years or less, if 100% of unsecured were paid or it was the debtors best efforts and 70% of unsecured were paid). [Note, the 2005 Thompson-West Norton quick reference Code and Rules erroneously does not show this change]. Note the changes to the automatic stay as to any prior filings: §§362(c)(3); 362(c)(4).

§727(a) The court shall grant the debtor a discharge unless –

(8) the debtor has been granted a discharge under this section, under section 1141 or this title, or under section 14, 371, or 476 of the Bankruptcy Act, in a case commenced within 8 years before the date of the filing of the petition;

¶5.3 The time between a the filing of a prior 7, 11, or 12 which resulted in discharge and a new chapter 13 has been set to 4 years. The time between a prior 13 and a new 13 has been set for 2 years. This section would not apply if the prior case were dismissed prior to discharge. However, note the changes to the automatic stay as to any prior filings: §§362(c)(3); 362(c)(4).

Case Law:

Arkansas:

Section regarding chapter 13 refilings following prior chapter 13 discharge must be read literally, to prohibit discharge only if new case is filed within 2 years of prior order for relief which ultimately resulted in discharge, not 2 years from prior discharge, In re West, 352 B.R. 482 (Bankr. E.D.Ark. 2006). Prior chapter 13 was filed on 11/29/01, resulting in discharge on 3/22/05; current case was filed on 4/5/06. While recoginizing that it would be rare for a debtor to obtain a discharge in a prior chapter 13 filed less than 2 years before the subsequent case, the plain language of the statute sets this requirement.

Georgia:

The first case under this section found that it is not an eligibility requirement for filing a chapter 13. In re Lewis, 339 B.R. 814 (Bankr. S.D. Ga. 2006). J. Dalis. While §1328(f) prevents issuance of a discharge upon completion of the chapter 13 plan, it is not an eligibility provision. §109(e) establishes the debtor’s eligibility to be a debtor under chapter 13. The trustee also argued that since no discharge can be entered, the case must be considered to be filed in bad faith. However, BAPCPA did not change the good faith factors found in Kitchens v. Georgia Railroad Bank & Trust Company ( In re Kitchens), 702 F.2d 885 (11th Cir.1983). The availability of a discharge is only one factor in determining good faith. Finally, the trustee argued that dismissal is proper under §1307(c)(1), that the case constitutes an unreasonable delay prejudicial to creditors. However, requiring a creditor to wait in pursuing its claim against a debtor until conclusion of the case is not per se unreasonable in and of itself. While this is particularly true of 100% plans, the plan need not pay creditors in full if they are otherwise confirmable. As to secured creditors an orderly distribution of debtor's post-petition income to pay down pre-petition creditor obligations provides for adequate protection of creditor's pre-petition collateral interest and is far superior to a first come first paid race to the courthouse contemplated under non-bankruptcy law. Unsecured creditors have a better chance and more cost-efficient opportunity to be paid in a chapter 13 plan under court supervision than contemplated under available state debt-collection law. Merely because the chapter 13 debtor will not receive a discharge under an otherwise confirmable plan does not establish unreasonable delay that is prejudicial to creditors.

South Carolina:

The four year time period requirement between a prior chapter 7, 11, or 12 discharge and a new chapter 13 discharge is computed backwards from the filing of the later chapter 13 case. In re Ratzlaff, 349 B.R. 443 (Bankr. D.S.C. 2006). The Court rejected Debtor’s argument that the time was computed from the prior discharge to the chapter 13 discharge.

Virginia:

The fact that the prior case was initially filed under chapter 7, and subsequently converted to chapter 13 does not change the analysis: if a subsequent chapter 13 case is filed within 4 years of the date the chapter 7 was filed, it is not eligible for a discharge. In re Sours, 350 B.R. 261 (Bankr. E.D.Va. 2006).

§1328(f) Notwithstanding subsections (a) and (b), the court shall not grant a discharge of all debts provided for in the plan or disallowed under section 502, if the debtor has received a discharge –

(1) in a case filed under chapter 7, 11, or 12 of this title during the 4-year period preceding the date of the order for relief under this chapter; or

(2) in a case filed under chapter 13 of this title during the 2 year period preceding the date of such order.

¶6 Means Test

¶6.1 The means test does not apply, and the case may not be converted under §707(b)(2) if the debtor is a disabled veteran and the debts occurred primarily when the debtor was either on active duty or performing homeland defense activity.

§707(b)(2)(D) Subparagraphs (A) through (C) shall not apply, and the court may not dismiss or convert a case based on any form of means testing, if the debtor is a disabled veteran (as defined in section 3741(1) of title 38), and the indebtedness occurred primarily during a period during which he or she was –

(i) on active duty (as defined in section 101(d)(1) of title 10); or

(ii) performing a homeland defense activity (as defined in section 901(1) of title 32),

¶6.15 The means test does not apply if the debts are not primarily consumer debts.

Ohio:

In computing whether debts are business or consumer for application of §707(b) liability for leases should not be capped pursuant to §502(b). In re Mohr, 425 B.R. 457 (Bankr. S.D.Ohio 2010) (J. Walter). Debtor was liable on a long term lease for his business, which if counted in full, would make over 50% of his debts non-consumer. Court determined that it should use the initial threshold computations in the schedules in determining eligibility and applicability of the means test was appropriate rather than more extensive computations as required to ultimately determine amount of allowed claims. Upon filing the case the Debtor is obligated to accurately schedule debts as they exist upon filing, thus it is cannot be bad faith to schedule the total amount of liability on that date. Further, the statutory limit is only triggered by a postpetition event, ie an objection to the claim.

¶6.2 Next, determine the amount of monthly income, taking the average of the last 6 months ending on the last day of the month prior to filing, excluding social security (and certain rare war crime/terrorism benefits) income. The first issue is what constitutes ‘income’. While the bankruptcy code does not define this term, §101(10A)(A) distinguishes between ‘income from all sources’ and taxable income; this appears to reflect the Internal Revenue Code distinction between ‘gross income’ (26 USC §61(a)) and ‘taxable income’ (26 USC §63(a)). The Internal Revenue Code then sets out what is included in gross income, including gains on dealings with property, interest, rents, royalties, dividends, alimony and maintenance, pensions (26 USC §61(a)(1)-(11)), prizes and awards (26 USC §74), and unemployment compensation (26 USC §85); as well as what is excluded including gifts (26 USC §101), inheritances (26 USC §102), child support payments (26 USC §74(c)), and qualified foster care payments (26 USC §131)². On the other hand, §101(10A)(B) appears to include child support and foster care payments as income, which is specifically backed out of the income computations in §1325(b)(2). Thus courts will be left to decide how much if any of the Internal Revenue Code standards will apply.

Social security income which is not listed includes ssi payments to both adults and children, unemployment benefits may or may not be included if funded through social services block grants to states under title XX.¹ It also includes programs to provide supplemental income to World War II veterans, blind or disabled individuals age 65 or older.² But, at least one court has ruled that it does not include Railroad Retirement Act benefits, due to the antialienation language in the Railroad Retirement Act statute, and due to the railroad retirement act’s history and similarity with the social security act (see Scholtz), though the 9^th Cir BAP reversed the exclusion from CMI, but upheld the exclusion from computation of disposable income (presumably as a special circumstance deduction). However query whether the same analysis may apply to other antialienation statutes like that for VA benefits, 38 USC §5301.

It is also not entirely clear whether the non-spouse’s income is included in an individual case. Despite Reeves, cited below, the means test as now written includes the non-filing spouse’s income initially, then has a entry to remove so much of the income as is not contributed to household expenses (ie the non-filing spouse’s separate credit cards). Presumably, too high a deduction here would be subject to challenge. Income is defined as including only income received on a regular basis for household expenses. Thus, if a household member other than the joint filing spouse helps toward expenses, it is arguably only those funds paid toward household expenses and only if paid on a regular basis that this should be included.

Cases:

8^th Cir.: The antialienation language of 42 U.S.C. §407(a) prohibits the forced inclusion of past or future social security proceeds in the bankruptcy estate. In re Carpenter, 614 F.3d 930 (8^th Cir. 2010).

9^th Cir: (CA): Private disability insurance is included in CMI. Blausey v US Trustee, 552 F.3d 1124 (9^th Cir., 2009).

Reversing In re Scholz, 9^th Cir. BAP found that Railroad Retirement benefits are included in CMI, but excluded from calculations for disposable income. In re Scholz, 447 B.R. 887 (9^th Cir. BAP, 2011). §101(10A)(B) specifically enumerates types of income to be excluded from the means test, and railroad retirement income is not one of the sources of income excluded therein. While the Social Security Act (SSA) and the Railroad Retirement Act (RRA) share many similarities, there are substantial differences between them. Unlike the SSA, some benefits under the RRA function like a private pension plan. However, the Court agreed with the Bankruptcy Court that §231m of the RRA that prohibits anticipation of the RRA benefits prevents inclusion of the benefits in computing disposable income. The Court also noted it appeared likely that the omission of RRA benefits from the statutory exclusion from CMI could have been mere oversight by Congress, but noted it was not their job to correct Congressional error.

10^th Cir:

Court adopts ‘forward looking approach’ which modifies projected means test income over length of plan subject to debtor’s actual circumstances at the time of confirmation to determine applicable median income; but limits an adjustment to require a substantial change of circumstances. In re Lanning, 545 F.3d 1269 (10^th Cir. 2008).

California:

Railroad Retirement Act benefits are in lieu of social security income, drafting and purpose very similar to social security act, and includes antialienation language which has the effect of excluding such income from the means test. In re Scholz, 427 B.R. 864 (Bankr. C.D.Cal 2010). Debtor alleged that Railroad Retirement Act income from debtor was excluded from B22C as received under the social security act. The Court rejected this argument, but accepted the alternative argument. The court traced the history of the Railroad Retirement Act and the Social Security Act, which was very similar. The court also noted that 42 USC §407 providing bar against use of any legal process to reach social security benefits has been used by courts for some time to make them free from the reach of bankruptcy law; and therefore BAPCPA only clarified and confirmed existing law excluding such benefits rather than creating new laws. Since the Railroad Retierment Act has similar anti-alienation language, the same policy should apply to these benefits. Reversed In re Scholz, 447 B.R. 887 (9^th Cir. BAP, 2011).

CMI includes all income received during the 6 months prior to filing, even if earned before such time. In re Katz, 451 B.R. 512 (Bankr. C.D. Cal. 2011). Debtor was physician receiving a salary of approximately $27,638/month as well as quarterly bonuses, which are reasonably regular. The Debtor is separated from his spouse and has limited custody of his three children. He pays substantial child support and alimony. Debtor’s apartment exceeds the allowance under the IRS Standards for a family of four. Debtor claimed two vehicle expense allowances asserting that he leases a SUV for use with the children which allows limited mileage on the lease, and a Jetta for commuting to work. US Trustee filed motion to dismiss under §707(b).

The Debtor argued he should be entitled to omit the bonus payments received during the 6 months prior to filing in that they were based on work performed before the commencement of the six month period, since the language of the statute refers to funds received and derived during such period. The Court rejected this interpretation, finding that the test is money received during the six months, and derived simply refers to the period in which such calculation is made, not when such money was earned. The Court also ruled that the Debtor could not include in the CMI computations payments toward child support arrearages on the line for domestic support obligations, as §707(b)(2)(A)(ii) specifically excludes payments for debts, though such amount is allowed separately as a payment on a priority debt. Debtor did not provide adequate documentation of his other additional expenses, and the request to dismiss was granted.

Idaho:

Debtor’s post-confirmation social security disability income award is a basis for modification of plan by trustee notwithstanding exempt status of award and law excluding such income from reach of creditors. In re Hall, 442 B.R. 754 (Bankr. D.Idaho 2010). Debtor received $44,377.50 lump sum award, and $1,133/month award of social security disability after confirmation of the plan, of which all but $15,000 was spent prior to the hearing on the trustee’s motion to amend. The Debtors amended the budget to show increase in expenses accounting for virtually all of the $1,133/month. The court ruled that the increased social security disability income could be used for debtor’s basic needs, offsetting non-social security income thereby avoiding violation of the antialienation clause of 42 U.S.C 407; but since the expenses increased proportionately no increase in the monthly plan payment was required. However, the court did require payment of the balance of the lump sum award toward the plan.

Illinois:

Bankruptcy Court found that monthly loan forgiveness to employee, who as part of the initial employment contract obtained a loan a portion of which was forgiven each month he continued employment, did not constitute income during the six months prior to filing. In re Killian 422 B.R. 903 (Bankr. N.D.Ill. 2009). Court stated it was not bound by tax code’s definition of gross income, but can look to definitions in the tax code to clarify udefined terms in the Bankruptcy Code. Id. at 908. In determing whether an advance is a loan or an advance is whether at the time the advance was made the parties actually intended repayment. Id. at 910. The obligation must be uncontingent and not conditioned on a future event. Thus, under these facts the advance would have counted as income when initially made and does not constitute ongoing income during the employment contract.

Earned income tax credit is counted toward income both in CMI and on I & J, though may be exempt under Illinois law as public assistance benefit. In re Royal, 397 B.R. 88 (Bankr. N.D.Ill 2008). Below median income debtor listed in plan that they would turn over all tax refunds to trustee excluding earned income credits. Trustee objected both on good faith and disposable income grounds, and as to exemptions. Though below median income, debtor computed plan payments based in part on means test figures. The Court ruled that CMI under §101(10A) is sufficiently broad to include earned income credits, even though exluded from the IRS’s definition of income for tax purposes. The Court also noted that some of debtor’s expenses were unrealistically low, leading to a likelihood that the debtor was deferring expenses to pay with the earned income credit, and suggested amending the plan to reduce the monthly payment with an increase upon receipt of the tax credit.

Missouri:

In dicta in a pre-BAPCPA case, Judge Dow in Missouri indicated that the code seems to indicate that the spouse’s income should only be considered in a joint case. In re Reeves, 327 B.R. 436 (Bankr. W.D. Mo. 2005) (FN 7).

Montana:

Social security benefits excluded from §1325(b)(1)(B) disposable income test pursuant to pre-BAPCPA antialienation statute in the social security law: 42 USC §407, BAPCPA did not modify this exclusion. In re Welsh, 440 B.R. 836 (Bankr. D.Mont. 2010).

New York:

Court found that non-recurring income received within the 6 months prior to filing was included in disposable income computations, and could not be backed out as special circumstances. In re Cotto, 425 B.R. 72 (Bankr. E.D.N.Y. 2010). §101(10A) does not distinguish between income that is non-recurring and income that will be received on an on-going basis. A request to eliminate such income as a special circumstance flies in the face of Congresses clear intent to include income from all sources in CMI. Note that the timing of the filing of the case could have avoided this issue, and also chapter 13’s greater emphasis on on-going income also could result in lower payment in converted case.

Ohio:

CMI includes exemption pension income. In re Briggs, 440 B.R. 490 (Bankr. S.D.Ohio 2010). In filling out the means test, the Debtor excluded his Ohio state pension of $32,686/year. Debtor argues that being exempt, the income was not available for payment to his creditors and must be excluded from the means test. The Court rejected this argument, finding no reference to §522 in §707(b). Further, §101(10A)(B) specifically enumerates the income excluded from the means test, and omits any exclusion of exempt income.

Pennsylvania:

Trustee had burden of proof to show that domestic partner’s income should be considered in income computation of debtor when there is no legal obligation for combining assets or liabilities. In re Holmes, 496 B.R. 765 (Bankr. M.D. Pa. 2013).

South Carolina:

Debtors not required to devote social security income to plan repayment in order to confirm plan. In re Miller, 445 B.R. 504 (Bankr. D.S.C. 2011). Debtor received $588/month in social security benefits, and her spouse received $1,545/mo in social security benefits as well as $2,823/mo in VA disability benefits. The spouse resides in a nursing home for which the household bears no cost. Schedules I&J show excess income over expenses of $2,388/month. The plan proposes payment of $255/mo for 36 months for a 6% dividend to the $87,000 in credit card debt.

The trustee initially argued that the husband’s social security benefit was not ‘received by the debtor’ as required under 11 U.S.C. 522(d)(10)(A) and therefore must be included in CMI. The Court agreed with the Debtor that §101(10A)(A) & (B) excludes benefits received under the social security act; finding that §101(10A) was the more appropriate section to define CMI, and found that it was Congress’ intent to exclud all such benefits from the computation of CMI regardless of whether such benefits are personal to the debtor. Since such benefits are excluded from CMI they must necessarily be excluded from computation of the debtor’s disposable income under under §1325(b)(2).

The Court also cited the antialienation language of 42 U.S.C. §407(a) as a complete bar to forced inclusion of past or future social security proceeds in the bankruptcy estate, citing Carpenter. This limitation applies to any such income, not just that received by the Debtor.

The Court also questioned the wisdom of requiring a non-debtor spouse to contribute social security funds intended for the support and maintenance of such spouse toward a repayment plan to creditors.

The trustee also argued that the plan is not proposed in good faith. The Court found that the debtor was honest in disclosing her financial situation, and that the husband’s ill-health could result in a significant loss of income during the life of the plan. The Debtor is not attempting to retain luxury items, while paying a minimum dividend to unsecured creditors.

Washington:

To be included in CMI income must both be derived from and received during the applicable six month period prior to filing. In re Arnoux, 442 B.R. 769 (Bankr. E.D. Wash 2010). US Trustee filed motion to dismiss alleging that the debtor should have included money earned during the six month period that was received after the six month period. Debtor was paid every two weeks, and received 22 weeks of pay during the six month period. The US Trustee argued that the limiting phrase ‘during the six month period’ relates only to ‘derived’, and not to the word ‘received’, thus resulting in inclusion of all income earned within the six month period regardless of when it was received. The Court rejected this argument. First, the court found that the language of the statute is ambiguous (as shown by contradictory arguments by the US Trustee in prior cases). The Court found that the legislative history refers only to when the income was received, and not to when it was earned. Based on this history the Court concluded that the ‘during the six month period’ limitation applies to both receives and derived, and that only income both received and earned during the period is included in CMI.

§101(10A)(A) means the average monthly income from all sources that the debtor receives (or in a joint case the debtor and the debtor’s spouse receive) without regard to whether such income is taxable income, derived during the 6-month period ending on –

(i) the last day of the calendar month immediately preceding the date of the commencement of the case if the debtor files the schedule of current income required by section 521(a)(1)(B)(ii); or

(ii) (ii) the date on which current income is determined by the court for purposes of this title if the debtor does not file the schedule of current income required by section 521(a)(1)(B)(ii) and

(B) includes any amount paid by any entity other than the debtor (or in a joint case the debtor and the debtor’s spouse), on a regular basis for the household expenses of the debtor or the debtor’s dependents (and in a joint case the debtor’s spouse if not otherwise a dependent), but excludes benefits received under the Social Security Act, payments to victims of war crimes or crimes against humanity on account of their status as victims of war crimes, and payments to victims of international terrorism (as defined in section 2331 of title 18) or domestic terrorism (as defined in section 2331 of title 18) on account of their status as victims of terrorism.

¶6.23 Nonfiling Spouse Income expenses

Texas: When nonfiling spouse owned vehicles in his name, debtor could not use ownership deduction for vehicles in means test, but rather should house marital adjustment for spouse’s income. In re: Peggy A. Hall Debtor(s), No. 16-20057, 2016 WL 5794728 (Bankr. S.D. Tex. Oct. 4, 2016). Debtor does not discriminate by providing that non-debtor spouse pays debts in his name in full separately, even though plan does not provide for payment of her debts in full, and even though debts were incurred for household expenses. § 707(b)(2)(A)(ii) is unequivocal that “monthly expenses of the debtor shall not include any payments for debts.” 11 U.S.C. § 707(b)(2)(A)(ii).

Virginia: Mortgage payments by non-filing spouse properly included as marital adjustment where debtor and child live with non-filing spouse. In re Marian Leah Baker, No 17-32061-KLP; 2017 WL 5197120 (Bankr. E.D. Va. Nov 8, 2017). House was purchased prior to marriage, and both mortgages obtained prior to marriage. The plain language of §101(10A)(B) provides that Current Monthly Income (CMI) includes amounts paid by any other entity on a regular basis toward debtor’s or debtor’s dependent’s household expenses. Cases that disallow payments on debts from the marital adjustment do so to avoid double dipping on deductions. Since here debtor is not claiming both marital adjustment and secured debt payment, she is not double dipping. Also, since house was purchased prior to marriage and he alone is liable on mortgage, such expenses are not expenses of the debtor or her dependents. The trustee’s solution of including the income but also allowing a mortgage expense on form 122C-2 requires manipulating such form in a manner not envisioned by the rules committee that drafted the form. Line 33 of the ofrm only applies to debts secured by an interest in property that you own.

¶6.3 Compare debtors income to median family income reported by the census bureau for the ‘then most current year’ or, if not so reported, the last reported year as adjusted for the change in the consumer price index. For the census report see census. If the median income is less than the state average for the size of the household, then the court may not dismiss. See also requirements of §707(b)(6), which also must be met for any party other than the US Trustee to file a motion to dismiss. Subsection (B) states that the spouse’s income shall not be included if the case is not filed jointly, and if the debtors are 1) separated or 2) are living separate and apart other than to evade this section. Query whether there is a difference in the 2 standards, other than that if separated the motive does not matter. In determining household size, an issue may arise as to inclusion of college students who lives away from home most of the year. Arguably, if the permanent address of the student is still at home, and lives at home when not in school, and is at least partially supported when at college such student should be included.¹

North Carolina:

Court determined that household size is based on the economic unit of the family, ie individuals whose income and expenses are intermingled with that of the debtor. In re Morrison, 443 B.R. 378 (Bankr. M.D.N.C., 2011). Court included debtor’s boyfriend in household size since he had been paying the mortgage payment, even though they did not share a bank account or have any joint debts.

Debtor allowed household size of 11 where debtor had been supporting his girlfriend, their daughter, and the girlfriend’s eight other children for many years. In re Herbert, 405 B.R. 165 (Bankr. W.D.N.C. 2008). The Court distinguished this situation from where a debtor contrived or concocted a familial situation for purposes of the means test.

Ohio:

Debtors living with 2 dependent and 2 adult children, and 3 grandchildren allowed to claim family of eight where they supported all but one of the adult children; adult child who did not contribute toward household and did not receive assistance from Debtors excluded from household. In re Jewell, 365 B.R. 796 (Bankr. S.D.Ohio, 2007).

Viriginia:

In case involving family size for determination of applicable standards to waive filing fee in chapter 7, court examined US Trustee Programs published position that family size is debtor, spouse, and any dependants that debtor could claim under IRS dependency tests. In re Frye, 440 B.R. 685 (Bankr. W.D.Va. 2010). This position would require examination of the IRS dependency test found at IRS Publication 501. Publication 501 provides a six part test: 1) a relationship test; 2) an age test; 3) a residency test; 4) a financial support test; 5) a joint return test; and 5) a special test for a dependent child of more than one person. Each test must be met for a child to qualify as a dependent. The relationship test requires that h echild must be the son, daughter, stepchild, foster child, or descendant of any of them…of the filng taxpayer (but also may claim as qualifying relative-which does not require any relationship if child lived with taxpayer as a member of the household for the entire year and the relationship did not violate local law). The age test requires that the child be either a) under the age of 19 at the end of the year, or b) under the age of 24 at the end of the year and a full time student, or c) any age if permanently and totally disabled. To meet the residency test, the child must have lived with the parent for over half of the year. To meet the support test the child must not have provided more than half of his or her own support for the year. To meet the joint return test the child must show that it is not filing a joint return for the year. Finding these requirements met the court allowed her 19 year old daughters as dependants and members of her family.

Unmarried father of four children, which on average live four days per week time with the Debtor and the remainder with their mothers, allowed to claim household size of three for purposes of the means test. In re Robinson, 449 B.R. 473 (Bankr. E.D. Va. 2011). Debtor requires a three bedroom apartment in order to accommodate the children (all under age 15), one for him, one for the 2 sons, and one for the 2 daughters. The Debtor has never claimed any of the children as dependents on his tax returns, but hopes to claim two this year. The youngest son has medical problems requiring bi-weekly doctor visits, the Debtor being responsible for such costs. The Debtor initially claimed a household of one, but claimed some expenses from the IRS allowances for a household of five.

Courts have adopted three alternative tests to determine household size for purposes of the means test. The Heads-on-beds or Census Burea approach sets a household size as all the people who occupy a housing unit. The Internal Revenue Service approach uses approach under §707(b)(2)(A)(ii) restricting the household to the debtor, the dependants of the debtor, and the spouse of the debtor in a joint case in which the spouse is not otherwise a dependent. To determine whether a child qualifies as a dependent in this test the Court should examine IRS Publication 501. The Court declined these test, opting instead for the Economic Unit test, which it determined fell between the other two tests.

The Economic Unit test measures the number of individuals in a home that act as a single economic unit, regardless of familial relationship, citing Herbert and Jewell. In interpreting undefined statutory terms the court should use the definition which bests serves the goals of the statute in which the terms are found. The definition of household must be that which leads to the most accurate and realistic calculation of the debtor’s projected disposable income given the economic realities of the debtor’s family circumstances.

The Heads-on-beds approach overstimates the family size by including individuals who are not economically dependent on the debtor. The IRS dependent approach unnecessarily subordinates the Bankruptcy Code to the Internal Revenue Code, undercounting legitimate deductions due to a debtor that financially provides for individuals he does not claim as dependents.

The problems of the approaches are shown in the case at bar. Under the heads on beds approach, given that the children live only part time with the debtor, the test would be inconclusive. The dependency approach would subject the distribution to unsecured creditors to decisions made with the childrens’ mothers as to tax dependency.

Given the part time basis of the debtor’s support of the children, the Court found that each child can best be described as a fractional member of the household. As the four children spend four-sevenths of the week with the Debtor, they approximate two full time members in the aggregate. The Court also noted that while the family size of three may be appropriate for food expenses in the budget, given the necessity of the Debtor maintaining living space for five, the housing expense may well be based on a family of five.

§101(39A) The term ‘median family income’ means for any year –

(A) the median family income both calculated and reported by the Bureau of the Census in the then most recent year; and

(B) if not so calculated and reported in the then current year, adjusted annually after such most recent year until the next year in which median family income is both calculated and reported by the Bureau of the Census, to reflect the percentage change in the Consumer Price Index for All Urban Consumers during the period of years occurring after such most recent year and before such current year.

§707(b)(7)(A) No judge, United States trustee (or bankruptcy administrator, if any), trustee, or other party in interest may file a motion under paragraph (2) if the current monthly income of the debtor, including a veteran (as that term is defined in section 101 of title 38), and the debtor’s spouse combined, as of the date of the order for relief when multiplied by 12, is equal to or less than –

(i) in the case of a debtor in a household of 1 person, the median family income of the applicable State for 1 earner;

(ii) in the case of a debtor in a household of 2, 3, or 4 individuals, the highest median family income of the applicable State for a family of the same number or fewer individuals; or

(iii) in the case of a debtor in a household exceeding 4 individuals, the highest median income of the applicable State for a family of 4 or fewer individuals, plus $525 per month for each individual in excess of 4.

(B) In a case that is not a joint case, current monthly income of the debtor’s spouse shall not be considered for purposes of subparagraph (A) if –

(i)(I) the debtor and the debtor’s spouse are separated under applicable nonbankruptcy law; or

(II) the debtor and the debtor’s spouse are living separate and apart, other than for the purpose of evading subparagraph (A); and

(ii) the debtor files a statement under penalty of perjury –

(I) specifying that the debtor meets the requirements of subclause (I) or (II) of clause (i); and

(II) disclosing the aggregate, or best estimate of the aggregate, amount of any cash or money payments received from the debtor’s spouse attributed to the debtor’s current monthly income.

¶6.4 In determining whether an abuse exists under §707(b)(1), the court will examine the ‘means test.’ Counsel must run the means test prior to filing the case, and include a copy of the means test with the petition filing (see §707(b)(2)(C)). The test requires the computation of debtors monthly income as determined under §101(39A) above less allowed expenses in the four categories below, to come up with a monthly net available for creditors. If this figure is less than $100, no abuse is presumed. If the figure is greater than $166.67, then abuse is presumed. If between $100 and $166.67, then the debtors unsecured nonpriority claims are totaled and divided by 4. If the monthly available income x 60 is less than ¼ of the unsecured claims, no abuse is presumed. If the monthly available income x 60 is greater than ¼ of the unsecured claims, abuse is presumed.

The categories of allowed expenses are:

1) The applicable National and Local Standards issues by the IRS in effect on the date of the order for relief for the debtor, dependants, and spouse of the debtor. These standards are divided into Food/clothing, housing, and transportation. These are based on the monthly income of the debtor and the number of family members. To this total the debtor can add expenses (arguably only reasonable expenses) allowed as per the IRS Financial Analysis Handbook for health insurance, disability insurance, term life insurance (but not whole life), health savings accounts (for the debtor or any dependant), reasonably necessary expenses to protect the family from family violence, child care, court–ordered payments (including restitution as well as alimony and child support), medical expenses, dental expenses, taxes, other involuntary deductions from the paycheck, telephone and internet service¹ as well as accounting and legal fees, cell phones, student loans, repayment of loans made for payment of federal taxes, educational expenses, and professional association dues.² The food and clothing expense may be increased by 5% if the debtor demonstrates such increase is reasonable and necessary. There is a theory that the court cannot disallow these expenses since the statutory language allows ‘actual monthly expenses for the categories specified.’

The treatment of leased vehicles raises more issues. While the Internal Revenue Manual states as to the transportation allowance provided by the IRS states that if the taxpayer does not own a car, the standard public transportation amount is allowed, the manual also allows an ownership expense for leased vehicles.²

A more complicated situation arises if the debtor uses someone else’s car, a common situation for debtors. It would seem that Current Monthly Income would need to include car payments and contributions toward car expenses by a 3^rd party that the debtor uses; and consequently the debtor should be allowed an automobile allowance for the car expenses if the income is increased based on such contributions.²

Also allowed are any actual and necessary expenses for the care and support of elderly, chronically ill, or disabled household member (apparently whether or not related) or member of the debtor’s immediate family (apparently whether or not incapacitated, and including grandparents, grandchildren, and siblings) who is unable to pay for such reasonable and necessary expenses. Thus, it would seem if the debtor is assisting in supporting a grandparent, even if the grandparent is not living with the debtor, such expense may be allowed if the grandparent is needs such support. Query, if a family member is unemployed but cannot be proven to be unemployable, is that person unable to pay for such expenses?

This section allows a presumed expense of up to 10% of the projected plan payments for chapter 13 trustee administrative expenses. In actual practice this figure will almost always be negligible in the means test computation.

Private school expenses are allowed for each dependent child less than 18 years up to $1500/year if the debtor produces proof of such expense and a detailed explanation of why such expenses are reasonable and necessary, and why the expenses are not already accounted for in the standards allowed in the first paragraph. It is unclear how the debtor would prove whether or not the IRS standards include such expenses.

Additional housing and utilities expenses may be allowed if the debtor produces proof of their actual expenses and demonstrates that such expenses are reasonable and necessary.

Charitable contributions should still be deductible under §707(b)(1) though there should be evidence that such contributions did not commence with the preparation of the budget.

2) Payments due per contract on secured debts over the next 60 months, plus any other payments necessary in a chapter 13 to maintain possession of the debtor’s home, car, or other property necessary for the support of debtor and debtor’s dependants that is collateral for a debt (ie payments toward home arrearage, homeowners fees, insurance/taxes etc) over the next 60 months, all divided by 60. This would have to include payment toward any arrearage paid in the plan. Arguably this would also include any interest that accrued over the life of the plan, ie, on secured tax claims where there is no amortized payment due prepetition.¹

3) Payments to priority claims as of filing, divided by 60. DSO’s are priority, property settlements are not. This may provide an incentive to argue that a given obligation is a DSO so as to reduce net income under the means test. Attorneys fees to be paid in the plan would constitute a priority administrative expense, and so an argument could be made to include these, though since the means test specifically allows the chapter 13 trustee’s fees and does not mention attorneys fees paid through the plan, this argument may well fail.²

Note that the means test only applies to cases filed under chapter 7, not to cases converted from chapter 13 to chapter 7, even if the chapter 13 is filed after the effective date of BAPCPA. Of course, the case could still be subject to dismissal for §707(b)(1) bad faith.

Case Law

See ¶23.31

¶6.405 Housing Expense

4^th Circuit

Debtor allowed full allowance under national and local standards even if actual expense on house/car is less. Lynch v. Lackson, No 16-1358, 2017 WL 59011 (4^th Cir., Jan 4, 2017). Plain language of statute, as well as policy not to punish frugal debtors mandate result.

Florida

Debtor limited to local standard for rental expense despite higher actual expense. In re Prestwood, 451 B.R. 180 (Bankr. N.D. Fla. 2011) (J. Killian). In Ransom v. FIA Card Services, ___ U.S. ___, 131 S.Ct. 716, 727, 179 L.Ed.2d 603 (2011) the Supreme Court noted that if a debtor’s expenses exceeded the applicable allowance, the debtor could claim only the amount allowed under the Applicable National and Local Standards. The debtors claimed a rent expense of $1,750 when the IRS allowance for a family of 2 in this locality is only $943. While Debtors could argue under Hamilton v. Lanning, __ U.S. __, 130 S.Ct. 2464, 2478, 177 L.Ed.2d 23 (2010) that the Court should consider the additional rent expense incurred during the life of the plan, the Court believes this refers to expenses not contained in the local IRS Standards. The Court does not have discretion to account for changes in the debtor’s expenses when those expenses are of the type found in subpart B of the B-22C form.

Illinois

Debtor allowed full housing expense deduction on means test even though has no mortgage payment. In re Curry, 537 B.R. 884 (Bankr. C.D. Ill, 2015). Internal revenue manual has only one standard for housing and utilities, not broken down as on the means test into mortgage and non-mortgage deductions, thus contradicting trustee’s argument that utilites are included in the non-mortgage expense category. Since debtor actually incurs expenses for property taxes and homeowners insurance, this is all that §707(b)(2)(A)(ii)(I) requires for allowance of the full housing deduction.

North Carolina

Debtor allowed full housing and car expenses deduction on means test even though the actual expenses were less. In re Jackson, 537 B.R. 238 (Bankr. E.D. N.C., 2015). Trustee argues that official form is incorrectly designed, but Court treats the form as an advisory opinion of how §707(b)(2)(A)(iii) should be interpreted. Judicial conference creating form B22C was authorized by 11 U.S.C. 331 and pursuant to Rule 9009 of the FRBankrProc such forms shall be observed and used with alterations as may be appropriate.

¶6.41 Vehicle Operating Allowance

Florida:

Can claim operating expense for 3^rd car used by debtor’s daughter where necessary to provide for family’s welfare or production of income. In re Johnson, 454 B.R. 882 (Bankr. M.D. Fla. 2011) (J. Williamson). Ch 7 case, also notes allowance of $200 old car deduction without objection by US Trustee. Daughter enrolled in dual high school/college program requiring travel between two schools, and to provide daily transportation to younger sisters to medical appointments, school, and other activities.

Illinois:

Above median income Debtor with older high mileage vehicle not entitled to additional $200 operating expense as allowed in Internal Revenue Manual, and not allowed deduction for 2^nd vehicle that barely runs and has negligible value. In re Vandyke, 340 B.R. 836 (Bankr. C.D. Ill. 2011). The Debtor who is married but filed individually, owns both a 2008 Pontiac G6 subject to a lien, and a 1994 Chevy Beretta with 145,000 miles which does not run. On an amended form B22C debtor claimed an ownership expense for the Pontiac and an increased operating expense on the Beretta of $200. The Trustee objected to the increased operating expense on the Beretta.

The Court looked to the Ransom decision, particularly the advise that while the Code does not incorporate the IRS guidelines, courts may consult this material in interpreting the National and Local Standards. Ransom v. FIA Card Services, ___ U.S. ___, 131 S.Ct. 716, 726, 179 L.Ed.2d 603 (2011). The Internal RevenueManual allows an additional monthly operating expense of $200 for vehicles over six years old or which have over 75,000 miles, IRM §5.8.5.20.3(3) and (5). The Debtor cited the Statement of the US Trustee Program Position on Legal Issues Arising Under the Chapter 13 Disposable Income Test and to the advisory committee notes on the means test forms. The Court indicated that the US Trustee’s position would be given no weight in the case at bar. The allowable expenses are those set forth in the National and Local Standards. Ransom precludes resort to the guidelines because the additional operating expense dirctl contradicts the language of the Bankruptcy Code.

The practicalities of allowing additional expense differ in the IRS negotiations with a delinquent debtor and a debtor in bankruptcy. If the IRS agent allows an additional deduction, it simply takes longer for the taxpayer to pay the delinquent taxes, while a bankruptcy deduction is the one and only opportunity for most creditors to recover their claims. The appropriate method for accounting for unanticipated car repairs or the need to replace a vehicle is not to increase the monthly expense in the means test but to permit modification of the plan. Likewise the expense cannot be allowed in the ‘special circumstances’ category as debtor is unable to itemize each additional expense, which must be actual and not speculative.

The debtor’s non-filing spouse makes payments on another truck and motorcycle. These expenses are deducted from the income computed to be paid to creditors, and no deduction is permitted on B22C for the vehicles as the Debtor has no ownership interest in them. As married couples are only allowd deductions for two vehicles, the deduction for the Beretta is improper.

Texas:

In re Hardacre, 338 B.R. 718 (Bankr. N.D. Tex. 2006) operating expense for 2 cars for joint debtor was $425 rather than doubling the single allowance of $332.

In re Lara, 347 B.R. 198 (Bankr. S.D. Tex. 2006). In determining debtors were limited to $425 operating allowance, the court cited the National and Local Standards from the IRS manual as made applicable by §707(b)(2)(A)(ii)(I).

¶6.42 Charitable Contributions

New York:

Court disallowed deduction for charitable contributions in chapter 13 means test. In re Diagostino, 347 B.R. 116 (Bankr. N.D.N.Y. 2006). (May be reversed legislatively). Debtors scheduled $100/month for charitable contributions. §1325(b)(2) requires use of §707(b)(2)(A) and (B) to determine debtor’s reasonable expenses if the debtors are above median income. Since charitable contributions are not in the IRS standards, nor in one of the specific allowable subsections in the statute, they could only be allowwed under ‘other expenses.’ To be allowed here, the must provide for the health and welfare of the taxpayer andor his or her family or must be for the production of income. Charitable contributions are necessary if it is a condition of employment or meets the necessary expense test. Citing Internal Revenue Manual §5.15.1.10. Since these conditions are not met, the expense cannot be allowed.

¶6.43 Allowance of secured payments not to be continued

9^th Cir. BAP

Chapter 13 above-median income debtor not entitled to deduct 2^nd mortgage payments on mortgage to be stripped in chapter 13 plan, since virtually certain as of confirmation that payments would not be continuing on mortgage. In re Kramer, 2014 WL 818942 (9^th Cir. BAP, 2014). The debtors cited Morse v. Rudler (In re Rudler ), 576 F.3d 37 (1st Cir.2009), in which the First Circuit held that a chapter 7 debtor is permitted to deduct mortgage payments under § 707(b)(2)(A)(iii)(I) when calculating disposable income on Form B22C for purposes of means testing, despite the fact that the debtor intended to surrender his home to the mortgagee and would not be making these payments. Appellate panel disagreed based on forward looking approach to means test required by Hamilton v. Lanning, 560 U.S. 505, 130 S.Ct. 2464, 177 L.Ed.2d 23 (2010), and Ransom v. FIA Card Servs., N.A., ––– U.S. ––––, 131 S.Ct. 716, 178 L.Ed.2d 603 (2011). While §707(b) may permit the deduction, §1325(b)(1) and Lanning require exclusion of the deduction for the chapter 13 means test. post-Lanning, the starting point for determining projected disposable income for above-median debtors is not the “net monthly income” calculated on Schedule J, but the “disposable income” calculated on Form B22C under the statutory formula.

Alabama:

The court rejected allowance of secured payments on a means test when such payments would avoided by surrender of the collateral in the chapter 13 plan. In re Love, 350 B.R. 611 (Bankr. M.D.Ala. 2006). §1325(b)(1)(B) requires debtor to pay all of their projected disposable income. One would not project future secured payments on surrendered collateral. Recognizing that this approach results in a logical inconsistencey of matching historyical income with future expenses; the court determined this was a more accurate reding of the Code.

California:

In chapter 13, deduction not permitted for payments on liens where there is no equity remaining after more senior liens. In re Reyes, 2009 WL 567185 (Bankr. C.D.Cal 2009). Debtors listed 2^nd mortgage payment of $813/month on B22C but not on schedule J. Chapter 13 trustee objected under best interests test of §1325(b)(1)(B).

In chapter 13 case, deduction on means test for mortgage to be stripped is not permitted. In re Grant, 423 B.R. 420 (Bankr. S.D. Cal 2010). Means test included deduction for 2^nd mortgage when plan provided for stripping this mortgage. Court rejected debtor’s argument to use a ‘snapshot in time’ in computing the means test. Court also found that debtor argued mortgage was wholly unsecured (as required to strip it) and therefore it was not a secured claim for purposes of deduction of on-going payments contractually due during the 60 months under §707.

Florida:

In Chapter 7 Debtors may include means test expense for .mortgage payment on house to be surrendered. In re Ralston, 400 BR 854 (Bankr. MD Fla. 2009) (J. Williamson). Court indicated this was emerging majority position. Situation in chapter 13 may be distinguished due to different policy concerns in chapter 13. The language of the statute, payments that are scheduled as contractually due, is not ambiguous. To assign a special meaning in bankruptcy is inconsistent with the fact that no reference is made in the statute to the schedules, nor is there any schedule to require the listing of payments contractually due. Payments remain contractually due on the petition date despite the debtor’s intent to surrender the property. In chapter 7, the means test is a snapshot of the debtor’s situation at the time of filing, and is in the nature of a mechanical formula that often relates very little to the actual financial circumstances of the debtor. The bulk of the alloweable deductions are fixed amounts based on the IRS national and local standards rather than actual expenses. As a mechanical formula, it is appropriate that deductions should be a bright line measurement rather than requiring courts to examine the facts and circumstances of ech case. Court also determined that debtors are allowed car allowance despite not owing money on vehicle.

Chapter 13 Debtor not entitled to include on means test payments to secured creditors on property being surrendered. White v. Waage, 440 B.R. 563 (M.D. Fla. 2010) (J. Kovachevich). The Debtors argued 1) that §1325(b) requires that the court rely exclusively on the means test when computing the minimum chapter 13 payment for above-median income debtors, and 2) that the court does not have discretion to thwart the means test computations by use of a good faith justification to require higher payments. The Debtor included in the means test payments for furniture which they did not intend to retain. The Bankrupcy Judge found the means test to be a forward looking concept, showing payments the Debtors will be required to pay over the life of the chapter 13 plan. Hence, the filing of a plan based on a means test which included expenses which were not to be continued shows violation of the requirement of §1325(a)(3) that a plan be proposed in good faith. When the Debtors failed to file an amended plan conforming with the Bankruptcy Judge’s ruling the case was dismissed and the Debtor’s appealed to the District Court.

Judge Kovachevich examined the Kitchens [In re Kitchens, 702 F.2d 885, 888 (11^th Cir. 1983)] factors in determining good faith, stressing that the reasoning which focused only ont eh simple arithmetic of 11 U.S.C. 1325(a)(4) neglected the importance of the general good faith requirement of 11U.S.C. 1325(a)(3). 702 F.2d at 888. While BAPCPA added a required that the petition be filed in good faith, it did not change the requirement that the chapter 13 plan be filed in good faith. The purpose of chapter 13 is to repay the debtor’s creditors to the fullest extent possible. In re Waldron, 785 F.2d 936 (11^th Cir. 1986). If the court discovers unmistakable manifestations of bad faith the case should be dismissed. Such manifestations need not be based on actual fraud o, scienter, or an intent to defraud, bur rather simply require the court to condone the abuse of the bankruptcy process.

While good faith has no role in assessing whether the income paid into the plan is sufficient, it and the Kitchen factors remain relevant to the confirmability of the plan. Inclusion of an amount for surrendered collaterail in debtor’s calculations of amounts reasonably necessary to be expended without the present intent to pay such expenses amounted to fraud, and dismissal was warranted.

Missouri:

Debtors had ceased payments on the vehicle prior to filing, and stated an intent to surrender the vehicle on the statement of intentions. Debtor’s cited In re Walker, 2006 WL 1314125 (Bankr. N.D. Ga., 2006) for the proposition that §707(b)(2)(A)(ii)(I) allows expenses in effect on the date of the order of relief regardless of the debtor’s intent to surrender. The Court cited the Internal Revenue Manual’s requirement that an ownership expense is only allowed for the purchase and/or lease of a vehicle. The Court also cited the IRS Collection Financial Standards for the proposition that the ownership costs provide the maximum allowance for the lease or purchase of up to two automatobiles if allowed as a necessary expense.

West Virginia

When a secured claim is being bifurcated and paid through the plan, the allowable deduction on the means test in not the contractual due payments, but the payments to be actually paid on such secured claim in the plan. In re McPherson, 350 B.R. 38 (Bankr. W.D.Va. 2006). The over-median income Debtor scheduled the $67.60/month contract payments to Best Buy in the means test, and the trustee objected arguing that the expense attributable to the secured claim under the plan would be $1.82/mo. Projected disposable income means the projected current monthly income less rojected amounts reasonably necessary to be expended for support, with the latter determined under §707(b)(2)(A) & (B). The term ‘contractually due’ does not carry the same meaning in a chapter 13 case as in a chapter 7. The chapter 13 plan constitutes a new agreement between the debtor and each secured creditor. The obligation under the plan is substituted for the original contract with the creditor. Based on the plan, there are no amounts contractually due on Best Buy after bifurcation, therefore only the amount allocated under the plan payment should be used in the means test. Disagreeing with In re Walker, 2006 WL 1314125 (Bankr. N.D.Ga. 2006) and In re Barr, 341 B.R. 181 (Bankr. M.D. N.C. 2006).

Wisconsin

Chapter 13 Debtors entitled to deduction ongoing payments on vehicle to be surrendered. In re Dionne, 2009 WL 1024094 (Bankr. WD Wis, 2009). The fact that debtors intended to surrender the vehicle did not change the fact ath payments were ‘amounts scheduled as contractually due’ on the petition date. This date is the critical date to determine both whether the case is presumptively abusive and whether the proposed plan satisfies the projected disposable income requirements.

¶6.44 Vehicle Ownership Allowance

US Supreme Court

On 11 January the Supreme Court held that individuals in chapter 13 could not claim the car ownership allowance in the means test unless they had loan or lease payments on the vehicle. Ransom v. F.I.A. Card Servs. N.A., 131 S.Ct. 716 (US, Jan 11, 2011). With only Judge Scalia dissenting, the court determined that applicable standards referred to the Collection Financial Standards, which, while not incorporated into the statute, should be referenced in interpreting the statute. The court also noted the possibility of a debtor financing a junk car just prior to filing in order to take advantage of the ownership allowance, though indicated that the remedy for such an event would be for a creditor could seek modification of the plan once such vehicle was paid off.
      This leaves a few possible solutions for debtor's counsel in preparing cases. If the debtor is unable to afford the fees to file bankruptcy, it might be possible for the debtor to borrow such fees, either in the open market or even through relatives, and give a lien on the vehicle as security for such debt. Advice would have to be included as to the possibility of the trustee challenging this approach on a good faith basis, and BAPCPA's prohibition against advising debtor's to incur debt must be kept in mind, but in certain circumstances Courts may find this approach necessary. Also, if the debtor has an older vehicle that is paid off, that is likely to require substantial repairs during the case, they may in good faith determine that they could not afford both the higher repair bills associated with the older vehicle and the high court payment required under the means test, and determine that the best way to make a chapter 13 plan feasible is to trade it in on another financed vehicle with as low a payment as possible. Under either approach counsel must be mindful of §526(a)(4)'s prohibition against advising debtors to incur debt.
      The other approach, which would also be applicable to cases filed prior to the decision, is to file repeated modifications of the plan for unanticipated car repairs, seeking to reduce the payment to the trustee; or alternatively to seek to modify the plan if repairs are unaffordable to allow financing of a vehicle with lower repair costs, and consequent reduction of the required payment to the trustee with a new B22C.
      The decision is likely to lead to more litigation over the means test and post-petition modifications of the test, and likely to result in an overall lower success rate of chapter 13 bankruptcies.

7^th Cir.

Debtors may take vehicle ownership expense deduction in means test despite not owing any money on vehicle. In re Ross-Tousey, 549 F.3d 1148 (7^th Cir. 2008). US Trustee filed motion to dismiss under §707(b)(2) for the means test and §707(b)(3)(B) ‘totality of the circumstances.’ The district court reversed the bankruptcy court’s ruling in favor of the Debtors, the district court basing its decision solely n §707(b)(2). The 7^th Circuit reversed, and remanded for further proceedings under §707(b)(3)(B). Debtors acknowleged no special circumstances. Court adopts plain language line of cases that ‘applicable’ in applicable montly expense amount refers the the debtor’s geographic region and number of cars, regardless of the actuality of such expense. In order to give plain meaning to all the words of the statute, the term ‘applicable monthly expense amont’ cannot mean the same thing as ‘actual monthly expenses.’ Under the statute, the actual expenses are only relevant with respect to the IRS ‘other necessary expenses.’ This approach also makes sence given §707(b)(2)(A)(ii)(I)’s section prohibiting inclusion of any payments for debts in the monthly expenses. The statute makes reference only to the ‘amounts specified’ in the local standards rather than incorporation of the Internal Revenue Manual or the Fianciail Analysis Handbook. This approach was included in a prior version of the bill and was subsequently removed from the final version. Further, it would be impracticable to consider the broad discretion given to revenue agents by the IRM in applying the bright line test that was intended to eliminate judicial discretion. Policy consideration further support this determination, as ownership expense include insurance, depreciation, licensing fees and taxes. Limiting the allowance to debtors who have a car payment, however small, would be arbitrary and capricious.

9^th Cir.

Debtor allowed vehicle ownership expense despite vehicle not titled in her name where she had use of the vehicle and actually made the payments to the secured creditor on car titled in sister’s name. In re Drury, No. 2:15-BK-17125, 2016 WL 4437555 (B.A.P. 9th Cir. Aug. 23, 2016). BAP reversed bankruptcy court’s disallowance of expense and determination that filing was abusive under §707(b)(2). Nothing in the Bankruptcy Code or in the IRS Collection Financial Standards suggests that debtors only may claim as local transportation expenses car loan or lease payments they make for which they are personally liable. In fact, the language of the statute points in the opposite direction: “Notwithstanding any other provision of this clause, the monthly expenses of the debtor shall not include any payments for debts.” Id. at *6. Nor does Drury's lack of title to the automobile persuade us otherwise. We do not read the Local Standards' reference to car “ownership” expenses as making ownership of the automobile essential to claiming this transportation expense. In order to claim this transportation expense, the key determinant is whether the debtor makes a car lease payment or a car loan payment. Ownership of the car is no more essential to the necessity of this expense than a legally enforceable debt. Id.

Delaware:

Debtor may deduct standard vehicle ownership expenses even though nothing is owed on vehicle. In re Fowler, 349 B.R. 414 (Bankr. D.Del. 2006). US Trustee moved to dismiss case on basis that debtor failed means test due to their allegation that ownership allowance was only available if money was owed on vehicle. The Court cited the National and Local Standards refered to by §707(b)(2)(A)(ii)(I); and the Financial Analysis Handbook containing instructions for analyzing th taxpayer’s financial condition to help IRS field agents determine appropriate case resolution. Under this handbook, the taxpayer is allowed the full amount of the National Standards deductions, regardless of their actual expenses. 5.15.1.8 ¶2. For the Local Standards however, the taxpayer is allowed the local standard or the amount actually paid, whichever is less.

The Court begins with the language of the statute. The plain language of §707(b)(2)(A)(ii)(I) provies that “[t]he debtor’s monthly expenses shall be the debtor’s applicable monthly expense amount specified under the … Local Standards.” There is no reference in that language to the use of the Local Standards as a cap. The fact that Congress did not use the limiting language as provided in the Internal Revenue Manuel evidences that it did not intend the Local Standards to apply as a cap. This is further supported by the fact that the same sentence in §707(b)(2)(A)(ii)(I) Congress expressly provides that a debtor would be entitled to ‘catual monthly expenses’ for Other Necessary Expenses. The use of ‘actual’ with respect to Other Necessary Expenses and ‘applicable’ with respect to the National and Local Standards must mean that Congress intended two different applications.

Further, the legislative history supports the debtor’s interpretation. A prior version of BAPCPA which was not passed defined projected monthly net income to require a calculation of expenses to be determined under the Internal Revenue Service financial analysis. H.R. 3150, 105^th Congress (1998). The fact that this was changed from using the IRS financial analysis to the amount allowed under the National and Local Standards evidences Congress’ intent that the cCourts not be bound by the financial analysis contained in the Internal Revenue Manual.

Florida

Ownership expense allowed despite no debt owed. In re Ralston, 400 BR 854 (Bankr. MD Fla. 2009). The statute uses the term applicable rather than actual. The limits in the Internal Revenue Manual are not in the statute, and are used inconsistently with the rest of the means test. A prior version of the statute specifically referred to the Internal Revenue Manual, but such reference was removed in the statute as passed. Denying the expense to debtors that owned their vehicles outright would lead to arbitrary and unfair results.

Applicable in ownership deduction statute refers to factors listed in the IRS local standards rather than the actual expense of the debtor, therefore allowance applies when no debt is owed on vehicle. In re Bentley, 400 BR 848 (Bankr. MD Fla. 2008) (J Funk). The ownership cost table in the local standards is based on the number of vehicles owned, not whether any debt is owed on the vehicle. Since §707(b)(2)(A)(iii) was enacted to give a separate deduction for the actual car payments, the allowance deduction must be read as meaning something other than the actual payment in order not to read the two provisions as redundant. Use if the Internal Revenue Manual would be inconsistent with the wide discretion used by revenue agents in determining a taxpayer’s ability to pay. This is in accord with policy considerations allowing debtors a deduction for ownership expenses such as depreciation, licensing, insurance and taxes. All evehicles incur ownership expenses regardless of whether paid off, financed, or leased.

Indiana

Asserting that it is following the majority position, Indiana bankruptcy court found that car ownership allowance is permitted only if money is owed on vehicle. In re Hunt, 400 BR 662 (Bankr. S.D. Ind, 2008). Court indicated that result was consistent with both the Code and BAPCPA’s purpose in requiring above-median income debtors to pay more to unsecured creditors.

New York

Single above median income debtor with two vehicles on which she makes two car payments is entitled to vehicle ownership expense for both vehicles. In re Joest, 450 B.R. 381 (Bankr. N.D.N.Y. 2011). The trustee objected alleging that it was not necessary for the single debtor with no dependants to keep and pay for two vehicles. Pursuant to Hamilton v. Lanning, __ U.S. __, 130 S.Ct. 2464, 2478, 177 L.Ed.2d 23 (2010) the Court is required to take post-petition changes to a debtor’s income into account to the extent such changes are known or virtually certain as of the time of confirmation. However, the decision is limited to those sections of the Bankruptcy Code that Congress did not explicitly modify. Lanning acknowledged that the term ‘amounts reasonably necessary to be expended’ is newly defined, and only certain specified expenses are included. Id. a 2471. The expenses for car ownership is a ‘newly defined’ expense as mended in §§707(b)(2) and 1325(b)(3). The amendment signals Congress’ intent to modify court’s ability to independently access the reasonableness of this defined expense. Moreover, §1325(b)(3) requires the Court to determine reasonable necessary expenses in accordance with §707(b)(2) by using the IRS standard amounts that are ‘applicable’ to her.

This leaves the issue of whether the Court has discretion to deny confirmation where the debtor is directed under §1325(b)(3) to claim expenses in accordance with §707(b)(2). In Ransom v. FIA Card Servc. N.A., ___ U.S. ___. 131 S.Ct. 716, 724, 178 L.Ed.2d 603 (2011) the Supreme Court determined that the ‘applicable’ expense is appropriate only if the debtor has costs corresponding to the category covered by the table, ie onl if the debto would incur that kind of expense during the life of the plan. Based on Ransom, whether an above median income debtor is permitted to claim the vehicle ownership cost deduction depends on whether the debtor is actually incurring costs associated with the aquisition of the vehicle. Since the Debtor sub judice is making payhments on two vehicles, under Ransom the ownershiop cost expense is applicable to her and she may claim the deduction for both vehicles.

The IRS guidelines for vehicle ownership expenses are not based o household size, but rather permits a maximum allowance fo rhte lease or purchase for a vehicle for up to two vehicles. Likewise §707(b)(2)(A)(ii)(I) does not account for household size. However the Internal Revenue Manual states that an individual taxpayer is normally only allowed a deduction for one vehicle. Since the guidelines are at odds with the plain language of §707(b)(2)(A)(ii)(I) as incorporated into §1325(b)(3) and as instructed by the Court in Ransom, the IRS guidelines do not control.

Rhode Island

Applicable is not same as actual in determining car ownership allowance, therefore debtor is entitled to deduction regarless of existence of an debt on vehicle. In re Burbank, 401 BR 67 (Bankr. D.R.I. 2009). Ownership expenses include licensing, taxes, insurance, and depreciation as well as actual car payments.

Texas

In In re Hardacre, 338 B.R. 718 (Bankr. N.D. Tex. 2006). The court then examined the IRS standard expense allowances to determine that the debtor could only take the higher of the actual car and mortgage payment, or the allowed IRS deductions for housing or vehicles. Here the court examined the provision in §707(b)(2)(A)(ii)(I) providing ‘nothwithstanding any other provision of this clause, the monthly expenses of the debtor shall not include any payments for debt.’ The court noted that Congress’s intent in enacting BAPCPA was to “ensure that those who can afford to repay some portion of their unsecured debts [be] required to do so.”151 CONG. REC. S2470 (March 10, 2005). The Debtor argued that the language means that in interpreting the local standards for expenses, the court should disregard any payments for debts regardless of anything contrary in the applicable local standards. The Court rejected this interpretation, finding that it would render the ‘notwithstanding’ language superfluous. The local standards are based not on actual expenses but on reasonable necessary amounts regardless of actual expenses. Rather, the Court concluded that the ‘notwithstanding’ provision requires deduction from the local standards for actual expenses for the house and car. However, if the actual secured debt payment is higher than the allowed standard then the Debtor may claim the higher of the two.

The court noted an advantage of this interpretation is to allow a higher dividend to unsecured creditors.

The court also ruled that the debtor is not allowed to claim an allowance for a vehicle on which no debt is owed, based on the IRS Financial Collection Standards. Court determined that car ownership allowance was only available to debtors who owed money on the vehicles.

Subsequent to his decision in Hardacre, Judge Nelms sustained the trustee’s motion to dismiss for bad faith a debtor working 80 hours a week at 2 jobs disallowing proposed deductions in the means test for ownership expenses on a vehicle that was not financed or leased (being owned outright) and repayment on a 401k loan. In re Barazza, 345 B.R. 724 (Bankr. N.D.Tex. 2006). The debtor owns and drives a 1988 pickup that is not liened. The court noted that he lives modestly on a tight budget. The court again referred to the IRS local standards which do not permit an ownership deduction for vehicles that are not financed or leased.

In re Lara, 347 B.R. 198 (Bankr. S.D. Tex. 2006). Court cited Hardacre as authority for disallowing the car ownership allowance if no debt is owed on the car.

¶6.441 Non-Purchase Money Debt

Georgia

Debtor allowed ownership expense even when debt is not purchase-money obligation. In re Feagan, No. 15-40823-PWB, 2016 WL 1456166 (Bankr. N.D. Ga. Apr. 11, 2016). Ransom establishes that a debtor must have an expense within the Ownership Costs category in order for the category to be “applicable” under the statutory language of § 707(a)(2)(B)(ii)(I). And this Court must answer the same question that the Ransom Court asked: “What expenses does the vehicle-ownership category cover?”

The Ransom Court's answer is that the Ownership Costs category “encompasses the costs of a car loan or lease and nothing more.” Ransom, 562 U.S. at 71, 131 S.Ct. at 726. hroughout the opinion, repeatedly and consistently, the Supreme Court referred to “loan or lease” payments, “costs of a car loan or lease,” or “loan or lease costs;” nowhere did the Court state that, to qualify for the deduction, payments had to be a purchase-money debt. In re Feagan, No. 15-40823-PWB, 2016 WL 1456166, at *4 (Bankr. N.D. Ga. Apr. 11, 2016)

¶6.45 Other Expenses

Texas

In re Barazza, 345 B.R. 724 (Bankr. N.D.Tex. 2006). Court cited Financial Analysis Handbook and Hardacre analysis to deny ownership allowance to debtor with 1999 pickup with 125,000 miles, and who indicated a need to replace the vehicle within the next several months. Court also required strict independent proof any any special circumstances to deviate from the means test. In re Oliver, 350 B.R. 294 (Bankr. W.D.Tex. 2006). Debtor also filed a declaration of special circumstances showing he was unsuccessful in making debt payments under a prior debt consolidation program; and that the cost of replacing the vehicle would almost equal the monlthly amount available for chapter 13 according to schedules I and J. Debtor testified that he drives approsiately 3,000 miles per month, which at 15 miles per gallon costs about $600/mo in gas alone. No evidence was produced as to other vehicle expense. Debtor testified as to diagnosis of depression, anxiety and bipolar disorder and the medications prescribed therefore, but did not produce evidence from any physician about the conditions or medications.

In re Hardacre, 338 B.R. 718 (Bankr. N.D. Tex. 2006) Court also discussed allowance of other phone, internet, and additional transportation expenses.

In re Lara, 347 B.R. 198 (Bankr. S.D. Tex. 2006). Court allowed $183/mo expense for cell phones which debtors say are required by their job, absent the trustee showing that comparable services could be obtained for less money. Court disallowed $27 for dial up internet in that debtors did not prove this was necessary for health and welfare of debtors or for production of income. Court also disallowed basic phone service determining this is included in the local housing and utility standard. Court disallowed claim for additional transportation expense on the basis that §707(b)(2)(A)(ii)(I) only permits actual expenses for the categories specified as other necessary expenses issued by the IRS, and that there is no category for transportation expenses in other necessary expenses.

Debtors permitted to deduct payment toward support of elderly parents. In re Clingman, 400 BR 555 (Bankr. SDTex 2009). Debtors were making mortgage payments on home elderly parents live in. Home was in parents name but had been transferred to debtors prior to filing as security for a home equity loan used to make necessary improvements on the property. Court determined that 1)monthly expenses subsidized the care and support of the elderly parents; 2) without the subsidy the parents would be unable to provide for their own lodging; and 3) the subsidy was not commenced in contemplation of the bankruptcy case. Whether an expense is allowed is a separate and independent determination from the effect on the debtor or any particular creditor. Thus the fact that the payments result in an appreciation of the value of the home is irrelevant to the allowance of the expense.

Virginia

Expense for taking care of 40 year old non-disabled daughter not allowed in means test. In re Williams, 424 B.R. 207 (Bankr. W.D.Va. 2010). Court disallowed $200/month deduction on means test for taking care of 40 year old daughter of debtors in absence of showing of physical or mental impairment. Court ruled that to be allowed, expenses must 1) be a continuation of actual expenses paid by the debtor, and 2) be reasonable and necessary for the care of an elderly, chronically ill, or disabled (a) household member who is unable to pay for such expenses; or (b) member of debtor’s immediate family who is unable to pay for such expenses. Court granted trustee’s motion to dismiss with leave to convert to chapter 13.

Wisconsin

Property tax and insurance expenses required to be paid by mortgage are allowable deductions for means test. In re Bermann, 399 B.R. 213 (Bankr. E.D. Wis., 2009). Trustee objected to confirmation of amended plan based on debtor having taken deduction on line 47 of means test for projected property tax and property insurance payments since such payments are not contractually due to mortgage holder. The court overruled the objection, finding that if the payment is not made, the mortgage allows the lender to make the payment to protect its security and add it to the debt; thus it is owed to the lender. The court also notes that the Internal Revenue Manual allows such a deduction. The existence of an escrow is immaterial since such payments are only funneled through the account, and are not owed to the creditor until they ultimately reach the insurance provider or taxing authority.

¶6.46 Mandatory Deductions

In re Barazza, 345 B.R. 724 (Bankr. N.D.Tex. 2006). The debtor claimed the 401k loan deductions as mandatory payroll deductions, noting the exeption from the automatic stay of §362(b)(19) and that §1322(f) expressly provides that such repayments do not constitute disposable income for purposes of chapter 13. The Court determined it was error to focus on the language of the form in lieu of the statutory language. Despite evidence from the debtor that both plans require repayment through payroll deduction, the Court determined that the expenses were not mandatory in the same vein as uniforms or shoes, and hypothecating that the debtor probably would not be fired for ceasing such distributions, but rather would simply be subject to a tax liability, disallowed the deduction. The court examined the Internal Revenue Manual (apparently giving it more statutory deference than the official bankruptcy forms) but found no appropriate section allowing these deductions.

§707(b)(2)(A)(i) In considering under paragraph (1) whether the granting of relief would be an abuse of the provisions of this chapter, the court shall presume abuse exists if the debtor’s current monthly income reduced by the amounts determined under clauses (ii), (iii), and (iv), and multiplied by 60 is not less than the lesser of -

(I) 25 percent of the debtor’s nonpriority unsecured claims in the case, or $6,000, whichever is greater; or

(II) $10,000.

(ii)(I) The debtor’s monthly expenses shall be the debtor’s applicable monthly expense amounts 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, as in effect on the date of the order for relief, for the debtor, the dependents of the debtor, and the spouse of the debtor in a joint case, if the spouse is not otherwise a dependent. Such expenses shall include reasonably necessary health insurance, disability insurance, and health savings account expenses for the debtor, the spouse for the debtor, or the dependents of the debtor. Notwithstanding any other provision of this clause, the monthly expenses of the debtor shall not include any payments for debts. In addition, the debtor’s monthly expenses shall include the debtor’s reasonably necessary expenses incurred to maintain the safety of the debtor and the family of the debtor from family violence as identified under section 309 of the Family Violence Prevention and Services Act, or other applicable Federal law. The expenses included in the debtor’s monthly expenses may also include an additional allowance for food and clothing of up to 5 percent of the food and clothing categories as specified by the National Standards issued by the Internal Revenue service.

(II) In addition, the debtor’s monthly expenses may include, if applicable, the continuation of actual expenses paid by the debtor that are reasonable and necessary for care and support of an elderly, chronically ill, or disabled household member or member of the debtor’s immediate family (including parents, grandparents, siblings, children, and grandchildren of the debtor, the dependents of the debtor, and the spouse of the debtor in a joint case who is not a dependent) and who is unable to pay for such reasonable and necessary expenses.

(III) In addition, for a debtor eligible for chapter 13, the debtor’s monthly expenses may include the actual administrative expenses of administering a chapter 13 plan for the district in which the debtor resides, up to an amount of 10 percent of the projected plan payments, as determined under schedules issued by the Executive Office for the United States Trustees.

(IV) In addition, the debtor’s monthly expenses may include the actual administrative expenses of administering a chapter 13 plan for the district in which the debtor resides, up to an amount of 10 percent of the projected plan payments, as determined under schedules issued by the Executive Office for United States Trustees.

(V) In addition, the debtor’s monthly expenses may include an allowance for housing and utilities, in excess of the allowance specified by the Local Standards for housing and utilities issued by the Internal Revenue Service, based on the actual expenses for home energy costs if the debtor provides documentation of such actual expenses and demonstrates that such actual expenses are reasonable and necessary.

(iii) The debtor’s average monthly payments on account of secured debts shall be calculated as the sum of –

(I) the total of all amounts scheduled as contractually due to secured creditors in each month of the 60 months following the date of the petition; and

(II) an additional payments to secured creditors necessary for the debtor, in filing a plan under chapter 13 of this title, to maintain possession of the debtor’s primary residence, motor vehicle, or other property necessary for the support of the debtor and the debtor’s dependents, that serves as collateral for secured debts;

divided by 60.

(iv) The debtor’s expenses for payment of all priority claims (including priority child support and alimony claims) shall be calculated as the total amount of debts entitled to priority, divided by 60.

¶6.5 Rebuttal of means test presumption of abuse: Special circumstances.

In order to rebut the presumption of abuse under §707(b)(1)(A), the debtor must show special circumstances that justify additional expenses or adjustments of current monthly income. Such circumstances must be itemized, documented, and explained as to why such adjustment is both necessary and reasonable. This information shall be attested to by the debtor under oath. Further, the adjustment provided by the special circumstance must result in the means test computation showing a lack of abuse, thus the computations must be run a second time with the adjusted figures included.

Case Law:

¶6.51 Business mileage

North Carolina:

Business mileage expenses as shown on the tax returns properly reflects special circumstance deduction from means test. In re Babson, 2011 WL 5902664 (Bankr. E.D.N.C. 2011). Debtor works full time in position requiring frequent travel, and receives salary, bonus, and commission. The 2010 tax return showed $23,372 business expenses for the 2010 year, averaging $1,947.67/month. The debtor initially scheduled these expenses on the means test at $1,546.83, but indicated he did not realize the full amount of the expenses until he completed review of the receipts and milage for his tax return. The Bankruptcy Administrator argued that the means test deduction should be based on the six month figures prior to filing, which per the debtor’s bank statements they argued was substantially less than the $1,546.83/month claimed initially on the means test.

The Internal Revenue Code permits deduction for all ordinary and necessary expenses paid or incurred during the taxable year in carrying out any trade or business, 26 U.S.C. §162(a). However, any amount claimed as a business expense must be substantiated, and taxpayers are required to maintain records sufficient therefor. The Tax Code permits either deduction of the business standard milage rate times the number of business miles traveled or the actual costs the taxpayer pays or incurs that are allocable to traveling those business miles, but not both. Internal Revenue Bulletin: 2009-51, Rev. Proc.2009-54 § 5.02 (Dec 21, 2009).

The Court agreed with the Debtor that the tax return takes into account all expenses related to the debtor’s business vehicle and is thus more indicative of the debtor’s unreimbursed employee excpenses than his bank statements. The court distinguished the Hickman case in that here the debtor credibly substantiatged his tax return by testifying.

Washington:

Debtor failed to document alleged business expenses in the six months prior to filing, therefore the court did not allow a special circumstances deduction on the means test. In re Hickman, 2008 WL 2595182 (Bankr. W.D. Wash. 2008). Debtor was a partner in, and then sole proprietor of a business doing sales, repairs, and installation of audio-video equipment until about 2 months prior to filing chapter 7 bankruptcy. The debtor showed gross receipts from the business of $9,085 during the six months prior to filing. However, the debtor failed to produce documentary evidence at the evidentiary hearing of the business expenses of the businss during the six months prior to filing, rather relying on the federal tax returns for 2005 and 2006 to show the average percentage of costs of goods sold.

However, the US Trustee argued this does not establish the expenses during the six months prior to filing. The Court rejected the Debtor’s non-filing spouse’s testimony of possible business expenses as the underlying records had not been produced to the US Trustee or introduced into evidence, and the fact that she had no independent basis for characterizing the items as business expenses other than the Debtor’s notes in the check register. The US Trustee initially calculated the business expenses based on the check registers, then computed it based on the gross contributions from the business to the personal expenses, thereby computing the maximum possible business expenses during the period. The Court used the US Trustee’s figures for expenses, and determined they did not rebut the presumption of abuse under §707(b)(2)(A)(i).

¶6.52 Commuting mileage

Iowa:

Unusually high vehicle operating costs can constitute special circumstances rebutting the presumption of abuse under the means test. In re Batzkiel, 349 B.R. 581 (Bankr. N.D.Iowa 2006). Debtors live in rural Iowa and each drives a significant distance to their place of employment. The husband drives through ares heavily populated by deer, and leaves home at 4:30 a.m., which has resulted in numerous collisions with deer, causing the insurance company to threated cancellation if any further claims are filed related to such collisions. Therefore the debtor has been doing his own repair work on the vehicle. The fact that one vehicle may be inoperable due to deer collisions also warrants consideration for expenses for two vehicles for the debtor husband. Further, the IRS standards for transportation are too low for the debtors since fuel costs have continued to rise after announcement of the standards, and the fact that debtor’s vehicles get low mileage. Debtors documented these increased expenses.

In considering special circumstances to rebut a presumption of abuse under the means test, any legitimate expense that is out of the ordinary for an average family, or that may have increased since the IRS guidelines were calculated, could be considered. In order to claim such expenses, the debtor must justify the actual expenses in the amount claimed, drawn from the type of expenses defrined in the Internal Revenue Manual, and must itemize such expenses, provide documentation, and explain the special circumstances that demonstrate that the expenses are reasonable and necessary. The court finds that the debtors have met their burden of establishing the special circumstances and therefore have rebutted the presumption of abuse.

Debtor who drives 80 miles round trip per day for employment, and who testified as to actual expenses incurred for transportation for the period about 2 months to 3 months after filing was permitted to use higher expenses than provided under the means test in computing disposable income in chapter 13. In re Pederson, 2006 WL 3000104 (Bankr. N.D. Iowa, 2006). The Debtors filed chapter 13 on 30 June 2006. They testified as to their actual expenses for gasoline as $268.21 for August 29 through September 19 2006, a period of 22 days. The court extrapolated that to $372/month. The husband also testified as to mechanical problems on the vehicles, and maintenance expenses over the four months from May 16, 2006 through July 14, 2006 of $373.56. The court found these expenses to be reasonable quarterly figures.

Debtors with 30 mile round trip commute failed to produce evidence that car repair bills were in excess of the standards permitted by the means test. In re Tedford, 2014 WL 3851129 (S.D. Iowa, 2014).

North Carolina:

A sixty mile daily commute to work did not qualify as a special circumstance when the debtor had been employed at same job for ten years, and purchased truck with low miles per gallon five years ago. In re Mansfield, 2012 WL 627786 (Bankr. E.D. N.C. 2012). Debtor worked as prison guard at prison 30 miles from house. He computed $859.14/month transportation expense based on the IRS reimbursement rate of 55.5 cents/mile. The Court found that special circumstances to rebut the presumption of abuse are not limited to those stated in §707(b)(2)(B)(i), however the circumstances must justify additional expenses or adjustments of current monthly income for which there is no reasonable alternative. The debtor bears the procedural and substantive burdent to show the special circumstances rebutting the presumption. The debtor testified as to the miles to his job as prison guard and for a part time job at a golf course. He also testified that his 2007 Chevy Truck gets approximately 22 mpg on the highway and 18 mpg in the city. Since his livelihood requires him to travel to and from work, he argues this commute is a special circumstance justifying the additional expense.

The court rejected the argument since the Debtor purchased the truck when he knew the commute distance. He testified he did not consider purchasing a more economical vehicle, and stated the truck was necessary for the maintenance of his home and yeard. However, the testimony did not show the need for a truck in connection with the purported special circumstance, ie the commute to work. The Court found there are more reasonable altgernatives to the use of the truck that would reduce his expenses. Further, the debtor did not include an itemized account for each additional expense to prove the special circumstances. The Court further questioned whether commuting expenses could ever constitute a special circumstance.

Texas:

Debtors with combined commute distance of 184 miles failed to produce adequate evidence of their additional transportation expenses to rebut presumption of abuse. In re Sadler, 378 B.R. 780 (Bankr. E.D. Tex. 2007). Husband had 124 mile round trip thrice weekly for employment, and wife had 60 mile daily round trip commute. Debtors claimed $880/month transportation expense on means test, consisting of $120/mo for automobile insurance, $373 for fuel and maintenance on the husband’s vehicle, $372/mo for fuel and maintenance ofn the wife’s vehicle. The husband testified that there were no reasonable alternative employment opportunities closer to their home, and that the commutes are reasonable and necessary for them to continue to earn a living. However, the debtors provided documentary evidence of vehicle-related expenses over a 34 day period totaling only $469.02. The court also noted the purchase of a new 2006 Titan within 30 days of the filing of the case (purported to be necessary by excessive repair bills on the prior vehicle, which also were not documented).

The Court concluded that the debtors failed to demonstrate the existence of special circumstances warranting the additional expense. Even if the debtor’s monthly gasoline consumption had been verified, which it was not, they failed to provide documentary evidence of their actual cost of insurance, licensing fees, repairs, and maintenance.

¶6.53 Student loans

Delaware:

Debtor’s obligation as co-signer on son’s student loan may constitute special circumstances rebutting the presumption of abuse. In re Haman, 366 B.R. 307 (Bankr. D.Del. 2007). Debtor was making payments on a $22,250 student loan for her son from three years prior to the filing of the bankruptcy, on which she co-signed. While initially mischaracterizing the debt as priority, debtor then alleged that since such debt was non-dischargeable, it constituted a special circumstance for which there was no reasonable alternative. The US Trustee argued that the student loan obligation could never qualify as a special circumstance because it did not fall within the ambit of the examples of special circumstances provided in §707(b)(2)(B), and because debtor could convert to chapter 13, and modify the rights of the student loan creditor under §1322(b) and make pro-rata distribution to the bank for the life of the chapter 13 plan.

To successfully demonstrate a special circumstance, the debtor must fulfill both the procedural and substantive requirements of §707(b)(2)(B). The procedural component requires the debtor to itemize each additional expense or adjustment of income and provide (I) documentation of such expense or adjustment to income, and (II) make a detailed explanation of the special circumstances that much such expense or adjustment to income necessary and reasonable. 11 U.S.C. §707(b)(2)(B)(ii). Debtor must also attest under aoth to the accuracy of any information provided. 11 U.S.C. §707(b)(2)(B)(iii). Debtor met these requirements by submitting her Declaration of Support of Rebutting the Presumption of Abuse, in which she attested under aoth and described in detail the circumstances necessitating an additional expense and to which she attached the promissory note on the student loan.

To meet the substantive requirement the debtor must demonstrate special circumstances that justify additional expenses or adjustment of the debtor’s current income for which there is no reasonable alternative. 11 U.S.C. 707(b)(2)(B)(i). The Debtor argues that there is no reasonable alternative than to pay her son’s student loan obligation because 1) she is the co-signer on the loan; 2) her son is unable to make the required payments due to the several psychological disorders from which he suffers; and 3) the debto cannot be discharged because it does not impose an udue hardship for her or her dependents as required under 11 U.S.C. 523(a)(8).

The first issue is whether the voluntary nature of the loan excludes it from special circumstances, as argued by the US Trustee. The examples provided in the statute: serious medical condition or a call to active duty in the armed forces, are both involuntary in nature. The Court rejected this argument, finding that the plain language of §707(b)(2)(B) is clear, with no indication that the special circumstance must be outside the control of the debtor. Second, the legislative history of the statue indicates that the examples of special circumstances set forth in subsection (i) were meant to be expansive, not limiting.

However the debtor still must show that the debtor must show that there is no reasonable alternative to the expense alleged to be a special circumstance. The record demonstrates that the only way the debtor can stop making the student loan payments is to pay the obligation in full, which the record indicates is impossible for this debtor, or for the son to resume the payments, which the record shows would be unreasonable to expect at this time due to his medical condition. The suggestion of the US Trustee to analyse how the debt would be treated in a chapter 13 is improper as violating the Congressional intent behind the means test; rather such analysis would more appropriate under §707(b)(3)’s totality of the circumstances test.

The Court determined that the debtor rebutted the presumption of abuse under §707(b)(2), and set a continued hearing if the US Trustee wish to pursue dismissal under the totality of the circumstances test of §707(b)(3).

Pennsylvania

Need to examine circumstance to determine whether a student loan is a special circumstance basis to rebut presumption of abuse in means test. In re Harmon, 446 B.R. 721 (Bankr. E.D.Pa 2011). Debtor filed chapter 7 listing $565.64 as an expense in the means test. The US Trustee objected, and the court found that it was not a proper expense item nor could be allowed as a special circumstance to rebut the presumption. The debtor bears the burden of proof under §727(b)(2)(B) of showing that special circumstances justify the expense claimed. Procedurally this requires debtor to 1) itemize each expense or income adjustment; 2) provide documentation of the expense; 3) provide a detailed explanation of the special circumstances that make the additional expense or income adjustment necessary and reasonable; and 4) attest under oath to the accuracy of such information. Substantively §707(b)(2)(B) requires that the special circumstance be sufficient to justify additional expense or income adjustments for which there is no reasonable alternative.

The court noted two lines of cases, one requiring uncommon, unusual, exceptional, distinct, peculiar, particular, additional or extra factors such that prevent most debtors from meeting its high standards. The second line of cases does not require that the circumstances be extraordinary, out of the control of the debtor, or even unanticipated. The court also noted a line of cases finding student loan repayment to constitute special circumstances rebutting the means test, but found contrary precedent to be more persuasive.

Some courts focus on the nondischargeable aspect of the student loans, and whether the debtor’s ongoing postpetition liability is a special circumstance due to the debtor’s inability to repay the debt. Others examine the reason why the debtor incurred the student loan debt, such as pursuit of education or training necessitated by permanent injury, disability, or an employer closing as distinguished from loans to incur a more advantageous income or to enter a different vocation. The third line of cases looks at the impact of the postpetition debt on the debtor, and whether amount is such that the increase in the debt during a pendency of the chapter 13, and would result in minimal payment to other unsecured debts during a chapter 13 repayment.

The court determined that the first line of cases was overbroad, as congress choose to allow deductions for priority debts in the means test but not for all nondischargeable debts. The court then determined that the Debtor failed to meet her burden under the tests in either other line of cases. There was no evidence presented that the reason for incurring the student loan was necessitated by injury, disability or job loss. The court also noted a chapter 13 plan could be proposed to repay a portion of the unsecured creditors in the approximate amount of her student loan payment; which would allow a dividend of approximately 35% to the student loan, increasing the repayment term of the student from approximately 8 years to 11 years.

Debtor failed to adequately show grave consequences of failing to pay student loan warranting special circumstance rebuttal of presumption of abuse. In re Womer, 427 B.R. 334 (Bankr. M.D. Pa., 2010). Debtors scheduled a $42,000 student loan on form B22A. The court noted that a student loan expense is included as a category in the charge accompanying the explanation of expenses that meet the necessary expense test issued by the Internal Revenue Service, see Internal Revenue Manual 5.15.1.10. However, §707(b)(2)(B)(i) specifically exludes th4e use of any payments for debtrs in the calculation of monthly expenses for this purpose. Debtors therefore claimed the expense as a special circumstance instead. The Court cited a number of cases allowing and disallowing student loan expense as special circumstances. The cases allowing focus on the exceptional burdens placed on the debtor by reason of the student loan obligation surviving the bankruptcy. However no such showing specific to the student loan debt was presented at the hearing in this case. The Court noted if a loan were an undue hardship, it could be discharged, but the third circuit requires a prior good faith effort to repay the debt. The debtor must show there is no ‘reasonable alternative’ in addressing it.

Wisconsin:

While facts did not allow for including student loan debt as special circumstance expense in means test, plan may separately classify long term student loan debt. In re Johnson, 446 B.R. 921 (Bankr. E.D. Wis 2011). Debtor obtained a student loan to go to law school to shift professions from a registered nurse to an attorney. The reasons for the shift were that debtor believed she had reached her maximum earning potential in nursing, and that debtor believed her problems with weight control would eventually prevent her from continuing her career as a nurse.

Debtor owed $98,660.72 in student loan debt out of total unsecured debt of $149,093. Debtor’s plan proposed continued payments of $641/month on the student loan, while paying $8700 to other unsecured creditors over the five year plan. The chapter 13 trustee objected, requesting equal distribution to all unsecured creditors, paying a dividend of approximately 22% to all creditors. If the debtor ceased payment on the student loan and paid them equally in the plan, the total obligation on the student loan would increase during the life of the plan.

The court noted three lines of reasoning in cases on the issue. One line states that student loan debt is so common that it cannot qualify as special circumstances. The other extreme is that since student loan debt is nondischargeable, it automatically qualifies. The court found the third lien more persuasive, wherein the court looks to the motivation of the debtor in pursing the education which created the student loan, finding that pursuing education solely for career advancement could never constitute special circumstances.

The court noted that the debtor in this case was arguing for a health basis for the student loan, but presented no evidence that her weight issues would prevent her from carrying on the duties of a nurse. Since the incurring of the debt was not related to health issues, it cannot qualify as special circumstances to rebut the means test.

However, the court did allow the debtor to separately classify the student loan debt since the repayment term extended beyond the five year repayment term. The debtor would be allowed to continue contractual payments on the loan post-petition. This does not violation the anti-discrimination provision of §1322(b)(1), since the long term debt provision of §1322(b)(5) supersedes the requirement for equal treatment of all creditors under §1322(b)(1).

¶6.54 Housing expense

Colorado,

Debtors showed special circumstance warranting increased housing expense based on mental and emotional difficulties of son. In re Scarafiotti, 375 B.R. 618 (Bankr. D. Colo. 2007). The standard housing allowance for a family of 3 where the debtors resided was $1,084. The debtors paid $1,050 rent and $331/month for utilities, thereby exceeding the allowance by $297. Subtracting the utility figure would leave only $753/month for rent. Debtor’s testified that they searched for rental units in this range, but that all such units were located in potentially unsafe neighborhoods. The debtor’s son is seeing a child psychologies monthly for mental and emotional difficulties related to bullying at his previous elementary school. There problems were lessened upon moving him to a new school. The debtor testified that their psychologist strongly recommended that they live in a neighborhood where he could interact with other children from his new school. The trustee suggested they move closer to their work, where cheaper housing is available; but the debtor’s indicated that despite the 100 miles per day commute, they needed the after school child care assistance of their family, which is only available where they live now.

¶6.55 Age of Debtor

New York

Fact that debtor is 67 years old and wishes to retire in near future insufficient to rebut means test. In re Anderson, 444 B.R. 505 (Bankr. W.D.N.Y. 2011). Debtor earned $7,219/month gross, and did not disclose girlfriend’s income of approximately $100,000/year. Unsecured debt totaled aroximately $212,000 primarily consisting of advances on credit cards. Debtor showed B22A showed presumption of abuse, but alleged special circumstance that he was 67 and planned to retire within the next 60 months. Debtor also proposed to pay his entire net disposable income into a pension account, resulting in no funds available to unsecured creditors.

Court noted special circumstances are not age specific, and that Debtor was gainfully employed and in good health. If age were to cause a serious medical condition, such condition could be a basis for a special circumstance to rebut the presumption of abuse, but age along cannot constitute such a basis. §707(b)(2)(B)(i) requires additional expenses or adjustments of current income for which there is no reasonable alternative. The Debtor in this case has the reasonable alternative to continue employment and defer additional pension contributions until after completion of a chapter 13 plan. Debtor shold not be allowed to augment his pension at the expense of creditors.

Debtor also argued that the language of §707(b)(1) that the court “may dismiss a case” in which the granting of bankruptcy relief wold constitute an abuse gives the court discretion to decline to dismiss the case. The Court rejected this, finding that the permissive language in the statute simply allows a choice between dismissal or, with the debtor’s consent, conversion to chapter 11 or 13.

The court also noted that the girlfriend’s contributions to the household expenses would have to be disclosed on a B22C form. While not specifically ruling, it appears the court considered the girlfriend to be included in debtor’s household for purposes of the means test.

¶6.56 Old car deduction

Nevada

That, however, is not the end of the matter. As discussed in other cases, the debtor is allowed an additional operating expense deduction of $200 for older cars. See In re McGuire, 342 B.R. 608, 613 (Bankr.W.D.Mo.2006) (“[C]onsistent with IRS Local Standards, [the debtors] are entitled to claim on Form B22C an additional operating expense of $200, which expense is allowed for debtors with cars more than six years old, or having more than 75,000 miles”); accord In re Oliver, 350 B.R. 294, 297 (Bankr.W.D.Tex.2006); In re Carlin, 348 B.R. 795, 798 (Bankr.D.Or.2006); In re Barraza, 346 B.R. 724, 729 (Bankr.N.D.Tex.2006). The IRM does not allow a deduction in addition to the ownership or operating expense, but rather allows “an additional operating expense.” IRM § 5.8.5.5.2 (2005), https:// www.irs.gov/irm/part5/ch08s05.html. Because the IRM construes the extra deduction as part of the operating expense, this court views it as part of the definition of that expense and would allow it.

In re Slusher, 359 B.R. 290, 310 (Bankr. D. Nev. 2007)

§707(b)(2)(B)(i) In any proceeding brought under this subsection, the presumption of abuse may only be rebutted by demonstrating special circumstances, such as a serious medical condition or a call or order to active duty in the Armed Forces, to the extent such special circumstances that justify additional expenses or adjustments of current monthly income for which there is no reasonable alternative.

(ii) In order to establish special circumstances, the debtor shall be required to itemize each additional expense or adjustment of income and to provide –

(I) documentation for such expense or adjustment to income; and

(II) a detailed explanation of the special circumstances that make such expenses or adjustments to income necessary and reasonable.

(iii) the debtor shall attest under oath to the accuracy of any information provided to demonstrate that additional expenses or adjustments too income are required.

(iv) The presumption of abuse may only be rebutted if the additional expenses or adjustments to income referred to in clause (i) cause the product of the debtor’s current monthly income reduced by the amounts determined under clauses (ii), (iii), and (iv) of subparagraph (A) when multiplied by 60 to be less than the lesser of –

(I) 25 percent of the debtor’s nonpriority unsecured claims, or $6,000, whichever is greater; or

(II) $10,000.

¶6.57 Retirement deductions

Louisiana:

3% voluntary deduction for 401k contribution for above-median income debtor is reasonable, but 6% was not. In re Donald E.. Miner Sandra R. Miner Debtors, No. 16-10441, 2017 WL 1011419 (Bankr. W.D. La. Mar. 14, 2017). On hearing to amend chapter 13 plan court found that the Debtor had been contributing $700.82/month toward his 401k plan, in addition to a 401k loan repayment of $356.18/month. The employer also had a 3% matching contribution. §541(b)(7) provides that property of the estate does not include any amount withheld by azn employer for contributions to an ERISA plan (as well as certain other qualified plans). While some courts hold that this allows any contribution up to the maximum amount allowed under non-bankruptcy law, the 4^th and 5^th Circuit have adopted the holding that debtors may simply continue the voluntary contributions in existence at the time the petition is filed. Maharaj v. Stubbs & Perdue, P.A. (In re Maharaj), 681 F.3d 558 (4th Cir. 2012): In re Lively, 717 F.3d 406 (5th Cir. 2013). Under Hamilton v. Lanning, 560 U.S. 505 (2010) courts must adopt the forward-looking approach to determine projected disposable income. As it would be impossibly for anyone to disagree that volunatary savings for retirement is a prudent financial decision, a reasonable contribution should be allowed even if such expense deviates from the national or local standards. Such contributions are limited by good faith. Given this the court presumes a 3% contribution would be reasonable in any case in this district, with a higher contribution possible in specific circumstances.

¶7 Requirements for Debtor prior to filing:

¶7.1 The debtor generally must have received a briefing (telephonic or in person) from an approved credit counseling agency within 180 days before the case is filed, unless the trustee determines there are insufficient credit counseling resources in the district, or the debtor is unable to get counseling due to incapacity, disability, or active military duty in a combat zone. The debtor may file first and obtain counseling within 30 days if the debtor sought counseling but was unable to obtain it within five days, and circumstances require filing before such counseling can be obtained. Query, if debtor first sees counsel the day before the foreclosure sale, is he barred from filing due to not being able to wait the five days after seeking counseling? If the counselor indicates they could give counseling in 4 days? Or only in 6 days? Does the debtor need to certify simply that they sought counseling from one agency and were unable to get it within five days, or must they certify that they tried all the approved counseling agencies, and none could provide counseling within five days? Does failure of an individual to voluntarily get credit counseling prevent an involuntary case from being filed against them?

While some cases have struck the petitions, thereby eliminating the ‘first strike’ prejudice of having a refiling rather than an original case, it has been argued that §109 is not a jurisdictional bar to filing, but rather a filing defect that is cured upon confirmation of a chapter 13 plan or discharge. Since it is not jurisdictional, it would therefore be improper to strike the petition. However, courts may determine not to dismiss cases absent an objection or motion by a party in interest; and courts may set a low bar for showing good faith on refiling after a §109(h) dismissal.

Cases:

8^th Cir. BAP:

In what appears to be the first appellate decision on BAPCPA, the court sustained a dismissal for failure to obtain prepetition credit counseling. In re Hedquist, 342 B.R. 295 (8^th Cir. BAP (Minn), 2006). The debtors had been attempting to work out a settlement with the mortgage company, and waited until the day prior to the foreclosure sale to file bankruptcy. There was no evidence that the debtors sought credit counseling. The BAP found that the bankruptcy court did not abuse it’s discretion in finding that waiting until the day prior to the foreclosure sale to seek bankruptcy protection when they had adequate notice of the foreclosure did not meet the requirements for exigent circumstances. The BAP also rejected the debtor’s argument that the dismissal must be done by the district rather than the bankruptcy court. Dismissal for failure to comply with the requirements for filing is a core matter subject to determination by the bankruptcy court. Debtor next argued that requiring individual debtors but not corporations to obtain credit counseling violated the equal protection clause. The BAP determined that individuals and corporations were not similarly situated as required for equal protection violations; and that intent of the statute to force them to obtain education and counseling regarding both the consequences of filing for bankruptcy and the non-bankruptcy alternatives available to the debtor to rebuild his or her financial health did not evidence an unlawful attempt to discriminate against individuals. The BAP also found no due process violation in that individual debtors as opposed to corporate debtors are not a suspect class; and that there is no constitutional right to obtain a discharge of ones debt in bankruptcy. Finally the debtor argued that the courts should grant pro-se litigants leniency with regard to their pleadings. The BAP rejected this argument in that the requirements of §109(h) are clear and mandatory, and the debtor clearly failed to meet the requirements.

Arkansas

The court denied a request for extension of time to obtain credit counseling and dismissed the case when the Debtor acknowledged that she had not sought counseling prior to the filing of the case in In re Wallace, 338 B.R. 399 (Bankr. E.D. Ark. 2006). The debtor’s argument that the clerk had not timely posted a list of approved credit counselors did not avail her. The statute clearly requires that the debtor seek counseling prior to the case. Further, upon inquiry of the clerk’s office, she had been provided such a list. Having failed to meet the strictures of the statute, the case had to be dismissed.

In a rare debtor victory under the credit counseling litigation, Judge Mixon ruled that credit counseling obtained the same day of, but prior to, the bankruptcy filing complied with the statutory requirement. In re Warren, 339 B.R. 475 (Bankr. E.D. Ark. 2006). Three problems were raised by the trustee. First, the language of the statute refers to obtaining counseling within the 180 days prior to filing, thus, according to the trustee, implying that counseling must be obtained the day prior to filing. Second, the certificate was dated well after the filing. Third, the certificate was issued after the case was filed. Debtor testified that they completed counseling prior to filing, but had difficulty getting the agency to accept payment, attempting first a prepaid mastercard which was not successful; then sending a money order which was not credited until after the case was filed. The debtor had sought and obtained an extension of time to file the certificate of counseling.

Since the code does not provide for automatic dismissal upon failure to file the credit counseling certificate. §707(a). Further, the absence of a credit counseling certificate, like that of the debtor’s signature on a pleading, is a matter of form, not substance.

The trustee’s argument as to needing to complete counseling the day prior to filing is based on their interpretation of the word ‘date’ as a calendar day. However, the law and dictionaries also recognize reference to date to mean a particular time on the day. The court interprets date under §109(h) as meaning the time and day of filing. This is in accord with bankruptcy practice as setting the time of filing as setting the rights of the parties. No waiting period after counseling is mentioned in the legislative history.

California:

Another dismissal of a pro-se bankruptcy for failure to obtain the credit counseling requirement, and failure to comply with the requirements for an extension was announced in In re Mingueta, 338 B.R. 833 (Bankr. C.D. Cal. 2006). The debtor had checked the box on the petition requesting an extension to obtain credit counseling, but did not attach any certification or other document was attached explaining the exigent circumstances. The court scheduled an order to show cause why the case should not be dismissed, but the debtor did not appear at the hearing.

A rare grant of a temporary waiver of the credit counseling requirement was entered in In re Romero, 349 B.R. 616 (Bankr. N.D.Cal. 2006). Concurrently with the filing of the petition, debtor filed a request for temporary waiver of the counseling requirement with a certification that the debtor was the sole wage earner for the family, and that he faced imminent garnishment of his wages. The certification further alleged that they had attempted to obtain credit counseling before filing but were unable to do so. The debtors completed credit counseling seven days after filing. In a supplemental sworn declaration, debtors alleged they had contacted an approved counselor 3 days prior to filing, but were told they were unable to obtain the counseling until seven days after their request. The court found that the threat of serious creditor action before the credit counseling can be obtained generally is sufficient to establish exigent circumstances. Advance knowledge of the threatened creditor action should not preclude a finding of exigent circumstances.

Colorado:

If a debtor is ineligible under §109(h) then the §362 stay does not come into effect. In re Anderson, 341 B.R. 365 (Bankr. Colo. 2006). The debtor was ineligible to be a debtor under chapter 13 due to her failure to obtain the requisite credit counseling briefing. The debtor filed a false affidavit that such counseling had been obtained. The foreclosure sale on debtor’s homestead occurred prior to the bankruptcy, but the writ of eviction was issued after the filing. No notice was given to foreclosure counsel of the filing. Courts have the power to annul the automatic stay retroactively for cause in order to rehabilitate stay violations.

District of Columbia:

Credit counseling must be obtained at least one calendar day prior to filing petition. In re Mills, 341 B.R. 106 (Bankr. Dist.Col. 2006). §109(h) does not simply require the debtor to obtain credit counseling prior to filing the bankruptcy petition, it requires the debtor to obtain such counseling prior to ‘the date of the filing of the petition’. When a statute requires a specific act to be done within a specified number of days prior to a fixed date, the last day (ie the fixed date) is excluded in making the calculation. The legislation's credit counseling provisions are intended to give consumers in financial distress an opportunity to learn about the consequences of bankruptcy-such as the potentially devastating effect it can have on their credit rating-before they decide to file for bankruptcy relief. The court also rejected the debtor’s request to strike the petition rather than dismiss the case. The court denied this, finding that the filing of a petition by an ineligible debtor created a case for the limited purpose of the court determining whether it had subject matter jurisdiction over the case. During that determination the stay would remain in effect unless the §362(b)(21)(A) exception applied. If the court were to strike the petition ab-initio, it would make the §362(b)(21)(A) exception unnecessary.

The credit counseling requirement may be met by obtaining a credit counseling course from an approved agency that met the general requirements of the code even though it was not the specific course set up by the agency for pre-bankruptcy counseling under §109(h). In re Hawkins, 340 B.R. 642 (Bankr. D.Dist.Col. 2006). The debtor obtained credit counseling through an approved agency (CCCS) prior to filing the bankruptcy, however, the course was not the pre-bankruptcy course provided by such agency. The court had issued its own order to show cause why the case should not be dismissed based on the debtor’s failure to file a credit counseling certificate. The debtor submitted a letter from the counselor showing the services provided included a personal financial summary reviewing debtor’s income and expenses, a net worth analysis, a debt summary, a debt analysis (showing the benefits of repaying the debt through CCCS’s program), and an action plan setting forth recommendations for the debtor. The court found that these could be viewed as satisfying the analysis required by the statute. A separate evidentiary hearing would be set if a party files a motion to dismiss the case, as to whether the counseling actually met the requirements of the statute. The court determined it did have jurisdiction to take the case based on debtor’s allegations as to the content of the counseling received.

The court also determined that §362(b)(21) must be read that the automatic stay is in effect while the court determines the threshold issue of jurisdiction. Thus pre-petition credit counseling is a pre-requisite the granting the court subject matter jurisdiction.

Counseling must be obtained at least the day prior to the filing of the bankruptcy, however, since counsel inadvertently filed another document labeled as the petition, the case was not commenced until the day after the initial documents were filed. In re Murphy 342 B.R. 671 (Bankr. D.Dist.Col. 2006). Court would allow mislabeled ‘amended’ petition to correct erroneous initial filing so as to allow filing fee to apply to instant case. Court also lifted stay as to mortgage since petition was ultimately filed after foreclosure sale even though initial documents including document labeled as petition was filed prior to sale.

Florida:

Yet another debtor’s attempt to seek waiver or delay of the credit counseling requirement without first seeking such counseling failed in In re Davenport, 335 BR 218 (Bankr. M.D. Fla. 2005) (J. May). In this case the Debtor established exigent circumstances from the fact that a creditor was actively seeking to repossess the family vehicle. Further, the debtor in fact obtained counseling two days after the bankruptcy was filed. However, since the debtor had not sought counseling prior to filing, as is required by §109(h)(3)(A)(ii) the court was required to deny the motion and dismiss the case.

A very similar situation arose in In re Randolph, 2005 WL 3408043 (Bankr. M.D. Fla. 2005) (J. Proctor). While the motion asserted that the debtor was unable to contact the credit counseling agency in a timely manner, it failed to make the required assertion that counseling was unavailable within five days of the initial request. The Court noted that there were 11 approved counseling agencies for the district, and expressed skepticism as to the extent of Debtor’s efforts to obtain such counseling. Therefore the Court denied the motion and dismissed the case.

In what is apparently the first reported decision ruling that the dismissal for failure to obtain credit counseling would not prejudice the debtor’s right to the automatic stay under §362(c)(3) in a subsequent case, Judge Cristol dismissed a pro-se chapter 13 in In re Valdez, 335 BR 801 (Bankr. S.D. Fla. 2005). As usual in these cases, the Debtor failed to allege that she was unable to obtain credit counseling within five days prior to filing, instead alleging that as a pro-se debtor she was unaware of the requirement. While ruling that ignorance of the law is no excuse, the Judge did note some skepticism of Congress’ intent in the statute. “The Court wonders what exactly was intended by Congress in regard to this Code section. Is it the intent of Congress that poor, ignorant persons who do not know the law and cannot afford to obtain the advice of counsel are to be denied protection and assistance of the Bankruptcy Code which is available to more affluent and better educated persons? Or, is it the intent of Congress that decent, honest, hardworking persons, who have suffered financial misfortune or tragedy, be educated by budget and credit counseling services to help them determine if there is a more appropriate way to deal with their financial problems? Sadly, the language in the Code does not clearly reveal Congress' intent; either the Code language was inartfully drafted or the congressional intent was indeed the former less compassionate, harsher result, rather than the latter.”

Rather than the usual dismissal, causing the automatic stay to disappear after 30 days in the new case pursuant to §362(c)(3), Judge Cristol ruled that the credit counseling requirement of §109(h) was jurisdictional, therefore the first case was not an effective filing, such that the refiled case could still be considered a first case for purposes of §362(c)(3) or (c)(4).

A rare case where the Debtor convinced the court that counseling was not available was when the debtor just spoke Creole in In re Petit-Louis, 338 BR 132 (Bankr. S.D. Fla. 2006) (J. Cristol). The debtor was fluent in Creole, and spoke very limited English. The Debtor had sent a letter to the trustee which the court treated as a motion to waive the credit counseling requirement. Finding that none of the credit counseling agencies in the area spoke Creole, the Court waived the counseling requirement. The US Trustee indicated that since the individual was not yet a debtor at the time of the counseling requirement, they were unable to provide translators. The debtor’s counsel provided a translator for conversations with the attorney but indicated that they should not have to provide translators for access to the court system.

Georgia:

Judge Bonapfel in Georgia agreed with what appears to be the majority of decisions that the filing of a bankruptcy without first obtaining credit counsel does commence a case, and that the remedy is to dismiss rather than declare the case void ab-initio. In re Ross, 338 B.R. 134 (Bankr. N.D. Ga. 2006). The court concluded that §109 in general, and §109(h) in particular is not jurisdictional, and therefore does not preclude the filing of a petition proper. There is no indication in the statute that the remedy for violation of §109(h) is different from the remedies determined for violation of the other sections of §109. While there is a dispute as to whether §109(g) is jurisdictional, BAPCPA treats this subsection as not being a jurisdictional bar to filing. This is reflected in §362(b)(21)(A)’s exception to the automatic stay as to foreclosure sales when the debtor is ineligible under §109(g). Congress specifically dealt with the effect of serial filings in §§362(c)(3) and (c)(4). A problem with ruling that §109(h) prevents the filing of a proper petition is the uncertainty it would create in creditors or others determining whether a valid case exists. By determining that a case is validly filed even without the credit counseling required by §109(h), this uncertainty is eliminated and the case will proceed until dismissed by definite order of the court.

Idaho:

Last minute unsuccessful attempts to obtain credit counseling were determined not to warrant a waiver of the credit counseling requirement in In re Rodriguez, 336 B.R. 462 (Bankr. D.Idaho, 2005). Facing an imminent wage garnishment, debtors attempted to contact two different counseling agencies. The first agency, which was accessed over the internet, required a phone call to obtain a username and password. Upon attempting to call the agency the phone was not answered. The second agency, again contacted over the internet, required entry to a ‘chat room’ for assistance, but no one was there. Debtor then contacted the agency by telephone and was advised that information would be retrieved in an hour and that the agency would call back the debtor then. The motion to waive was not signed by the debtor and no affidavit or similar submission supporting the request was filed. Subsequent to the hearing on the motion, Debtors filed a certificate in support of the motion, stating in part ‘I was unable to obtain services for an individual or group briefing outlining the opportunities for available credit counseling and assisting me in performing a related budget analysis during the 5-day period beginning on November 2, 2005.’ The debtors then submitted a second certification detailing the attempts to obtain counseling the day of the filing, ending with a note that they did not have the $100 fee charged by the counseling agency for such counseling (though noting that counsel could have paid it with the firm’s debit card.’

The court initially determined that the request for waiver of credit counseling must include a certification in compliance with 28 USC

§1746, which reads in part:

Whenever, under any law of the United States ... any matter is required or permitted to be supported, evidenced, established or proved by the sworn declaration, verification, certificate, ... [the following form may be used]:
...
(2) If executed within the United States, its territories, possessions or commonwealths: "I declare (or certify, verify or state) under penalty of perjury that the foregoing is true and correct. Executed on (date)."

Such certification must establish 1) exigent circumstances that merit the exception; 2) that the Debtor requested counseling from an approved agency but was unable to obtain it within five days; 3) and that the certification be satisfactory to the Court.

The court concluded that the initial motion was defective in containing no certification by the debtor. The first certification was inadequate for not providing any detail of the pertinent facts. The second certification was inadequate for not showing that counseling would be unavailable for five days. The court also noted that debtors were aware of the lawsuit well prior to November 2 and did not seek counseling earlier.

Kentucky:

A generous reading of the requirement to have sought counseling but have been unable to obtain it within five days was set forth in In re Graham, 336 BR 292 (Bankr. W.D. Ky. 2005). First analyzing the requirements for the certification seeking an extension, the court found that this was met simply by having the debtor sign the request for extension. Seeming to reject the Talib decision requiring an explanation why counseling was not sought earlier, the Court indicated that it would be inclined to be reasonably lenient in finding exigent circumstances for meeting §109(h) if there is impending creditor action that will affect the debtor or debtor’s dependents. This court went further than prior published decisions in defining what is required to meet the 2^nd prong of §109, certifying that the debtor sought credit counseling but was unable to obtain it within five days. Judge Fulton ruled that this analysis must take into account the particular situation of the debtor and nature of the pending exigent circumstances.

“In this regard, the Court finds no express requirement in § 109(h) that a debtor exhaust all credit counseling options or that a debtor absolutely accept any offer of counseling, no matter how inconvenient or onerous. Rather, the Court believes that whether credit counseling can be “obtained” by a debtor within the requisite time period should be judged by what a debtor can reasonably accomplish in light or his or her particular, and likely exigent, circumstances. Conversely, whether credit counseling can be “obtained” should not be determined simply by looking at what a credit counseling agency offers a debtor.”

Fact that debtor was over the road trucker, and that he obtained credit counseling four days after filing did not excuse non-compliance with §109(h). In re Logdon, 2012 WL 376513 (Bankr. W.D. Ky 2012). The exigent circumstances waiever requires the debtor to have actually attemped to obain credit counseling. No exigent circumstances were described other than the debtor’s work schedule. Absent compliance with the statute the Court has no discretion to waive or extend the counseling requirement.

Maryland:

The Maryland bankruptcy judges issued a joint decision in five pending cases requesting an extension for credit counseling. The decision, setting forth the requirements for extensions under §109(h) in Maryland, determined that such requests do not need to be under oath, must contain a brief explanation of the exigent circumstances requiring the immediate filing, must state that the debtor sought credit counseling within 180 days of filing, and that debtor was unable to obtain such counseling within five days of such request. The court found that the requirements to find exigent circumstances were minimal: requiring only the existence of some looming event that renders prepetition credit counseling to be infeasible. The requirement to allege seeking credit counseling and being unable to obtain it is more of a problem. Only one of the debtors in these cases alleged that he was unable to obtain credit counseling within five days of the request. Even in this case the exact reason for such inability was not explained, only that he was advised to seek counseling on October 20, which he did (the court appears to conclude that this meant he sought counseling on the 20^th, though this is not entirely clear either), and that he was unable to obtain an appointment for credit counseling until November 26 (no allegation was made as to the options of seeking telephonic or on-line counseling). The court concluded that this last affirmation was sufficient to qualify for an extension of time to obtain credit counseling, and dismissed all the other cases. In re Childs, 335 B.R. 623 (Bankr. D. Md. 2005).

Credit counseling need not be obtained the day prior to the day the bankruptcy is filed. In re Hudson, 352 B.R. 391 (Bankr. D.Md. 2006). The debtor filed ch 13 the same day as he obtained credit counseling. The court distinguished the term ‘date’ used in the statute form the alternative ‘day’, and found that in common usage, ‘date’ may encompass the concept of a moment in time. Upon examining the use of the work elsewhere in the code, the Court noted in §348(f)(1)(A) property of the estate in a converted case shall consist of property of the estate ‘as of the date of filing of the petition’ referring to the moment of conversion. This is contrasted with the use of the terms ‘days’ in §547(b)(4)(A) authorizing the trustee to recover transfers of property made ‘on or within 90 days’ of the filing of the petition. Under this section, the time period includes the full day of the 90^th day. Further, it would be inconsistent to penalize a debtor who went through the effort to obtain counseling vis a vis a debtor who sought an extension of time to obtain counseling.

Michigan:

A certification by the debtor that she had sought to obtain credit counseling but was unable to obtain the same prior to filing was found insufficient without the additional assertion that such counseling was unavailable within five days after such request. In re Burrell, 339 B.R. 664 (Bankr. W.D.Mich. 2006). The credit counseling requirement is an eligibility requirement under BAPCPA. While the code allows an extension, such extension also has strict requirements, including a certification showing exigent circumstances, that the debtor sought counseling and was unable to obtain it within five days, and that the certification is satisfactory to the court. While the impending foreclosure sale described by the debtor met the exigent circumstance requirement, there was no showing that counseling could not have been obtained within five days of the initial request. The court specifically noted that waiting until the last minute to seek bankruptcy was a common reality and should be the type of exigent circumstance anticipated by the statue, appearing to disagree with the DiPinto line of cases. By failing to meet the specific requirement of the statute, the certification also must fail the third test of being satisfactory to the court. A further problem was that the extension was requested more than 30 days after the case was filed, thus even if a certification complying with §109(h)(3)(A) had been filed, the extension would have to be denied under §109(h)(3)(B) since the counseling must be obtained within 30 days after filing in the absence of a further request for extension within such 30 days.

Minnesota:

A Minnesota bankruptcy court dismissed a pro-se case where the debtor filed a statement explaining that it was too far for her to travel to take a credit counseling course, but that she was willing to take a free one over the internet. The court ruled that this was not the certification required by §109(h)(3) that she had requested services required to grant an extension of time to obtain credit counseling, and that the statute was clear that this was an eligibility requirement to be in bankruptcy. In re LaPorta, 332 BR 879 (Bankr. D. Minn. 2005).

The fact that the debtor’s house was about to be sold at foreclosure was found to satisfy the exigent test of §109(h)(3), but the statement that debtor had attempted to contact credit counseling agencies but had been informed that she could not obtain counseling services on such short notice failed to satisfy the second requirement to waive the prepetition counseling requirement in In re Wallert, 332 BR 884 (Bankr. D. Minn., 2005). The debtor’s allegations were made in a separate ‘Certificate Requesting Exemption from Credit Counseling Briefing.’ In this document, which was subscribed under oath, debtor alleged that a foreclosure on her home was scheduled for Nov 2 at 10:00 a.m. (though this is inconsistent with later allegations and may be in error), that she was first advised to seek bankruptcy relief from a legal aid society on Nov. 2 at 2:00 pm. She first spoke with counsel that filed the case on Nov. 2 at 3:00pm, and was advised to seek credit counseling. At that point she sought counseling from Lutheran Social Services and was advised that she could not obtain immediate counseling and was advised to set an appointment for counseling at a later date. She then contacted Springboard Non-profit Consumer Credit Management, Inc. and was advised that there was a $50 fee for counseling. Determining that she was unable to obtain immediately counseling debtor and counsel proceeded with filing the chapter 13 case. Finally she certified that she had no prior knowledge of the need to obtain credit counseling, that she believed she could obtain it within 30 days, and that she believes cause exists not to dismiss the case.

Judge Kishel set the requirements of the §109(h)(3) certificate as 1) describing the exigent circumstances meriting waiver of the prepetition counseling requirement; 2) state that debtor attempted to obtain counseling from an agency but was unable to obtain counseling within 5 days of the initial request; 3) that the certification be satisfactory to the court. While the sale described met the exigent requirement, and inference can be made that she sought counseling from the certification debtor filed, she failed to show or allege that she was unable to obtain counseling within 5 days of the request. Finding such defect incurable, the court dismissed the case. The court went on to note that if the debtor first sought counseling 3 days prior to filing, but was told counseling would not be available until 6 days after the request, such a certification would satisfy §109(h)(3)(A). The court engaged in an extensive analysis of the possible congressional policies and consequences of the 5 day requirement.

Missouri:

Another court ruled similarly that the motion for extension must show that the debtor actually sought credit counseling within the 5 days prior to filing but was unable to obtain it. In re Gee, 332 BR 602 (Bankr. W.D. Mo. 2005). (J. Dow). This involved an emergency filing prior to a foreclosure sale. On reconsideration of the courts initial unpublished ruling the counsel both described the financial hardship, the problems the debtor had in traveling to counsel’s office, and communications problems. Further, the motion discussed how one of the credit counseling agencies was unable to provide a certificate the same day as it was initially contacted. This court seems to be strictly interpreting the requirement that the debtor prove that they would be unable to get a counseling within five days of the initial request in order to qualify for the extension.

The McGee case raises an interesting question. If the problem is solely of getting a certificate, and if the counseling itself could be done prepetition it appears this would satisfy §109(h), even if the certificate is sent post-petition.

The first case setting forth a requirement that the debtor show why counseling was sought at the last minute is In re Talib, 335 BR 417 (Bankr. W.D. Mo. 2005) (J. Dow). The court first examined the requirements for a certification under §109(h)(3). Examining the dictionary definition of certification: a written statement that the signer affirms or attests to be true, the court found that a simple statement signed by the debtor and counsel would suffice, despite not being under penalty of perjury. The certification must set forth the facts underlying the alleged exigent circumstances, the date credit counseling was requested, which agencies were contacted, why debtor believes such services could not be obtained prior to filing, and when the services are reasonably likely to be obtained.

In the case at issue, the debtor gave no explanation of why she did not seek credit counseling until 24 hours prior to the sale; at which time she was advised it would require two days to obtain such counseling. Based on this alone, the court indicated that such certification may be inadequate even to show exigent circumstances, in that the exigent circumstances were caused by the debtor’s own procrastination. The court stressed that any certification reflecting a last minute attempt to obtain counseling must show the reason why counseling was not sought earlier. Since this was the first announcement of this requirement for certification, the court accepted the exigent circumstance certification in this case but indicated it would not do so in future cases without such further explanation described above.

The court then examined the issue of when a certification shows counseling was sought and could be obtained within five days but not prior to the deadline to file, if such certification satisfied §109(h)(3). The court noted it must follow the literal language of the statute unless such application would produce an absurd result or one demonstrably at odds with the intent of the drafters (citing United States v. Ron Pair Enterprises, Inc., 489 US 235, 242, 109 S.Ct. 1026, 103 L.Ed.2d 290 (1989)). Since Congress may have imposed this requirement to discourage hastily filed bankruptcy petitions the court is obligated to follow the literal language. Therefore the court was required to dismiss the case. In a footnote the court also noted that if the debtor had contacted a different credit counseling agency, which had indicated that counseling would not be available for seven days, certification of such facts would satisfy §109(h)(3).

The first appellate decision on the issue found that the bankruptcy court was justified in refusing to find exigent circumstances when a foreclosure sale was scheduled the following day. In In re Dixon, 338 B.R. 383 (8^th Cir. BAP, 2006) the court found that the prior notices given to the debtor regarding foreclosure gave adequate warning of the sale. The court noted that Virtually, all of the cases in which the exigent circumstances certificate is filed will, in fact, involve exigent circumstances. After all, the reason that such debtors are filing bankruptcy quickly and before they receive the briefing is because they feel that they are unable to wait. The real question for the court in such certifications will usually be whether or not those exigent circumstances merit the statutory waiver. Missouri law requires a minimum 20 day notice prior to any foreclosure sale. There was adequate basis for the bankruptcy court’s finding under the abuse of discretion standard, so the appellate court could not reverse the finding.

New York:

Also electing to strike the petition rather than dismiss it, Judge Morris found §109(h) to be an eligibility requirement in In re Rios, 336 BR 177 (Bankr. S.D. N.Y. 2005). Debtor did not seek prepetition counseling, and in opposition to a motion to dismiss plead ignorance of the requirement. Though counseling was obtained postpetition, this did not meet the requirements of §109(h). The Court cited §301 stating that a voluntary case is commenced by filing with the bankruptcy court of a petition under such chapter by an entity that may be a debtor under such chapter. Since §109(h) provides that an individual may not be a debtor absent compliance with such section, no cases were effectively commenced when §109(h) was not complied with. Citing H.R. Rep. 109-31(I) at 89 ‘(“[BAPCPA] 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.”) and at 104 (2005) (“[t]he legislation's credit counseling provisions are intended to give consumers in financial distress an opportunity to learn about the consequences of bankruptcy-such as the potentially devastating effect it can have on their credit rating-before they decide to file for bankruptcy relief.”) (emphasis supplied).’ Because dismissal would have the effect of prejudicing debtors under §362(c)(3) and (c)(4); and since failure to comply with §109(h) is not a basis for dismissal under §707, Judge Morris concluded that dismissal was contrary to Congressional intent regarding this section. “Congress sought to enlarge debtors' options in the face of financial difficulty, not limit them. Congress intended that debtors would inform themselves of their options prior to bankruptcy filing by participating in credit counseling, and if bankruptcy continued to be the best option, debtors could avail themselves of that alternative. It is therefore apparent that Congress did not intend the credit-counseling requirement to limit the availability or extent of bankruptcy relief for debtors, which dismissal would accomplish, and thus, dismissal is inappropriate. The Court instead finds that because the Debtor was ineligible for bankruptcy relief; the bankruptcy case was never properly commenced and is therefore stricken.”

A Pro-se chapter 13 debtor requested a post-petition extension of time to comply with the credit counseling requirement on the basis that she needed counsel to advise her of her rights. In re Henderson, 339 B.R. 34 (Bankr. E.D. N.Y. 2006). The court noted that the request for an extension, while not signed under penalty of perjury may not be presented for an improper purpose and must have evidentiary support. The form of the request in the court’s district requires the debtor to explain the exigent circumstances and requires the debtor to state that they sought counseling from an approved agency but were unable to obtain it within five days. While noting that the standard for exigent circumstances is not overwhelmingly high, especially for a pro-se debtor; at a minimum it should show circumstances particular to the debtor that that show the debtor was confronted with an urgent situation rendering them unable to comply with the counseling requirement prior to filing. The only exigent circumstance alleged by the debtor was the need to obtain counsel. The Court found this was not an urgent situation requiring a prompt filing to avoid some calamity in the debtor’s life. Further, the need for legal assistance does not distinguish this case from the thousands of others who are compelled to seek bankruptcy relief without the assistance of counsel. Based on these conclusions the court denied the extension of time to obtain counseling, but allowed additional time for counsel to obtain counsel and refile a request for extension in compliance with §109(h).

Where debtor failed both to file payment advices or to file certificate of credit counseling, debtor was ineligible to be a chapter 7 debtor, and case should be dismissed rather than stricken. In re Seaman, 340 B.R. 698 (Bankr. E.D.N.Y. 2006). US Trustee sought dismissal for failure to comply with payment advice and credit counseling requirements, and debtor did not appear at hearing. §109(h) does not specify what happens to the bankruptcy case of a debtor that fails to comply with its requirements. The issue is whether the case should be declared void ab initio or dismissed. If dismissed, then the stay limitations of §362(c)(3) or (c)(4) are triggered. On the other hand, if the case is stricken, then the issue arises whether the stay came into existence between the filing date and the date the court struck the petition. If it did come into effect, this would enable an ineligible debtor to trigger a series of bankruptcies improperly availing himself of the automatic stay. While §109(e) requires a chapter 13 debtor to have regular income, virtually all courts recognize that the filing of a chapter 13 petition by a debtor without regular income still commences a case that invokes the jurisdiction of the bankruptcy court. The court also cited the argument that to void a case ab initio would create uncertainty to secured creditors as to the existence of the stay. Further, other sections of the code dealing with failure to file documents, such as §707(a)(3), §1307(c)(9), and §1112(e) set a penalty of dismissal rather than stricking the petition. Under the BAPCPA, Congressional intent is clear that credit counseling is required prior to filing, as a prerequisite for bankruptcy relief, to provide putative debtors with the opportunity to make informed choices as to financial alternatives available, including the possibility of seeking bankruptcy protection. If a case is dismissed rather than stricken, then the debtor may not be able to take advantage of the full panoply of protections afforded under §362 if they refile after obtaining credit counseling. If a case were void ab-initio there would be no purpose for §362(b)(21)(A).

Filing bankruptcy without first complying with credit counseling requirement 1) does nto trigger automatic stay; 2) court may decide on case by case basis whether to strike petition for such failure; 3) court determined to strike both chapter 7 and chapter 13 cases. Court certified question to Court of Appeals. Extensive discussion of case law on issues. In re Elmendorf, 345 B.R. 466 (Bankr. S.D.N.Y. 2006).

Ohio:

The requirement for certification of a request for waiver were examined, and a less strict standard propounded in In re Cleaver, 333 BR 430 (Bankr., S.D. Ohio 2005) (J. Walter). While the motion was ultimately denied for not stating that prepetition counseling was ever sought, the court determined that a motion without separate affidavit or other certification qualified for the form of the request under §109(h)(3)(A). The motion, filed on the same day as the chapter 13 filing (November 3, 2005), stated that a sheriff’s sale of debtor’s property was scheduled the next day, and that there was insufficient time to obtain the counseling. Debtor subsequently filed a certificate that he obtained the counseling briefing on 11 November. The court examined the ‘certification’ requirement of §109(h)(3)(A), and based on Black’s Law Dictionary and Webster’s Third New International Dictionary determined to minimally require a written statement that the signer affirms or attests to be true. Under this definition, no affidavit or oath is required in the motion, nor any separate certification from the motion itself. Judge Walter found the requirements for the §109(h)(3)(A) certification to be 1) a description of the exigent circumstances that merit waiver of the prepetition briefing requirement; 2) That the debtor requested credit counseling services from an approved provided but was unable to obtain it within five days, 3) that the certification is accepted by the Court. Since the debtor did not allege that he sought counseling prior to the filing, the motion was denied and case dismissed.

Pennsylvania:

An issue regarding what constitutes the ‘certification’ of the credit counseling briefing arose in In re Miller, 336 B.R. 232 (Bankr. W.D. Pa. 2006). In this case, the debtor filed a certificate of exigent circumstances explaining why she could not obtain counseling prior to the filing (relating to a sheriff’s sale of the property). There was no discussion in the decision of the efforts, if any, the debtor made to obtain prepetition counseling. After obtaining a post-petition extension to obtain counseling, the debtor filed a ‘certification’ on the letterhead of an approved counseling agency with a hand written statement that she had obtained such counseling, but that the agency would not issue the certificate until its $50 fee was paid. Upon examining dictionary definitions of ‘certification’, Judge Deller ruled that a certification must at a minimum be written instrument which, in an official manner, assures to the reader that 1) that the statements in the certificate are truthful; 2) that the acts or requirements that are the subject of the certification have (or have not) been done. Since the certification filed by the debtor in this case is not shown to have been signed by an authorized officer of the counseling agency, and there is no affirmation that the statements therein are true and correct, and since the document appears not to have been intended by the creator to be presented to the court, it does not qualify as a certification. The court allowed additional time for the debtor to obtain proper certification.

An amplification of the requirement that the exigent circumstances are such as to merit a waiver of the credit counseling requirement was enunciated in In re DiPinto, 336 B.R. 693 (Bankr. E.D. Pa. 2006). The certification in support of the request for credit counseling recited that debtor approached counsel at 7:30 pm the day prior to a sheriff’s sale of the homestead, that the debtor attempted to obtain counseling but was advised that the earliest available date was over 20 days later; and that counsel advised the debtor to attempt to obtain counseling earlier. Judge Raslavich first determined that the purported certification did not comply with 28 U.S.C. §1746, and therefore failed to meet the certify requirement in the statute since the counsel rather than the debtor signed the certification. However, Judge Raslavich went further to determine whether the request would have met the exigent circumstances requirement even if the certification had been proper. Acknowledging that an impending foreclosure sale had been found by courts to constitute exigent circumstances, the court examined a second requirement, that the exigent circumstances merit a waiver of the prepetition counseling requirement.

The ‘merit a waiver’ requirement suggests that the court should consider all the facts and circumstances relating to the debtor's alleged inability to obtain credit counseling prior to filing a petition for relief. In other words, the focus should be not so much on the imminence of the event that threatens the debtor with loss of property and requires filing of the petition for relief in order to invoke the automatic stay, but on the reasons why the debtor was unable to obtain the required credit counseling prior to having to file for relief. Debtor’s statement that he had found a last minute buyer for the property failed to meet this requirement. Debtor had sufficient advance notice of the creditor action, waiting until the last minute to address the prerequisites to bankruptcy filing makes the injury self-inflicting and therefore not meriting a waiver of the prepetition credit counseling requirement.

The court also questioned the debtors efforts to obtain counseling, noting that they sought counseling from only 1 of 14 approved agencies, and did not allege attempting to obtain counseling by telephone or internet.

A request for extension for credit counseling was again denied for failure of the debtor to even seek such counseling prior to filing in In re Tomco, 339 B.R. 145 (Bankr. W.D. Pa. 2006). Judge Deller further found that he was required to dismiss the case rather than strike it. The debtor filed just prior to a foreclosure sale on the homestead. The court noted the practical problems of requiring unsophisticated debtors to obtain counseling prior to the filing, but found that there was a rational basis for the legislation such that it could not be ignored. The court defined the inquiry under the extension section to be whether the debtor was actually precluded by his or her circumstances from obtaining the credit counseling briefing. This is a fact-specific inquiry into the good faith of the debtor, in which knowledge of the law may be a factor. However, this analysis does not change the requirement that the debtor seek counseling prior to filing and be unable to obtain it within five days.

The court rejected the debtor’s argument to strike the petition as done by the court in Rios rather than dismiss the case. The court found that the plain language of §362(c)(3) set forth the only limitations on its applicability, and Congress could have but did not include dismissals due to credit counseling as a basis for waiving waiving the limitations on the stay. §109(h) does not affect the Court’s jurisdiction over a case. The court was granted jurisdiction over the case upon filing by title 28 USC. Further, practicality argues for the initial validity of a case filed in violation of §109(h), as otherwise there would be no automatic stay ab-initio. If a case proceeds when §109(h) was not complied with, its orders remain valid despite such noncompliance.

South Carolina:

Request for credit counseling must be made at least five days prior to filing of the petition in order for court to grant waiver. In re Dansby, 340 B.R. 565 (Bankr. S.C. 2006). While debtor filed a certification with the petition that he could not obtain credit counseling within five days of his request, in fact debtor had an appointment with an approved counselor on the 5^th day after filing. The fact that there was a foreclosure sale prior to the 5^th day did not change the legal requirement. While noting that the certification should be in the form of an oath, the court did not deny the motion on that ground. Citing Cleaver for the proposition that §109(h)(3)(A)(ii) appears to require a five day waiting period prior to filing the petition. Congress intended to provide debtors with an alternative to filing bankruptcy, and to discourage hasty filings. This goal is not met if the debtor waits until just prior to filing to seek credit counseling. The court noted that debtors are not required to ‘scour’ the list of approved counselors prior to seeking an extension, they would be well advised to check with other counselors to avoid dismissal.

Tennessee:

An exception to the usual rule that petitions are deemed filed when received by the bankruptcy clerk’s office was enunciated in In re Looper, 334 BR 596 (Bankr. E.D. Tenn. 2005). The Debtor here was a prisoner. Citing Houston v. Lack, 487 U.S. 266, 108 S.Ct. 2379, 2382, 101 L.Ed.2d 245 (1988), the court ruled that under the “prisoner mailroom or mailbox filing rule,” a document to be filed by a pro se prisoner is deemed “filed” with a court on the date the prisoner delivers the document to prison officials for forwarding to the court. Since the bankruptcy petition was delivered to the prison officials prior to the effective date of BAPCPA, the debtor was not required to comply with the credit counseling requirements of §109(h).

Examining whether there was any basis to determine if there was a basis to correct or reinterpret the statute requiring prepetition credit counseling, and determining that legal precedent required strict compliance, Judge Stair found himself required to dismiss a number of cases for failing to obtain prepetition counseling in In re Fields, 337 B.R. 173 (Bankr. E.D. Tenn. 2005). The US Trustee has sought dismissal of a number of pro-se cases, many of whom used paralegal services, but none of whom had obtained the prepetition counseling. Finding that the language of the statute was plain and unambiguous. The only grounds to waive the requirement are set forth in the section itself.

Texas:

A Texas court has published 3 decisions on this issue in the same case. In In re Hubbard, 332 B.R. 285 (Bankr. S.D. Tex. 2005) it ruled similarly to the other reported decisions in rejecting an extension where the motion failed to file a certification (a motion was insufficient) that explained the exigent circumstances, the date the counseling was sought, which agencies were contacted, why debtor believes that the services could not be obtained prior to filing, and when the services are reasonably likely to be obtained. The court stressed that in the absence of a certification that debtor actually sought counseling services, any such motion must fail. Upon reconsideration, the court sua sponte examined the possibility for relief under §109(h)(2), finding that the motions in a few cases before raised the issue as to whether credit counseling was available in the Southern District of Texas. The court found that if credit counseling is, in fact, not available in the that district, the U.S. Trustee is required to make such certification under §109(h)(2). The Court therefore issued an order for the U.S. Trustee to appear before him and describe the procedures undertaken regarding its certification obligations on the statute. In re Hubbard, 333 BR 373 (Bankr. S.D. Tex. 2005). J. Isgur. At this hearing the Court ruled that credit counseling was available. This final ruling determined that credit counseling was available, and debtors failed to meet the statutory requirements for extension. However, Judge Isgur also determined that since §109(h) specifically specifies that ‘an individual may not be a debtor under this chapter’ unless he meets the credit counseling requirements; and since §301 provides that a voluntary case is ‘commenced by the filing with the bankruptcy court of a petition under such chapter by an entity that may be a debtor under such chapter’, the commencement of a case without compliance with §109(h) does not successfully commence a voluntary case. Since no case was commenced in the Hubbard and related cases, there is no case to dismiss. Therefore, the Court stuck the petitions rather than dismissing them. This, of course, would also have the effect of not triggering the stay provisions of §362(c)(3) or (c)(4). The court determined that fee charged by the Debtor’s counsel exceeded the reasonable value of counsel’s services in the Hubbard and related cases and entered an order to show cause why such fees and expenses should not be returned to the debtors. In re Hubbard, 333 B.R. 377 (Bankr. S.D. Tex. 2005).

Another court very critical of BAPCPA in general and the credit counseling requirement in particular discussed the criticisms in In re Sosa, 336 BR 113 (Bankr. W.D. Tex. 2005). J. Monroe. “Those responsible for the passing of the Act did all in their power to avoid the proffered input from sitting United States Bankruptcy Judges, various professors of bankruptcy law at distinguished universities, and many professional associations filled with the best of the bankruptcy lawyers in the country as to the perceived flaws in the Act. This is because the parties pushing the passage of the Act had their own agenda. It was apparently an agenda to make more money off the backs of the consumers in this country. It is not surprising, therefore, that the Act has been highly criticized across the country. In this writer's opinion, to call the Act a “consumer protection” Act is the grossest of misnomers.”

And subsequently in the decision: “[o]ne Debtor has now substantially complied with the intent of the Act by undergoing the required credit counseling. One has not but still could within the time limit if a waiver could be granted. However, because the Debtors did not request such counseling before they filed their case, Congress says they are ineligible for relief under the Act. Can any rational human being make a cogent argument that this makes any sense at all?
But let's not stop there. If the Debtors' case is dismissed and they re-file a new case within the next year, it may be that some creditor will take the position that the new case should be presumed to be filed not in good faith. See 11 U.S.C. § 362(c)(3)(C). Section 362 further states that if subsection (c)(3)(C) applies, then the stay in that second case will only be good for thirty days unless the debtor (i) files a motion, (ii) obtains a hearing and ruling by the Court within such thirty-day period and (iii) proves by clear and convincing evidence that the second case was filed in good faith. It should be obvious to the reader at this point how truly concerned Congress is for the individual consumers of this country. Apparently, it is not the individual consumers of this country that make the donations to the members of Congress that allow them to be elected and re-elected and re-elected and re-elected.”

The facts of the case are similar to most reported decisions. The debtors filed at the last minute to avoid a foreclosure sale; putting of the filing in this case due to negotiations with the mortgage company regarding a cure and a last minute rejection by the mortgage company of a cure offer. The debtors admitted not seeking credit counseling prior to filing the bankruptcy case. Finding his hands tied by the act, the court found itself required to dismiss the case. The court appears to have specifically declined to rule on whether a new filing would trigger the stay limitations of §362(c)(3) or (c)(4).

Disagreeing with In re Ross and In re Tomco Judge Isgur determined that a bankruptcy filing by debtors that did not meet the pre-bankruptcy credit counseling requirements of §109(h) does not trigger the automatic stay, and therefore a post-petition foreclosure sale was neither void nor voidable. In re Salazar, 339 B.R. 622 (Bankr. S.D. Tex. 2006). The court determined that it was implausible to believe that Congress specifically identified people to exclude from the bankruptcy process under §109(h) for failure to obtain credit counseling, yet permitted those same people to benefit from bankruptcy’s most powerful protection: the automatic stay. §362(a) provides that the automatic stay takes effect when a petition is filed under §§301, 302, or 303 of the code. §302 (the relevant section for the bankruptcy at issue) provides that a case is commenced with the filing of a petition by an individual that may be a debtor under such chapter. §109(h) provides that an individual may not be a debtor under this title unless the met the credit counseling requirement. Thus, as read together, unless an individual met the credit counseling requirement, they are ineligible to file a proper petition for bankruptcy or to be eligible for the automatic stay. The statute gives no room for an equitable exception to the rule. The court noted that this could create uncertainty in some circumstances, but noted the code provides mechanisms both to punish creditors that act in violation of the stay and to punish debtors that attempt to avail themselves of bankruptcy proection when they are ineligible. The court noted that the Fifth Circuit’s position that stay violations are voidable rather than void also reflects a code interpretion allowing a certain degree of uncertainty until a final decision is reached. Other instances where the applicablility of the stay is subject to court review were note by the court. Congressional intent must also support the conclusion. Congress intended that individuals learn about the consequences of bankruptcy before they file. Not including the credit counseling certificate in the list of deficiencies that result in automatic dismissal under §521(i) also could reflect Congressional intent that there is no case to be dismissed in the absence of compliance with the credit counseling requirements. The debtors argued that §362(b)(21) would be surplusage if the automatic stay never arose upon failure to comply with §109(h). The court rejected this argument, finding that §362(b)(21) was adopted by Congress to overrule those decisions finding that ineligible debtors could still file a petition triggering the automatic stay. Lastly, the court distinguished between dismissing a case and dismissing (or striking) the bankruptcy petition. §941(c) and (d) provide for dismissal of petitions. Dismissal of a petition pursuant to §109 results in dismissal prior to commencement of a case, and therefore would not trigger the stay limitation of §362(c)(3) or §362(c)(4) in a subsequent case. The court certified the decision for direct appeal to the Fifth Circuit Court of Appeals.

Utah:

In In re Sukmungsa, 333 B.R, 875 (Bankr. D. Utah 2005) the court rejected an attempt to use Rule 60(b) to extend the time to seek credit counseling. Debtor’s counsel asserted that the Debtors told him they had completed credit counseling prior to filing. The original filing included a certification by the debtors that they had completed credit counseling, three days prior to filing, but no certificate from any approved credit counseling agency. An actual credit counseling certificate was later filed seven days after the bankruptcy, showing counseling received that same day. A corrected certificate of credit counseling was filed after the hearing on the motion to extend showing that counseling was had with an approved provider six days prepetition. The Court looked to Pioneer Investment Services Company v. Brunswick Associates Limited Partnership et al., 507 U.S. 380, 113 S.Ct. 1489, 123 L.Ed.2d 74 (1993) for the standards to show excusable neglect. The court found that counsel had a duty under Rule 9011 to make a reasonably inquiry that the factual contentions in the petition have evidentiary support. The court found that the Debtors never explained the discrepancies in the dates of credit counseling. The court ruled that the excusable neglect standard was not met in that debtors never adequately explained why the Debtors failed to timely certify the completion of the credit counseling. Further, counsel should have taken reasonable steps to verify the debtors assertions of completion of the counseling.

Virginia:

In In re Watson, 332 B.R. 740 (Bankr. E.D. Va. 2005) Judge St. John ruled the debtor must show both exigent circumstances and that he requested credit counseling from an approved agency; and that such showing is satisfactory to the court. Thus, even if the court finds that circumstances were sufficiently exigent to warrant not seeking credit counseling, the motion still must be denied and the case dismissed unless the debtor actually sought credit counseling from an approved agency within 5 days of filing. In this decision the court also rejected an equal protection argument made by the individual chapter 13 debtor that if he had chosen a corporate structure rather than a sole proprietorship, the corporation would not have to meet the credit counseling requirement. The court determined that the disadvantaged class – sole proprietorships – were not a suspect class for discrimination purposes. Further, that there was a rational basis for congress distinguishing individuals from corporations in making the credit counseling requirement.

Wisconsin:

One of the rare cases when a motion for extension was granted is the unpublished decision in In re Reed, 05-45739-pp (Bankr. E.D. Wis.. 14 November, 2005) (J. Pepper). In this case the Debtor filed a motion alleging that they sought credit counseling five days prior to filing, but were told that the first available appointment would not be for substantially more than five days. While they did not assert exigent circumstances, the court granted the motion and allowed 30 days after the filing of the case for the debtors to obtain such counseling.

A factual situation nearly identical to Looper was announced in In re Luedtke, 337 B.R. 918 (Bankr. E.D. Wis. 2006). Again, a petition was mailed by a prisoner prior to October 17, but received by the bankruptcy clerk after October 17. This court also cited the prisoner mailbox rule to determine that the petition was deemed filed when delivered to the prison mailbox, rather than when received by the bankruptcy clerk.

§109(h)(1) Subject to paragraphs (2) and (3), and notwithstanding any other provision of this section, an individual may not be a debtor under this title unless such individual has, during the 180-day period preceding the date of filing of the petition by such individual, received from an approved nonprofit budget and credit counseling agency described in section 111(a) an individual or group briefing (including a briefing conducted by telephone or on the Internet) that outlined the opportunities for available credit counseling and assisted such individual in performing a related budget analysis.

(2)(A) Paragraph (1) shall not apply with respect to a debtor who resides in a district for which the United States trustee (or the bankruptcy administrator, if any) determines that the approved nonprofit budget and credit counseling agencies for such district are not reasonably able to provide adequate services to the additional individuals who would otherwise seek credit counseling from such agencies by reason of the requirements of paragraph (1).

(B) The united states trustee (or the bankruptcy administrator, if any) who makes a determination described in subparagraph (A) shall review such determination not later than 1 year after the date of such determination, and not less frequently than annually thereafter. Notwithstanding the preceding sentence, a nonprofit budget and credit counseling agency may be disapproved by the United States trustee (or the bankruptcy administrator, if any) at any time.

(3)(A) Subject to subparagraph (B), the requirements of paragraph (1) shall not apply with respect to a debtor who submits to the court a certification that –

(i) described exigent circumstances that merit a waiver of the requirements of paragraph (1);

(ii) states that the debtor requested credit counseling services from an approved nonprofit budget and credit counseling agency, but was unable to obtain the services referred to in paragraph (1) during the 5-day period beginning on the date on which the debtor made that request; and

(iii) is satisfactory to the court.

(B) With respect to a debtor, an exemption under subparagraph (A) shall cease to apply to that debtor on the date on which the debtor meets the requirements of paragraph (1), but in no case may the exemption apply to that debtor after the date that is 30 days after the debtor files a petition except that the court, for cause, may order an additional 15 days.

(4) The requirements of paragraph (1) shall not apply with respect to a debtor whom the court determines, after notice and hearing, is unable to complete those requirements because of incapacity, disability, or active military duty in a military combat zone. For the purposes of this paragraph, incapacity means that the debtor is impaired by reason of mental illness or mental deficiency so that he is incapable of realizing and making rational decisions with respect to his financial responsibilities; and ‘disability’ means that the debtor is so physically impaired as to be unable, after reasonable effort, to participate in an in person, telephone, or Internet briefing required under paragraph (1).

¶8 Appointment to Sign Schedules

¶8.1 It is a violation of §526(a)(2) for a DRA to make a statement or advise a client (or potential client) to make any statement that is untrue and misleading, or that counsel should have known was untrue and misleading. This puts some burden on counsel to exercise reasonable care to insure that no statements by counsel or by the client are inaccurate and misleading. Note, the statements must be both untrue and misleading, hence while no one would recommend putting untrue statements on the schedules, the fact that a statement, while true, might be misleading, could not be the basis for sanctions under this section. There remains a question whether any affirmative investigation is required or whether counsel simply must not know that any statements are misleading. Since the section does not state ‘upon reasonable investigation’ as it does in §xxx, then presumably no investigation is required. This also only applies to written documents filed in a bankruptcy.

§526(a) A debt relief agency shall not –

(2) make any statement, or counsel or advise any assisted person or prospective assisted person to make any statement in a document filed in a case or proceeding under this title, that is untrue and misleading, or that upon the exercise of reasonable care, should have been known by such agency to be untrue or misleading;

¶8.2 Schedules and documents filed with petition: in addition to the schedules and statement of financial affairs, the code now requires a statement by the debtor’s attorney that counsel has delivered the §342(b) [notice of available chapters and statements regarding the accuracy of the forms] to the debtor. (This only requires delivery of the notice, not that the notice was read, contrast to §521(a)(1)(B)(iii)(II) where pro-se debtors are actually required to read the notice). Also the initial filing must include copies of pay stubs from the debtors from the last 60 days prior to filing, and a statement of any reasonably anticipated increase in income or expenditures (though not of any decrease in income or expenditures?) in the 12 months following the filing of the case.

If these documents are not filed within 45 days after the case is filed, the case is automatically dismissed on the 46^th day according to §521(i)(1); yet according to §521(i)(2) it shall be dismissed within 5 days after a request by a party in interest. Subsection (1) defers to subsection 2, thereby implying a defacto dismissal formalized by the procedures described in subsection (2). The debtor may request an extension of time of up to another 45 days but the request must be filed within the initial 45 day period. Also, the trustee (but not the debtor or any other party in interest) may request that the case not be dismissed if such request is made prior to the expiration of the time period and if the court finds that the debtor attempted in good faith to file all the information required and that the best interests of the creditors would be served by administration of the case.

Query wouldn’t this allow the debtor who decided after the filing of the case that it wanted out of bankruptcy to simply refuse to file such documents, thereby requiring dismissal of the case under this subsection regardless of the best interests of creditors?

Cases:

Colorado:

Excusable neglect is not a basis to waive the filing deadlines of §521(i)(1). In re Ott, 2006 wl 1152339 (Bankr. D.Colo. 2006). Debtor’s counsel did not advise debtor of the deadline to file the payment advices, and the advices were not filed within the deadline set by BAPCPA. The bankruptcy itself was filed just 2 days after BAPCPA took effect. Debtor sought to vacate the order dismissing on the basis that the delay in filing was caused by counsel’s mistake or omission, and the confusion of the new bankruptcy law. The court noted that the legislative history seemed to reflect that Congress viewed bankruptcy as morally similar to shoplifting, and set a number of self–executing, unforgiving, and inflexible provisions in the new law. The case is automatically dimissed on the 46^th day if the documents are not filed. Once that occurs, no other excuses or exceptions can apply to reinstate the case. The court did note that it may be possible to extend the time prior to the termination of the 45^th day, including by the court’s own initiative. The court also noted that if circumstances made it impossible to comply with the 45 day deadline, a different result might apply.

Florida:

A pro – se debtor sought reconsideration of dismissal of his case for failure to file the §521(a)(1) documents within 45 days. Judge McEwen ruled that the court had no discretion to grant an extension of time to file those documents, and that dismissal was required. The case is automatically dismissed under §521(a)(7)(i)(1) on the 46^th day after filing. The extension permitted under §521(i)(3) requires that such extension request be filed prior to the expiration of the 45 days. Once that time period expires, any discretion left to the court terminates. In re Williams, 339 B.R. 794 (Bankr. M.D. Fla. 2006) (J. McEwen).

Texas:

Judge Jones determined that where the debts are primarily business, the schedules I and J adequate disclose the debtors income and expenses and the statement of monthly income contained in §521(a)(1)(B)(v) is not required. In re Moates, 338 B.R. 716 (Bankr. N.D. Tex. 2006). This statement is required to help apply the means test of §707(b) The US Trustee took the position, accepted by the court, that the statement of monthly income is only required for debtors holding primarily consumer debts since the §707(b) means test does not apply to such debtors.

Utah:

The first published decision interpreting this section appears to be In re Fawson, 338 B.R. 505 (Bankr. D.Utah 2006). The court ruled that where the required documents were not filed until after the 45 days, and no request was made for extension within such 45 days, the court had no discretion but to dismiss the cases. The debtors failed to file the required payment advices or a statement that no such advices were required. In one of the cases the Debtor’s counsel explained that computer problems had prevented the filing of the advices with the Court. In another, the advices were delivered to the US Trustee and the Chapter 7 trustee, but not filed with the Court. As to one debtor, the debtor had not received any income within the 60 days prior to filing. The debtors requested extensions after expiration of the 45 days. The court concluded that the debtor who was not employed in the prior 60 days did comply with §521(i)(1), despite not filing a document showing no income for the period. Debtor argued that §521(i)(2) requiring the court to dismiss a case not later than 5 days after request of a party in interest showed that the court had discretion as to such dismissals. The court rejected this argument, finding that (i)(2) did not change the legal effect of (i)(1). Once §521(i)(1) is satisfied, the case is dismissed whether or not an order is entered. Rule 5005(c) does not avail the debtors because for a document to be deemed filed with the court when delivered to the trustee, the party must have intended to file it with the court. Neither does Rule 9006(b) help due to the automatic dismissal, the 9006(b) request coming after dismissal of the case cannot be effective since the court lost jurisdiction upon dismissal. Further, Rule 9006 only permits extension for deadlines set by the bankruptcy rules or by court order, and does not permit extension of deadlines set in the Bankruptcy Code itself.

§521(a) The debtor shall –

(1) file –

(A) a list of creditors; and

(B) unless the court orders otherwise –

(i) a schedule of assets and liabilities;

(ii) a schedule of current income and current expenditures;

(iii) a statement of the debtor’s financial affairs and, if section 342(b) applies, a certificate –

(I) of an attorney whose name is indicated on the petition as the attorney for the debtor, or a bankruptcy petition preparer signing the petition under section 110(b)(1), indicating that such attorney or the bankruptcy petition preparer delivered to the debtor the notice required by section 342(b); or

(II) if no attorney is so indicated, and no bankruptcy petition preparer signed the petition, of the debtor that such notice was received and read by the debtor;

(iv) copies of all payment advices or other evidence of payment received within 60 days before the date of the filing of the petition by the debtor from any employer of the debtor;

(v) a statement of the amount of monthly net income, itemized to show how the amount is calculated; and

(vi) a statement disclosing any reasonably anticipated increase in income or expenditures over the 12-month period following the date of the filing of the petition;

§521(i)(1) Subject to paragraphs (2) and (4) and notwithstanding section 707(a), if an individual debtor in a voluntary case under chapter 7 or 13 fails to file all of the information required under subsection (a)(1) within 45 days after the date of the filing of the petition, the case shall be automatically dismissed effective on the 46^th day after the date of the filing of the petition.

(2) subject to paragraph (4) and with respect to a case described in paragraph (1), any party in interest may request the court to enter an order dismissing the case. If requested, the court shall enter an order of dismissal not later than 5 days after such request.

(3) Subject to paragraph (4) and upon request of the debtor made within 45 days after the date of the filing of the petition described in paragraph (1), the court may allow the debtor an additional period of not to exceed 45 days to file the information required under subsection (a)(1) if the court finds justification for extending the period for filing.

(4) Notwithstanding an other provision of this subsection, on the motion of the trustee filed before the expiration of the applicable period of time specified in paragraph (1), (2), or (3), and after notice and a hearing, the court may decline to dismiss the case if the court finds that the debtor attempted in good faith to file all the information required by subsection (a)(1)(B)(iv) and that the best interests of creditors would be served by administration of the case.

¶8.3 Accuracy of Schedules

In re McKain, 325 B.R. 842, 851 (Bankr. Neb. 2005) in dicta, Judge Mahoney states that BAPCPA attorney’s signature on petition constitutes certification that attorney has no knowledge, after inquiry, that information on schedules is incorrect, implying that a reasonable inquiry is required into schedules as well as petition.

Counsel held liable for not confirming that mother’s alleged security interest in debtor’s motor home was perfeced despite advising debtors to obtain counsel to assure perfection, and being advised by debtors that they had done so. In re Dean, 2008 WL 5683493 (Bankr. D. Idaho).

¶8.4 Installment payment or waiver of filing fee. Rule 1006(b)(1) has eliminated the requirement that no fees have been paid to counsel in order to seek payment of filing fee by installments. However, such filing fee must be paid by the chapter 13 trustee prior to any fees being paid by the trustee to the attorney. Rule 1006(c) now permits waiver of the filing fee in chapter 7 upon filing the appropriate form. The standards for such waiver are not shown.

Cases:

Missouri:

The first published case interpreting this section of BAPCPA is In re Nuttall. 334 BR 921 (Bankr. W.D. Mo. 2005). Judge Federman granted a motion to waive the filing fee, finding that the debtor had income less than 150 percent of the income official poverty line (as defined by the Office of Management and Budget, and revised annually in accordance with section 673(2) of the Omnibus Budget Reconciliation Act of 1981) applicable to a family of the size involved and is unable to pay that fee in installments. See 28 USC §1930(f)(1). In determining this, the court first determines the relevant income figure. This would be the amount shown on line 16 of schedule I, but must include any income of a spouse (unless the parties are separated and filing is not joint), and income of dependent debtor; but does not include non–cash governmental assistance such as food stamps and housing subsidies. If this is less than 150% of the DHHS poverty guidelines, the court determines whether the debtor is able to pay the filing fee in installments, considering the totality of the circumstances. While payment or a promise to pay an attorney, bankruptcy petition preparer, or debt relief agency does not preclude the court from finding such inability, it may be a factor in such consideration. The burden to show such necessity is on the debtor.

Tennessee:

Where a debtor’s schedules I and J (as corrected) show a net income of over $200/month, the application for waiver of the filing fee should be denied despite showing no net income on the means test and having expenses less than that allowed under the means test. In re Bradshaw, 349 B.R. 511 (Bankr. E.D.Tenn. 2006). In order to waive the filing fee, the debtor must show that they have income less than 150% of the poverty guidelines, and inability to pay the fee based on the totality of the circumstances. It is the debtor’s burden to prove these factors.

Rule 1006. Filing fee.

(a) GENERAL REQUIREMENT. Every petition shall be accompanied by the filing fee except as provided in subsections (b) and (c) of this rule. For the purpose of this rule, “filing fee” means the filing fee prescribed by 28 U.S.C. 1930(a)(1) – (a)(5) and any other fee prescribed by the Judicial Conference of the United States under 28 U.S.S. §1930(b) that is payable to the clerk upon the commencement of a case under the Code.

(b) PAYMENT OF FILING FEE IN INSTALLMENTS.

(1) Application to Pay Filing Fee in Installments. A voluntary petition by an individual shall be accepted for filing if accompanied by the debtor’s signed application, prepared as prescribed by the Official Form, stating that the debtor is unable to pay the filing fee except in installments.

…

(3) Postponement of Attorney’s Fees. All installments of the filing fee must be paid in full before the debtor or chapter 13 trustee may make further payments to an attorney or other person who renders services to the debtor in connection with the case.

(c) WAIVER OF FILING FEE. A voluntary chapter 7 petition filed by an individual shall be accepted for filing if accompanied by the debtor’s application requesting a waiver under 28 U.S.C. §1930(f), prepared as prescribed by the appropriate Official Form.

¶8.5 Check for preferences or fraudulent transfers

The definition of a transfer has been changed in an apparent attempt to broaden it.

§101(54) The term ‘transfer’ means –

(A) the creation of a lien;

(B) the retention of title as a security interest;

(C) the foreclosure of a debtor’s equity of redemption; or

(D) each mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with –

(i) property; or

(ii) an interest in property.

¶8.6 Minor children’s names shall not be disclosed on the petition.

§112. The debtor may be required to provide information regarding a minor child involved in matters under this title but may not be required to disclose in the public records in the case the name of such minor child. The debtor may be required to disclose the name of such minor child in a nonpublic record that is maintained by the court and made available by the court for examination by the United States trustee, the trustee, and the auditor (if any) serving under section 586(f) of title 28, in the case. The court, the United States trustee, the trustee, and such auditor shall not disclose the name of such minor child maintained in such nonpublic record.

¶8.7 Creditor Addresses

¶8.71 Check the last 3 months of bills or statements from creditors to determine the proper address for service to creditors and the proper account number. If 2 statements or bills show an address at which the creditor wishes to receive correspondence and shows the account number, then notice must be sent to that address with the account number. Query, what if the debtor had moved and did not send forwarding notice to the creditors? The statute refers to notices sent to the debtor, not to notices received by the debtor. Does this mean the notices to creditors may be improper if the debtor did not receive creditor bills/statements for the last 90 days? Subsection B refers to situations where the creditor was prohibited from communicating with the debtor for such 90 day period (or a portion thereof?), in which case it appears the statute looks back to the indefinite past for whenever the last 2 communications were sent by the creditor. If state law or debt collection law prohibits contact with represented debtors, then counsel should attempt to insure that correspondence is retained that was received within 90 days prior to retention of the counsel. Note that the Fair Debt Practices Collection Act generally prohibits contact with debtors that are represented by counsel. 15 U.S.C. §1692c(a)(2).

One other interpretation notes that section 2(A) refers to notice required under title 11 to be sent by debtor. The only notices there noted that debtor is required to send is regarding rejection of reaffirmation agreements and regarding executory contracts; and would not apply to the address used on the schedules.¹If this interpretation holds, this section would have minimal effect.

Query whether this notice provision supersedes the notices required by Rule 7004/9014 such as to insured depository institutions or government agencies?

§342(c)(2)(A) If, within the 90 days before the commencement of a voluntary case, a creditor supplies the debtor in at least 2 communications sent to the debtor with the current account number of the debtor and the address at which such creditor requests to receive correspondence, then any notice required by this title to be sent by the debtor to such creditor shall be sent to such address and shall include such account number.

(B) If a creditor would be in violation of applicable nonbankruptcy law by sending any such communication within such 90-day period and if such creditor supplies to the debtor in the last 2 communications with the current account number of the debtor and the address at which such creditor requests to receive correspondence, then any notice required by this section to be sent by the debtor to such creditor shall be sent to such address and shall include such account number.

¶8.72 Also check whether the creditors have provided the court with a preferred address. Note that the section only requires that the notice be filed ‘with any bankruptcy court’ regarding notice to be used by ‘all the bankruptcy courts’. Presumably the clerk’s office will have some method of coordinating such notices. Query what if there is a delay between notice to one bankruptcy court and update to the other courts of such notice?

§342(f)(1) An entity may file with any bankruptcy court a notice of address to be used by all the bankruptcy courts or by particular bankruptcy courts, as so specified by such entity at the time such notice is filed, to provide notice to such entity in all cases under chapters 7 and 13 pending in the courts with respect to which such notice is filed, in which such entity is a creditor.

(2) In any case filed under chapter 7 or 13, any notice required to be provided by a court with respect to which a notice is filed under paragraph (1), to such entity later than 30 days after the filing of such notice under paragraph (1) shall be provided to such address unless with respect to a particular case a different address is specified in a notice filed and served in accordance with subsection (e). [See ## below].

(3) A notice filed under paragraph (1) may be withdrawn by such entity.

¶8.73 If notice is sent to an improper address for a creditor, then the creditor will be deemed to be without notice of the pending case until the creditor (or an individual designed by the creditor to receive such notices) has actually received such notice. Further, monetary penalties (sanctions?) cannot be imposed on a creditor for stay violations until such proper notice is given (under §342(c),(e), or (f)) or received (under §342(g)(1)). Query, how is the debtor to determine what procedures all the different creditors have established for delivery of such notices? Perhaps local rules or the US Trustee could designate a national database for such procedures, and provide that failure to list the procedures in this database would constitute such procedures unreasonable.

An area that could spawn substantial litigation is whether a creditor who alleges it was not properly noticed had established reasonable procedures for notices to be provided to the designated person or subdivision. Given electronic noticing, if a creditor has not given an address to the Bankruptcy Noticing Center, and/or has not signed up with BANKO (an online service that notifies creditors of bankruptcy filing), the courts may determine that the creditor’s procedures were not reasonable.¹

§342(g)(1) Notice provided to a creditor by the debtor or the court other than in accordance with this section (excluding this subsection) shall not be effective notice until such notice is brought to the attention of such creditor. If such creditor designates a person or organizational subdivision of such creditor to be responsible for receiving notices under this title and establishes reasonable procedures so that such notices received by such creditor are to be delivered to such person or such subdivision, then a notice provided to such creditor other than in accordance with this section (excluding this subdivision) shall not be considered to have been brought to the attention of such creditor until such notice is received by such person or such subdivision.

(2) A monetary penalty may not be imposed on a creditor for violation of a stay in effect under section 362(a) (including a monetary penalty imposed under section 362(k)) or for failure to comply with section 542 or 543 unless the conduct that is the basis of such violation or of such failure occurs after such creditor receives notice effective under this section of the order for relief.

¶8.8 The petition forms now require disclosure of whether any judgment for possession of residential leasehold property has been obtained against the debtor. If so, and the debtor is willing and able to promptly cure the default, a certification must be filed with the petition to get a short extension to accomplish such cure. See ## below.

§362(l)(5)(A) Where a judgment for possession of residential property in which the debtor resides as a tenant under a lease or rental agreement has been obtained by the lessor, the debtor shall so indicate on the bankruptcy petition and shall provide the name and address of the lessor that obtained that pre-petition judgment on the petition and on any certification filed under this subsection.

¶8.91 Is there a risk that disclosure of the bankruptcy petition information will result in identity theft or some other unlawful injury against the Debtor or Debtor’s property? If so the Court can restrict disclosure of such information (Query, what if child support is owed to an ex-spouse and an order and there is a history of violence by the ex-spouse against the debtor?)

107(c)(1) The bankruptcy court, for cause, may protect an individual, with respect to the following types of information to the extent the court finds that disclosure of such information would create undue risk of identity theft or other unlawful injury to the individual or the individual’s property:

(A) Any means of identification (as defined in section 1028(d) of title 18) contained in a paper filed, or to be filed, in a case under this title.

(B) Other information contained in a paper described in subsection (A).

(2) Upon ex parte application demonstrating cause, the court shall provide access to information protected pursuant to paragraph (1) to an entity acting pursuant to the police or regulatory power of a domestic governmental unit.

(3) The United States trustee, bankruptcy administrator, trustee, and any auditor serving under section 586(f) of title 28 –

(A) shall have full access to all information contained in any paper filed or submitted in a case under this title; and

(B) shall not disclose information specifically protected by the court under this title.

¶8.96 If there was a foreclosure sale pending, record suggestion of bankruptcy or bankruptcy petition in property records prior to sale. §362(b)(24) could be interpreted to except from the automatic stay foreclosure sales where purchaser did not have notice of the sale. Therefore it is critical to record a copy of the bankruptcy petition (and suggestion) in the property records.

§362(b)(24) [The filing of a petition… shall not operate as a stay] under subsection (a), of any transfer that is not avoidable under section 549.

¶9 Additional documents to be filed with the petition:

¶9.1 Individual debtors also must file a certificate from an approved credit counseling agency, a copy of any debt repayment plan developed through such agency, a copy of any interest n an educational IRA or state tuition program (including presumably the Florida pre-paid college fund).

§521(b) In addition to the requirements under subsection (a), a debtor who is an individual shall file with the court –

(1) a certificate from the approved nonprofit budget and credit counseling agency that provided the debtor services under section 109(h) describing the services provided to the debtor; and

(2) a copy of the debt repayment plan, if any, developed under section 109(h) through the approved nonprofit budget and credit counseling agency referred to in paragraph (1).

(c) In addition to meeting the requirements under subsection (a), a debtor shall file with the court a record of any interest that a debtor has in an educational individual retirement account (as defined in section 530(b)(1) of the Internal Revenue Code of 1986) or under a qualified State tuition program (as defined in section 529(b)(1) of such Code).

¶9.2 The Means test computations, showing income and expenses, and stating whether a presumption of abuse exists, shall be included with the schedule of income and expenses.

§707(b)(2)(C) As part of the schedule of current income and expenditures required under section 521, the debtor shall include a statement of the debtor’s current monthly income, and the calculations that determine whether a presumption arises under subparagraph (A)(i), that show how each such amount is calculated.

¶9.3 Rule 1007(b) sets out the list of documents to accompany the petition, and adds to the prior requirements: copy of income records for the last 60 days (it is counsel’s responsibility to redact all the but last 4 digits of the social security number); a record of any interest in an educational IRA, a credit counseling certification and, if any, and unless §707(b)(2)(D) applies, a debt repayment plan (or, alternatively a request for extension under §109(h)(3) or waiver under §109(h)(4)), the means test form (except in chapter 7 when the debtor has primarily business debts).

Rule 1007. Lists, Schedules, Statements, and other Documents; Time Limits.

(b) SCHEDULES, STATEMENTS, AND OTHER DOCUMENTS REQUIRED.

(1) Except in a chapter 9 municipality case, the debtor, unless the court orders otherwise, shall file the following schedules, statements, and other documents, prepared as prescribed by the appropriate Official Forms, if any;

…

(E) copies of all payment advices or other evidence of payment, if any, with all but the last four digits of the debtor’s social security number redacted, received by the debtor from an employer within 60 days before the filing of the petition; and

(F) a record of an interest that the debtor has in an account or program of the type specified in §521(c) of the Code.

…

(3) Unless the United States trustee has determined that the credit counseling requirement of §109 does not apply in the district, and individual debtor must file the certificate and debt repayment plan, if any, required by §521(b), a certification under §109(h)(3), or a request for determination under §109(h)(4).

(4) Unless §707(b)(2)(D) applies, and individual debtor in a chapter 7 case with primarily consumer debts shall file a statement of current monthly income prepared as prescribed by the appropriate Official Form, and, if the debtor has current monthly income greater than the applicable median family income for the applicable state and household size, the calculations in accordance with §707(b), prepared as prescribed by the appropriate Official Form.

…

(6) A debtor in a chapter 13 case shall file a statement of current monthly income, prepared as prescribed by the appropriate Official Form, and, if the debtor has current monthly income greater than the median family income for the applicable state and family size, a calculation of disposable income in accordance with §1325(b)(3), prepared as prescribed by the appropriate Official Form.

¶9.4 The documents described in Rule 1007(b)(1) – (6) must be filed with the petition or within 15 days thereafter. The statement regarding the financial management course in Rule 1007(b)(7) must be filed within 45 days of the first date set for the 341 and no later than the last payment by the debtor in a chapter 13.

Rule 1007. Lists, Schedules, Statements, and Other Documents; Time Limits

(c) TIME LIMITS. In a voluntary case, the schedules, statements, and other documents required by subdivision (b)(1), (4), (5), and (6); shall be filed with the petition within 15 days thereafter, except as otherwise provided in subsections (d), (e), (f), and (h) of this rule. … The statement required by subsection (b)(7) shall be filed by the debtor within 45 days after the first date set for the meeting of creditors under §341 of the code in a chapter 7 case, and no later than the last payment made by the debtor as required by the plan or the filing of a motion for entry of a discharge under §1328(b) in a chapter 13 case. Lists, schedules, statements and other documents filed prior to the conversion of a case to another chapter shall be deemed filed in the converted case unless the court directs otherwise.

¶10 Exemptions and exclusions from estate:

¶10.1 In determining which state’s exemption law to apply, if the debtor has not been in Florida for the past 730 days (2 years), then you use the state where the debtor for the largest portion of the 180 days preceding the 730 days.

If this section makes the debtor ineligible for any exemption (ie they were out of the country for most of the 6 months preceding the 2 year domicile test?), the debtor may elect the exemptions available under §522(d). Alternatively might this mean that if the debtor is ineligible for a single exemption, ie homestead, in the applicable state, they may use the federal homestead exemption for homestead even if other state personal property exemptions are available? Or must no exemptions be available to the debtor in the applicable state?

5^th Circuit

Texas resident who moved from Florida, and who lived in Florida for most of the 730 days prior to filing was allowed to use Federal exemptions rather than Florida since the Florida opt out statute, §220.20 limits its application to residents of the State of Florida. Camp v. Ingalls, 631 F.3d 757 (5^th Cir. 2011). The Debtor had livedin Florida for three years, and moved to Texas over a year prior to filing bankruptcy. The Debtor claimed federal exemption, trustee objected that Florida opt out statute did not allow federal exemption. The bankruptcy court denied the exemption, and the Debtor appealed. The District Court and 5^th Circuit both ruled that the Federal exemption was appropriate. The 5^th Circuit noted that the Florida opt-out law, like that of Alabama, Colorado, Georgia, and South Dakota, are limited to residents of the state. The Court rejected the trustee’s argument that the term resident should be read broadly so as not to treat non-residents differently than residents, and also indicated that to the extent the decision could lead to forum shopping, it was Congress’s decision to defer exemption decisions to the states. A footnote specifically notes that the decision is not based on the savings clause of §522(b)(3)’s hanging paragraph allowing federal exemptions if the state law opts out and prevents extraterritorial application of its exemption statute.

Florida:

Debtor may amend exemption after objection is sustained that they may not claim Florida exemption due to failure to meet domicile requirement. In re Welton, 448 B.R. 76 (Bankr. M.D.Fla. 2011) (J. Glenn). BAPCPA amended §522(b)(3)(A) to lengthen the time the debtor must be domiciled in a state in order to claim that state’s exemptions from 180 days to 730 days. Where a debtor is domiciled is a matter of federal common law. A person can have only one domicile, and once established continues until he renounces it and takes up another. A change in domicile requires both a physical presence in the new location and an intention to remain there indefinitely.

. In the case at bar while Debtor purchased new property in Florida, they continued to use the Georgia property as their principal address for vehicle registration, IRA statements, tax returns, and unemployment compensation claims. Further the bank statements show primarily transactions in Georgia. The wife was employed in Georgia and financial statements showed the Georgia address, If a debtor is not domiciled in the same state for the 730 days, the domicile is the location where the debtor was domiciled for the majority of the 180 days preceding the 730 days.

Rule 1009(a) permits Debtors to amend the schedules as a matter of course anytime before the case is closed. Since Debtors were domiciled in Georgia during the applicable time period, they should be allowed to claim Georgia exemptions.

The court noted that while Debtors may not claim exemptions in property intentionally concealed from the trustee. Handguns, computer, and ipods were not specifically listed on the schedules, and much property was shown in general lists. However, since there was no showing that the debtors attempted to remove an of their assets from the reach of the trustee, or to hinder the trustee’s investigation into the assets, the debtor will still be allowed to amend the schedules to claim these as exempt.

New York:

Court ruled that debtor who moved to NY within last 730 days was not entitled to Colorado exemptions (applicable state under §522(b)(3)) but was still entitled to claim Federal exemptions despite fact that both NY and Colorado both were ‘opt out’ states. In re Jewell, 347 B.R. 121 (Bankr. W.D.N.Y. 2006). Court ruled that NY exemptions were unavailable since debtor had not resided there for 730 days. Colorado exemptions were not available because that state requires that debtor be resident to claim exemptions, and debtor was not, at the time of filing, a resident of Colorado. Under the ‘savings clause’ of the hanging paragraph, debtor was still entitled to Federal exemptions. Court rejected possible reading of statute that would interpret the word ‘applicable’ solely to modify ‘the place in which the debtor’s domicile has been located for the 730 days immediately preceeding the date of the filing’ and not the rest of the subsection. However, this would render the hanging paragraph meaningless in that there would always be a set of exemptions available if the former residence’s state simply provided a fixed set of available exemptions.

Ohio:

Ohio resident who was domiciled in Florida during applicable time period may use federal exemptions as Florida exemptions do not apply to out of state residents. In re Beckwith, 448 B.R. 757 (Bankr. S.D. Ohio 2011). Debtor resided in both Ohio and Florida for the 730 days prior filing chapter 7, and in Florida for the 180 days prior to the 730 day period. Debtors initially claimed exemptions under the Florida statutes, then amended Schedule C to claim federal exemptions. The trustee objected alleging that the choice of law provisions of BAPCPA preempt any residency requirement of the Florida exemptions.

Pursuant to §522(b)(3)(A) if a debtor has not been domiciled in the same state for the 730 days prior to filing, the domicile is based on where the debtor resided for the majority of the 180 days prior to the commencement of the 730 days prior to filing. The ‘opt out’ provision of §222.20 of the Florida statutes states that ‘residents of this state’ shall not be entitled to the federal exemptions provided in §522(d) of the Bankruptcy Code. While neither the Florida Constitution or the majority of the statutory exemptions specifically limit the exemptions to Florida residents, multiple court decisions have held that Florida exemptions are not available to out of state residents.

Federal law can preempt state law in one of three ways: 1) express preemption, 2) field preemption, or 3) conflict preemption. Express preemption applies where Congress statutorily declares an intention to preempt state law. Field preemption applies where the federal interest is so dominant that the federal system is assumed to preclude enforcement of state laws on the same subject. Conflict preemption nullifies state law inasmuch as it conflicts with federal law, either where compliance with both laws is imposs8ible or where state law erects an ‘obstacle to the accomplishment and execution of the full purposes and objectives of Congress’. Congressional authority for states to ‘opt-out’ of the federal exemption scheme shows that field preemption is not applicable.

The trustee argues allowing debtors to use federal exemptions when BAPCPA’s provisions require application of exemption from an opt-out state conflicts with the express will of Congress. Court’s following this rationale conclude that §523(b)(3)(A) constitutes a federal choice of law provision, conflicting with state choice of law provisions. However, this analysis is not applicable in the case at bar, because the Florida statute limits its opt-out limitation to Florida residents. Even if the choice of law provision were to be preempted, the original right to opt-out of the federal exemption was granted prior to BAPCPA, and still stands under BAPCPA.

§522(b)(3) Property listed in this paragraph is–

(A) subject to subsections (o) and (p), any property that is exempt under Federal law, other than subsection (d) of this section, or State or local law that is applicable on the date of the filing of the petition at the place in which the debtor’s domicile has been located for 730 days immediately preceding the date of the filing of the petition, or if the debtor’s domicile has not been located at a single state for such 730–day period, the place in which the debtor’s domicile was located for 180 days immediately preceding the 730–day period or for a longer portion of such 180-day period than in any other place;…

§522(b)(3)(hanging paragraph)

If the effect of the domiciliary requirement under subparagraph (A) is to render the debtor ineligible for any exemption, the debtor may elect to exempt property that is specified under subsection (d).

¶10.2 Retirement funds: to the extent the funds are in a fund or account exempt under sections 401, 403, 408, 408A, 414, 457, or 501(a) of the tax code are exempt. They are presumed exempt if they are in a fund that received a favorable determination under §7805 (26 USC 7805 deals with the rule-making authority of the IRS, it is not clear that this is the section intended to be referred to) of the code which determination is still in effect. If there has been no such determination (or if the determination expired?) the funds are exempt if the debtor demonstrates that no prior unfavorable determinations were made by the IRS or a court (no clear explanation how the Debtor could prove this negative) and that either the fund is in substantial compliance with the applicable tax code requirements or that if it is not in substantial compliance, the debtor is not materially responsible for such failure.

BAPCPA also provides in §522(b)(4)(C) that a ‘direct transfer’ of retirement funds ‘from 1 fund or account’ that is exempt shall not lose its protection under §522(b)(3)(C) or §522(d)(12) by reason of such direct transfer. The section refers to the exempt status of the fund or account as a prerequisite to protecting the funds transferred from such account, though the account they are transferred into may not be itself entirely exempt. If the only funds in the account to which the funds are transferred are the funds subject of the direct transfer, then arguable that fund or account qualifies as an exempt account enabling further exempt transfers.

§522(b)(4)(D) further clarifies that rollovers of retirement funds are protected. The rollover qualified either if it meets the requirements of 26 U.S.C. 402(c) or if it comes from a qualified fund and is deposited into another fund or account within 60 days.

§522(d)(12) makes the retirement funds exempt if the federal exemptions are chosen (whereas §522(b)(3) applied if state exemptions were chosen).

IRA exemptions are limited to $1,000,000.00 under §522(n), with more allowed for rollovers. I doubt this will come up with most consumer bankruptcy attorney clientele.

Pennsylvania:

Inherited IRA’s are now exempt under this section (whether state or federal exemptions are chosen) without regard to whether they are reasonably necessary for the support of the debtor or the dependents, so long as they are in fact retirement funds, and are in an account that is exempt from taxation under one of the provision of the IRS Code. In re Tabor, 433 B.R. 469 (Bankr. M.D. Pa. 2010) citing In re Nessa, 426 B.R. 312 (8^th Cir. BAP 2010).

§522(b)(3) [exempt property includes]

(C) retirement funds to the extent that those funds are in a fund or account that is exempt from taxation under section 401, 403, 408, 408A, 414, 457, or 501(a) of the Internal Revenue Code of 1986.

§522(b)(4) For purposes of paragraph (3)(C) and subsection (d)(12), the following shall apply:

(A) If the retirement funds are in a retirement fund that has received a favorable determination under section 7805 of the Internal Revenue Code of 1986, and that determination is in effect as of the date of the filing of the petition in a case under this title, those funds shall be presumed to be exempt from the estate.

(B) If the retirement funds are in a retirement fund that has not received a favorable determination under such section 7805, those funds are exempt from the estate if the debtor demonstrates that –

(i) no prior determination to the contrary has been made by a court or the Internal Revenue Service; and

(ii)(I) the retirement fund is in substantial compliance with the applicable requirements of the Internal Revenue Code of 1986; or

(II) the retirement fund fails to be in substantial compliance with the applicable requirements of the Internal Revenue Code of 1986 and the debtor is not materially responsible for that failure.

(C) A direct transfer of retirement funds from 1 fund or account that is exempt from taxation under section 401, 403, 408, 408A, 414, 457, or 501(a) of the Internal Revenue Code of 1986, under section 401(a)(31) of the Internal Revenue Code of 1986, or otherwise, shall not cease to qualify for exemption under paragraph (3)(C) or subsection (d)(12) by reason of such direct transfer.

(D)(i) Any distribution that qualifies as an eligible rollover distribution within the meaning of section 402(c) of the Internal revenue Code of 1986 or that is described in clause (ii) shall not cease to qualify for exemption under paragraph (3)(C) or subsection (d)(12) by reason of such distribution.

(ii) A distribution described in this clause is an amount that –

(I) has been distributed from a fund or account that is exempt from taxation under section 401, 403, 408, 408A, 414, 457, or 501(a) of the Internal Revenue Code of 1986; and

(II) to the extent allowed by law, is deposited in such a fund or account not later than 60 days after distribution of such amount.

§522(d) the following property may be exempted under subsection (b)(2) of this section

(12) Retirement funds to the extent that those funds are in a fund or account that is exempt from taxation under section 401, 403, 408, 408A, 414, 457, or 501(a) of the Internal Revenue Code of 1986.

§522(n) For assets in individual retirement accounts described in section 408 or 408A of the Internal Revenue Code of 1986, other than a simplified employee pension under section 408(k) of such Code or a simple retirement account under section 408(p) of such Code, the aggregate value of such assets exempted under this section, without regard to amounts attributable to rollover contributions under section 402(c), 402(e)(6), 403(a)(4), 403(a)(5), and 403(b)(8) of the Internal Revenue Code of 1986, and earnings thereon, shall not exceed $1,000,000 in a case filed by a debtor who is an individual, except that such amount may be increased if the interests of justice so require.

¶10.3 Homestead Issues

¶10.31 Homestead: debtor’s principal residence redefined as a residential structure regardless of attachment to land. But, neither §522(b)(3) regarding venue of exemptions; nor §522(d) regarding exemptions specifically reference ‘debtor’s principal residence’. Query: does this make the argument that boats or recreational vehicles are homestead easier?

§101(13A) The term ‘debtor’s principal residence’ –

(A) means a residential structure, including incidental property, without regard to whether that structure is attached to real property; and

(B) includes an individual condominium or cooperative unit, a mobile or manufactured home, or trailer.

§101(27B) The term ‘incidental property’ means, with respect to a debtor’s principal residence –

(A) property commonly conveyed with a principal residence in the area where the real property is located;

(B) all easements, right, appurtenances, fixtures, rents, royalties, mineral rights, oil or gas rights or profits, water rights, escrow funds, or insurance proceeds; and

(C) all replacements or additions.

¶10.32 The value of a residence, homestead or burial plot is reduced if state exemptions apply (the section limits itself to exemption under §522(b)(3)) to the extent that the value is attributable to property that the debtor disposed of within 10 years prior to the filing of the bankruptcy with the intent to hinder, delay, or defraud a creditor and which could not have otherwise been exempted on the date disposed of. The phrasing of the statute is a bit odd. §522(b)(1) states that an individual may exempt from property of the estate the property listed in either paragraph (2) or paragraph (3) of §522. §522(b)(3) described this property (the exempt property under state exemptions) as any property that is exempt under other federal laws, state or local laws. Thus §522(b)(3) property is the exemptions in the property. However, §522(o) does not say the §522(b)(3) property is limited or reduced to the extent of the transfers described, it simply states that for purposes of §522(b)(3) the value of the property is reduced. An argument could be made that the literal language of the statute is directly contrary to the intent of the statute: and that §522(o) reduces the value of referred real estate without reducing the allowed exemptions in such value.

If interpreted to reduce the value of the exemption rather than the value of the property itself, then counsel will need to review any funds either paid down on the mortgage or funds put into the property as improvements for the ten years preceding the bankruptcy filing.

Cases:

Arizona:

In In re McNabb, 326 BR 785 (Bankr. D.Ariz. 2005), the court interpreting this section did not address the issue raised above, but noted that the language may require the same type of intent proof as is required by §548(a)(1)(A).

Florida:

Debtor who sold non-exempt securities while not paying her bills, and used proceeds to purchase and make improvements on homestead, lost homestead exemption notwithstanding Florida constitutional exemption for homestead. In re Osejo, 447 B.R. 352 (Bankr. S.D. Fla 2011). Court indicated that it was the virtually limitless Florida homestead exemption that prompted passage of §522(o), which by virtue of the supremacy clause supercedes the Florida constitutional homestead exemption. The Court also took into consideration that the Debtor initially omitted the proceeds from the sale of the nonexempt securities from the Statement of Financial Affairs, and failed to amend the same until the day of the rescheduled meeting of creditors, after the trustee had employed counsel to investigate the matter. The sales of securities continued up the three months prior to filing and the last sale of $42,309.13 was used to improve the homestead. Further, the debtor failed to disclose on the initial filing a debt of $105,000 from her ex-husband, a 401k valued at $65,036, and a vested retirement account worth $133.230. The trustee requested only a reduction of $40,959.06 in the $50,847.06 homestead, which the Court granted, hinting that a greater reduction might have been granted if requested.

Minnesota:

Use of approximately $20,000 proceeds from the sale of a truck and trailer to pay down a home equity line of credit was deemed to run foul of §522(o) in In re Maronde, 332 B.R. 593 (Bankr. D. Minn. 2005). In this case the debtor sold a trailer and traded in a truck for a cheaper vehicle, netting $19,130 which he used $18,750 to pay off the home equity line of credit. These actions were taken after discussing exemptions with a bankruptcy attorney. The court held that the party objecting to the exemptions (the Chapter 13 Trustee in this case) had the burden of proof. In determining whether the actions were done with an intent to hinder, delay, or defraud creditors; the court looked to the line of cases dealing with exemption planning and fraudulent conveyances. This suggests a similar analysis to when a pig becomes a hog cases. The court then went on to list the badges of fraud that would be examined in such circumstances: 1) whether the transfer was to an insider; 2) whether the debtor retained possession or control of the property after the transfer; 3) whether the transfer was concealed or disclosed; 4) whether the debtor was sued or suit threatened prior to the transfer; 5) whether the transfer was of substantially all the debtor’s assets; 6) whether the debtor absconded; 7) whether the debtor removed or concealed assets; 8) whether the consideration was reasonably equivalent to the value of the asset transferred or debt incurred; 9) whether the debtor was insolvent or became insolvent shortly after the transfer; 10) whether the transfer occurred shortly before or shortly after a major debt was incurred; 11) whether debtor transferred the essential assets of a business to a lienor who transferred those assets to an insider. Quoting Northgate Computer Systems, Inc., 240 BR 328, 360–61, citing Kelly v. Armstrong, 141 F.3d 799, 802 (8^th Cir. 1998). Finding a number of the badges met, such as debtor essentially transferred virtually all of his nonexempt assets to himself when insolvent. The court thus denied $18,750 of the exemption in the homestead under §522(o).

Montana:

Debtors that liquidated $42,500 in non-exempt assets and applied the funds toward the homestead in contemplation of filing bankruptcy but without any fraudulent intent had exemption in homestead reduced by the $42,500. In re Lacounte, 342 B.R. 809 (Bankr. D.Mont. 2005). Debtor admitted that the intent of the transfers was to put assets out of reach of their creditors. Fraudulent intent is not required to reduce the exemption under §522(o).

§522(o) For purposes of subsection (b)(3)(A), and notwithstanding subsection (a), the value of an interest in-

(1) real or personal property that the debtor or a dependent of the debtor uses as a residence;

(2) a cooperative that owns property that the debtor or a dependent of the debtor uses as a residence;

(3) a burial plot for the debtor or a dependent of the debtor; or

(4) real or personal property that the debtor or a dependent of the debtor claims as a homestead;

Shall be reduced to the extent that such value is attributable to any portion of any property that the debtor disposed of in the 10-year period ending on the date of the filing of the petition with the intent to hinder, delay, or defraud a creditor and that the debtor could not exempt, or that portion that the debtor could not exempt, under subsection (b), if on such date the debtor had held the property so disposed of.

¶10.33 BAPCPA Further attempts to limit homestead exemption if a portion of the value of the homestead was acquired within 1215 days (3 & 1/3 years) except to the extent that such value was transferred from a prior principal residence in the same state. Specifically, the exemption in property acquired within the 1215 days is limited to $125,000. Thus, if the debtor’s home is worth $400,000; and $200,000 of the value came from the sale of a prior home in the same state which was purchased more than 1215 days ago, (and assuming no appreciation in value since the purchase), then the allowed exemption should be $325,000. Presumably any appreciation would be applied pro-rata to the rolled over portion and the non-rolled over portion of the purchase price of the home. This section also does not apply to family farmers.

Cases:

Arizona:

The literal language here states that it only applies to exemptions obtain as a result of an election under §522(b)(3) to choose state exemptions. Thus if the state has opted out of the federal exemptions, and the debtor is therefore required to use state exemptions, then arguably this section does not apply. This is the interpretation followed by In re McNabb, 326 BR 785 (Bankr. D.Ariz. 2005), the first case interpreting this section.

Florida:

Judge Mark, from the US Bankruptcy Court for the Southern District of Florida disagreed, finding that the statute was sufficiently clear as to legislative intent to read the statute as applying all states with the larger homestead exemption. In re Kaplan, 331 B.R. 483 (Bankr. S.D. Fla. 2005).

Judge Freeman, in In re Wayrynen, 332 B.R. 479 (Bankr. S.D. Fla. 2005) while seeming in dicta to disagree with Judge Mark, ruled that the homestead was still exempt even if the equity came not from the immediately preceding house sold within the 3 1/3 years, but the house preceding the sale of that one.

Judge Mark, in the Middle District of Florida, has also ruled that the cap applies whether or not a state has opted out of the federal exemptions. In re Landahl, 338 B.R. 920 (Bankr. M.D. Fla. 2006). This case involved the unusual situation of the chapter 7 trustee pursing the objection to exemptions after the case had been converted to chapter 13. Judge May found that the trustee, as an administrative claimant, had standing to continue to pursue such objection. In determining that the cap applied in opt out states such as Florida, the court noted that the ‘elect’ term in §522(p) is not connected with the term as used in the choice of exemptions in §522(b)(1). Thus, it is entirely plausible to read §522(p)’s reference to electing as simply debtors act of choosing exemptions of property under §522(b)(3)(A).

Judge Briskman found that appreciation in property purchased more than 1215 days prior to filing does not trigger the $125,000 exemption limitation of §522(p). Debtors purchased the property on March 6, 2001 for $783,000, and valued it at $1,400,000 as of filing on 12 October 2005. Debtors show a mortgage of $480,094. An unsecured creditor, Bank One, objected to the exemptions, alleging that any amounts of interst acquired by the debtor during the 1215 day period are subject to the $125,000 limitation. The Court rejected this argument, finding that since it would apply equally to property purchased more than 1215 days prior to the petition, it is contrary to the language of the statute. The court then went on to define acquire as to gain possession or control over something, and interest as a legal share in something or part of a legal or equitable claim to or right in property. The court concluded that title is acquired, and that equity is not. Equity, being the difference between value and debt, is constantly fluctuating. Thus, the court concluded that the interest refered to in §522(p) is an ownership interest in property. Since the property here was obtained prior to the 1215 days, it is not subject to a §522(p) limitation on the exemption. The court went on to examine the legislative history showing the intent to close the mansion loophole regarding recently purchased property. In re Sanlair, 344 B.R. 669 (Bankr. M.D. Fla. 2006).

Judge Williamson has ruled that the $125,000 exemption can be stacked for joint debtors, and that appreciation in property after purchase is not counted in determining the equity for purposes of §522(p). The debtors in this case purchased the property within the 1210 days prior to filing for $350,000, using $35,000 equity from a former Florida homestead, $1,800 cash and a bank loan of approximately $320,000. The property was valued at $750,000 as of filing, due to appreciation of real estate in the area. The morgages totaled approximately $525,000, resulting in an undisputed $175,000 equity in the home as of filing. The trustee objected to the exemption under §522(p).

The court rejected McNabb’s argument that §522(p) did not apply to opt-out states. In determiing that the exemptions could stack, the court noted that the personal property and the automobile exemptions both stack in Florida for joint debtors. The court also examined §302 and Rule 1015 dealing with joint administration of estates, limiting each debtor’s choice only to requiring both to choose either state or federal exemptions. The court also noted that §522(m) would protect stacking of joint debtor exemptions in non-opt out states. Under §522(m), §522(p) shall apply separately with respect to each debtor in a joint case, thus allowing a total joint homestead exemption of up to $250,000 in property purchased within 1215 days.

In examining whether appreciation in property counts toward the exemption limitation, the court parsed the statute, finding three requirements. 1) any amount of interest; 2) acquired by the debtor; 3) aggregate $125,000 in value. Distinguishing Blair and Sainlar, Judge Williamson determined that the interest referred to is equity in the homestead acquired within the 1215 days, rather than ownership interest acquired. This distinction is supported by §522(p)(2)(B)’s exclusion of interest transferred from a prior homestead. As to the second requirement of the statute, a debtor may acquire equity by making a down payment on the house, by paying down the mortgage, or by market appreciation. The first two methods require active conduct by the debtor, while the latter is passive. Since Congress required an interest obtained by the debtor (as opposed to possible language such as limiting the homestead as to any interest acquired within 1215 days); this implies active conduct by the debtor thereby excluding market appreciation as a basis to deny the exemption. Finally the court examined the legislative history that no mention of concern with recent appreciation of property was mentioned to support its conclusion. In re Rasmussen, 349 B.R. 747 (Bankr. M.D. Fla. 2006).

Court ruled that §522(o) and (p) cannot be used to place equitable lien against homestead to extent that transfer of funds to the homestead within 1215 days exceed $136,875 in value. In re Champalanne (Bankr. S.D. Fla. 2010) (J. Hyman). Use of nonexempt funds to purchase a homestead with actual intent to hinder, dealy, or defraud creditors, even if ‘blatantly a move to deceive credtiros and made in bad faith, does not rise to level of fraud nor constitute egregious behavior’ sufficient to render homestead exemption inapplicable. Citing In re Chauncey, 454 F.3d 1292, 1294 (11^th Cir. 2006) citing Havoco II, 255 F.3d 1321 (11^th Cir. 2001). §522(o) does not supercede Havoco, the proper remedy instead is for trustee to file objection to exemptions, decreasing the amount of funds available for homestead exemption. Court also raised, but did not resolve whether §522(o) and (p) could affect spouses exemption. Summary judgment granted as to asserting equitable lien on homestead, trial set on trustee request for monetary judgment.

Nevada

A Nevada bankruptcy court has also disagreed with McNabb, and held that an election occurs by as debtor’s choice under §522(b)(1) to exempt property listed either in §522(b)(2) or §522(b)(3), and that the only consequence of the state’s determination to ‘opt out’ of the federal exemptions is that the effect of the election is limited, not the ability to make such election. The Court reasoned that if a debtor in an opt-out state chose to use §522(b)(2) exemptions, and if no timely objection were made, such property would be allowed exempt. Still, the court noted a further ambiguity, that §522(p) refers to an election under §522(b)(3)(A), when the election comes under §522(b)(1). The court found that clear congressional intent still determined that the intent was to apply the section regardless of the opt–out status of the state. The court also certified the issue for a direct appeal to the Court of Appeals of the 9^th Circuit. In re Virissimo, 332 B.R. 201 and 322 B.R. 208 (Bankr. D. Nev. 2005) J. Riegle However, the debtor did not file an appeal.

Judge Markell has agreed with Juge Riegel in McNabb, at least to the extent of ruling that the statute applies whether or not a state has ‘opted out’ from the federal exemptions. In In re Kane, 336 B.R. 477 (Bankr. D.Nev. 2006) the court was faced with an objection to the exemption of $160,000 equity in a Nevada homestead purchased at the beginning of 2005 after living in California from 1997 through December 2004. Note that the bankruptcy was filed in July 2005, thus while §522(p) applied limiting the homestead exemption, §522(b)(3) requiring use of the state exemptions where the debtor resided for the 6 months prior to the 730 days prior to the filing of the bankruptcy (when debtors had not resided in the same state for 730 days) did not take effect until 17 October 2005.

Debtors initially argued that since §522(p) reduced state law exemptions, it violated the Fifth Amendment as an unconstitutional taking. The court rejected this argument, both because there is no constitutional right to file bankruptcy, and because state exemptions must fail when in conflict with federal law.

Judge Markell ultimately advanced a different theory for not strictly interpreting the statute than advanced either in McNabb or in Virissimo. Judge Markell determined that the legislative history was unequivocal that it was intended to, and believed to have closed the ‘mansion’ loophole which had been a concern of Congress for nearly a decade (citing House and Senate reports). Secondly, the court found no discernable or feasible public policy by linking the homestead cap to a debtor’s choice of federal or state exemptions.

The court then examined under what circumstances the court may correct a legislature’s drafting error in a statute. Judge Markell recognized the possibility that what a court determined was a drafting error was in fact a substantive decision by a legislature, perhaps as a result of an unseen legislative compromise; in which case a court would be rewriting the law. Thus the longstanding policy that if the words of a statute are clear, they should be taken as fully embodying the legislative intent. Further examination is permitted only where the statutory language is ambiguous.

However, an exception to this rule applied where the language of a statute is demonstrably at odds with the intent of the drafters. In such a case, the intent controls. Citing. United States v. Ron Pair Enters., 489 U.S. 235, 242, 109 S.Ct. 1026, 103 L.Ed.2d 290 (1989), quoting Griffin v. Oceanic Contractors, Inc., 458 U.S. 564, 571, 102 S.Ct. 3245, 73 L.Ed.2d 973 (1982). Judge Markell examined Judge Scalia’s statutory interpretation, as one of the strictest textualists active today. In brief, he requires that two conditions be met before such variance is permissible. First, the plain meaning of the statute under consideration must lack any rational purpose-not just what Congress may have intended, but any plausible congressional purpose. A second element for Justice Scalia is that the intended meaning to be used must be obvious.

Judge Markell found that these two conditions were met: that there was no plausible purpose in linking the exemption limitation to whether debtors had a choice of state or federal exemptions; and that is is obvious that Congress intended to close the loophole in opt-out as well as opt-in states. Despite this conclusion, the court recognized a possible policy argument that the result was an intended compromise to have the statute apply to some states and not others. The court rejected this argument since there was no legislative support for it in the legislative history and conflicts with logic in that it would limit Texas unlimited homestead exemption, whose legislators strongly opposed the limitation, while allowing Florida’s unlimited exemption.

Texas:

A fairly aggressive creditor argued that any increase in equity in the homestead acquired within 1215 days of the filing over $125,000 was nonexempt, even though the homestead was purchased more than 1215 days prior to the filing of the case. Judge Hale in Texas rejected this argument, holding that the statute refers to any ‘interest’ acquired by the debtor within 1215 days of filing, and that debtor’s ‘interest’ in the home was the purchase which occurred prior to the 1215 days. In this case, the title was acquired prior to the 1215 day period of §522(p). The court also cited Virissimo, Wayrynen, and McNabb, as well as 4 COLLIER ON BANKRUPTCY ¶522.13 [2]. Further this is consistent with the provisions allowing rollover of equity from a prior homestead within such period. Judge Hale went on to cite legislative history showing the intent of the section to prevent ‘mansion’ exemptions unless the debtor had resided in the state for the specified period, and prevent debtors from moving to states in order to take advantage of substantial homestead exemptions. In re Blair 334 B.R. 374 (Bankr. N.D. Tex. 2005).

§522(p)(1) Except as provided in paragraph (2) of this subsection and sections 544 and 548, as a result of electing under subsection (b)(3)(A) to exempt property under State or local law, a debtor may not exempt any amount of interest that was acquired by the debtor during the 1215–day period preceding the date of the filing of the petition that exceeds in the aggregate $125,000 in value in-

(A) real or personal property that the debtor or a dependent of the debtor uses as a residence;

(B) a cooperative that owns property that the debtor or a dependent of the debtor uses as a residence;

(C) a burial plot for the debtor or a dependent of the debtor; or

(D) real or personal property that the debtor or dependent of the debtor claims as a homestead.

(2)(A) The limitation under paragraph (1) shall not apply to an exemption claimed under subsection (b)(3)(A) by a family farmer for the principal residence of such farmer,

(B) For purposes of paragraph (1), any amount of such interest does not include any interest transferred from a debtor’s previous principal residence (which was acquired prior to the beginning of such 1215-day period) into the debtor’s current principal residence, if the debtor’s previous and current residences are located in the same State.

¶10.34 The last of the three attempts of BAPCPA to limit homestead exemptions is §522(q). Here, the homestead is again limited to $125,000 if the court determines that the debtor had been convicted of a felony which demonstrates that the filing of the case was an abuse of provisions of the bankruptcy code, or if the debtor owes a debt arising from violation of securities laws; fraud, deceit or manipulation in a fiduciary capacity; or with the purchase or sale of any registered security; any civil remedy under 18 U.S.C. 1964 (RICO); or 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.

These could be broadly interpreted to apply in a manner probably not anticipated by the drafters. Under §522(q)(1)(B)(ii) manipulation defined broadly might include virtually any transactions in the stock market thereby triggering the section to limit the homestead exemption. Under §522(q)(1)(B)(iv) the debtor could be liable for debts for reckless misconduct by others causing serious injury or death without himself actually being involved in significant misconduct. For example if a child was using his car and got in a serious accident.

§522(q)(2) protects the exemption even if the section would otherwise apply if the interest above the $125,000 is reasonably necessary for the support of a debtor or dependent.

This section also has the same ‘election under §522(b)(3)’ language found in McNabb to limit its application to states that allow a choice of either federal or state exemptions.

There is a question whether the $125,000 exemptions can be ‘stacked’ by joint debtors. Since a joint case is an administrative procedure but legally treated as 2 separate cases, better law would seem to allow stacking of these exemptions, thus allowing a total of $250,000 in equity for a joint case where both are allowed the property as homestead.

Query: does it make a difference that §522(q)(1) refers to conjunctive as to property described in subparagraphs (A),(B),(C) and (D), instead of using the disjunctive or as found in §522(p)(1)?

Cases:

Florida: see In re Champalanne (Bankr. S.D. Fla. 2010) (J. Hyman). In ¶10.33

Massachusetts:

The first published decision interpreting this section found that a charge of vehicular homicide, along with a transcript of a trial showing the state court found facts sufficient to find the debtor guilty, qualified as a criminal act sufficient to limit the homestead to $125,000 equity even in the absence of a formal conviction. In re Larson, 2006 WL 891532 (Bankr. D.Mass. 2006). The debtor had gone to criminal trial as charged with Motor Vehicle Vehicular Homicide by Negligent Operation under Massachusetts Law. While the transcript of the trial showed that the Judge found fact sufficient to sustain a guilty verdict, the court continued the trial and put the debtor on supervised probation. The victim’s spouse also obtained a civil judgment against the debtor. The debtor argued that in the absence of a BAPCPA definition of ‘criminal act’ the court should find that it’s use alongside such terms as ‘willful or reckless misconduct’ or ‘intentional tort’ requires conduct greater than negligence. Under Massachusetts law, the negligence required for the criminal charge was a lesser charge than reckless misconduct. The creditor countered that under Massachusetts law the debtor’s admission before the trial judge was equivalent to a guity plea.

The court began its analysis with the maxim that the starting point in discerning Congressional intent is the stautory text. Where such language is clear, the sole function of the court, at least where the disposition required by the text is not absurd, is to enforce it according to its terms. The court then looked to dictionary definitions of criminal act and related terms, finding some act of commission or omission lies at the foundation of every crime. In order to constitute a criminal offense, there must be a sufficient criminal act or omission as well as a criminal intent; mere criminal intention is not punishable. ··· A person must participate in all the acts necessary to constitute a particular crime in order to be guilty thereof. The term ‘criminal act’ does not require a conviction or a certain level of culpability. The court found that such definition does not lead to an absurd result, and is sufficiently clear. Further finding that the debtor admitted facts in the state court proceeding sufficient to satisfy the statute, the court ruled that the section did apply. Further trial was scheduled on whether the homestead was necessary for the support of the debtor.

§522(q)(1) As a result of electing under subsection (b)(3)(A) to exempt property under State or local law, a debtor may not exempt any amount of an interest in property described in subparagraphs (A), (B), (C), and (D) of subsection (p)(1) which exceeds in the aggregate $125,000 if-

(A) the court determines after notice and a hearing, that the debtor has been convicted of a felony (as defined in section 3156 of title 18), which under the circumstances, demonstrates that the filing of the case was an abuse of the provisions of this title; or

(B) the debtor owes a debt arising from –

(i) any violation of the Federal securities laws (as defined in section 3(a)(47) of the Securities Exchange Act of 1934), any State securities laws, or any regulation or order issued under Federal securities laws or State securities laws;

(ii) fraud, deceit, or manipulation in a fiduciary capacity or in connection with the purchase or sale of any security registered under section 12 or 15(d) of the Securities Exchange Act of 1934 or under section 6 of the Securities Act of 1933;

(iii) any civil remedy under section 1964 of title 18; or

(iv) 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.

(2) Paragraph (1) shall not apply to the extent the amount of an interest in property described in subparagraphs (A), (B), (C), and (D) of subsection (p)(1) is reasonably necessary for the support of the debtor and any dependent of the debtor.

¶10.4 An objection to exemptions under §522(q) must be filed before the case is closed. If an exemption is made after the case is reopened, the objection to that exemption must be made before the case is again closed.

Rule 4003. Exemptions

(b) OBJECTING TO A CLAIM OF EXEMPTIONS.

(2) An objection to a claim of exemption based on §522(q) shall be filed before the closing of the case. If an exemption is first claimed after a case is reopened, an objection shall be filed before the reopened case is closed.

¶10.5 Educational IRAs. Funds placed in an Educational Individual Retirement Account at least 365 days prior to the filing of the bankruptcy, if the designated beneficiary of the account was a child, stepchild, grandchild, or stepgrandchild of the debtor in the year the funds were so place are generally excluded from the estate. The funds must not be pledged as security and can’t be excess contributions under the tax code. If there is more than $5,000 per beneficiary, only $5,000 is protected unless the balance over $5,000 was placed in the account more than 720 days prior to filing.

Excess contributions is the sum of the amount contributed in excess of $2,000 and that figure for the prior year less the amount payments (other than rollovers) out of the account and less the available maximum contribution for the prior year that was not actually contributed in the prior year. As to relationship between child and debtor for adoptive and foster children, see §541(e).

§541(b) Property of the estate does not include-

(5) funds placed in an educational retirement account (as defined in section 530(b)(1) of the Internal Revenue Code of 1986) not later than 4365 days before the date of the filing of the petition in a case under this title, but-

(A) only if the designated beneficiary of such account was a child, stepchild, grandchild, or stepgrandchild of the debtor for the taxable year for which funds were placed in such account;

(B) only to the extent that such funds-

(i) are not pledged or promised to any entity in connection with any extension of credit; and

(ii) are not excess contributions (as described in section 4973(e) of the Internal Revenue Code of 1986); and

(C) in the case of funds ;placed in all such accounts having the same designated beneficiary not earlier than 720 days nor later than 365 days before such date; only so much of such funds as does not exceed $5,000;

26 U.S.C. 4973(e) Excess contributions to Coverdell education savings accounts

    For purposes of this section--

                           (1) In general

        In the case of Coverdell education savings accounts maintained

    for the benefit of any one beneficiary, the term ``excess

    contributions'' means the sum of--

            (A) the amount by which the amount contributed for the

        taxable year to such accounts exceeds $2,000 (or, if less, the

        sum of the maximum amounts permitted to be contributed under

        section 530(c) by the contributors to such accounts for such

        year); and

            (B) the amount determined under this subsection for the

        preceding taxable year, reduced by the sum of--

                (i) the distributions out of the accounts for the

            taxable year (other than rollover distributions); and

                (ii) the excess (if any) of the maximum amount which may

            be contributed to the accounts for the taxable year over the

            amount contributed to the accounts for the taxable year.

                          (2) Special rules

        For purposes of paragraph (1), the following contributions shall

    not be taken into account:

            (A) Any contribution which is distributed out of the

        Coverdell education savings account in a distribution to which

        section 530(d)(4)(C) applies.

            (B) Any rollover contribution.

§541(e) In determining whether any of the relationships specified in paragraph (5)(A) or (6)(A) of subsection (b) exists, a legally adopted child of an individual (and a child who is a member of an individual’s household, if placed with such individual by an authorized placement agency for legal adoption by such individual), or a foster child of an individual (if such child has as the child’s principal place of abode the home of the debtor and is a member of the debtor’s household) shall be treated as child of such individual by blood.

¶10.6 Funds to purchase tuition credits (qualified prepaid tuition programs) contributed at least 365 days prior to the filing of the bankruptcy if the beneficiary was a child, grandchild, stepchild, or stepgrandchild of the debtor, and if the amount contributed does not exceed the contribution permitted under 26 USC 529(b)(7) of the 1986 tax code adjusted for inflation, and to the extent that the contributions do not exceed $5,000 per beneficiary unless the excess was contributed more than 720 days before the filing of the case. As to relationship between child and debtor for adoptive and foster children, see §541(e).

§541(b) Property of the estate does not include –

(6) funds used to purchase a tuition credit or certificate or contributed to an account in accordance with section 529(b)(1)(A) of the Internal Revenue Code of 1986 under a qualified State tuition program (as defined in section 529(b)(1) of such Code) not later than 365 days before the date of the filing of the petition in a case under this title, but –

(A) only if the designated beneficiary of the amounts paid or contributed to such tuition program was a child, stepchild, grandchild, or stepgrandchild of the debtor for the taxable year for which funds were paid or contributed;

(B) with respect to the aggregate amount paid or contributed to such program having the same designated beneficiary, only so much of such amount as does not exceed the total contributions permitted under section 529(b)(7) of such Code with respect to such beneficiary, as adjusted beginning on the date f the filing of the petition in a case under this title by the annual increase or decrease (rounded to the nearest then of 1 percent) in the education expenditure category of the Consumer Price Index prepared by the Department of Labor; and

(C) In the case of funds paid or contributed to such program having the same designated beneficiary not earlier than 720 days nor later than 365 days before such date, only so much of such funds as does not exceed $5,000;

26 USC 529(b) Qualified tuition program

    For purposes of this section--

                           (1) In general

        The term ``qualified tuition program'' means a program

    established and maintained by a State or agency or instrumentality

    thereof or by 1 or more eligible educational institutions--

            (A) under which a person--

                (i) may purchase tuition credits or certificates on

            behalf of a designated beneficiary which entitle the

            beneficiary to the waiver or payment of qualified higher

            education expenses of the beneficiary, or

¶10.7 Funds withheld from employees wages for contributions to retirement plans, qualified tax deferred annuities, or health insurance plans are excluded from the estate; as are monies received by an employer from employees for contributions to such accounts. Note it does not matter whether the employer or the employee is the debtor.

Cases:

6^th Circuit:

Once Debtor completes payments on the 401k loan, the money no longer being paid on the 401k loan becomes disposable income available to fund the chapter 13 plan. In re Seafort, 669 F.3d 662 (6^th Cir. 2012). The Court notes the majority opinion being that under §541(b)(7) the debtor may continue any 401k deduction that they were making prior to the filing of the chapter 13, and that such funds do not become disposable income, distinguishing from the position of a number of other cited decisions allowing deductions up to the maximum amount permitted by nonbankruptcy law. As §547(b)(7) excludes retirement plan contributions from disposable income, they were never income to be included in §1325(b)(2) and thus do not require a separate deduction from the means test. Rather only the deduction in effect

9^th Cir.:

401k deductions post-petition are not excluded from disposable income for purposes of the means test. In re Parks, 475 B.R. 703 (9^th Cir. BAP, 2012). §541 fixes the property of the estate upon the filing of the case. §1306(a) adds to such property in chapter 13, post-petition earnings of the debtor. To read §541(b)(7)(A) in harmony with these sections, the property excluded from property of the estate must be limited to retirement contributions held by the debtor’s employer on the date of the filing of the bankruptcy.

Montana:

While §1322(f)requires allowance in means test for 401k loan repayments, a voluntary deduction toward the 401k is not an allowed expense in the means test in chapter 13. In re Prigge, 441 B.R. 667 (Bankr. D.Mont 2010). The Court cites §541(b)(7) in a footnote as protecting amounts already in the hand of the employer, and notes without comment that the section further provides that such amounts do ‘not constitute disposable income, as defined in section 1325(b)(2).’ §541(b)(7) only applies to retirement contributions held in the employer’s hands on the date of the filing of the bankruptcy. Since §1322(f) excludes retirement loan payments, and no such exclusion is made for the retirement contributions, then Congress must have intended such omission. Further, the IRS guidelines do not provide for any such deduction.

§541(b) Property of the estate does not include –

(7) any amount –

(A) withheld by an employer from the wages of employees for payment as contributions –

(i) to –

(I) an employee benefit plan that is subject to title I of the Employee Retirement Income Security Act of 1974 or under an employee benefit plan which is a government plan under section 414(d) of the Internal Revenue Code of 1986;

(II) a deferred compensation plan under section 457 of the Internal Revenue Code of 1986; or

(III) a tax–deferred annuity under section 403(b) of the Internal revenue Code of 1986;

Except that such amount under this subparagraph shall not constitute disposable income as defined in section 1325(b)(2); or

(ii) to a health insurance plan regulated by State law whether or not subject to such title; or

(B) received by an employer from employees for payment as contributions –

(i) to –

(II) a deferred compensation plan under section 457 of the Internal Revenue Code of 1986; or

(III) a tax-deferred annuity under section 403(b) of the Internal Revenue Code of 1986;

Except that such amount under this subparagraph shall not constitute disposable income, as defined in section 1325(b)(2); or

(ii) to a health insurance plan regulated by State law whether or not subject to such title;

¶10.8 Property pledged as security for a loan or advanced by a person licensed to make such loans where the property is in the possession of the lender, and the debtor has no obligation to repay the money or buy back the property at a stipulated price, and neither the debtor nor the trustee have exercised any right to redeem in a timely manner. This would seem to apply to pawn type transactions, but would not apply to car pawning. Also, the fraudulent and preferential transfer provisions may still apply to such transfers.

§541(b) Property of the estate does not include –

(8) subject to subchapter III of chapter 5, any interest of the debtor in property where the debtor pledged or sold tangible personal property (other than securities or written or printed evidences of indebtedness or title) as collateral for a loan or advance of money given by a person licensed under law to make such loans or advances, where –

(A) the tangible personal property is in the possession of the pledge or transferee;

(B) the debtor has no obligation to repay the money, redeem the collateral, or buy back the property at a stipulated price; and

(C) neither the debtor nor the trustee have exercised any right to redeem provided under the contract or State law, in a timely manner as provided under State law and section 108(b); or

¶11 Priority debts:

¶11.1 Divorce obligations: Domestic Support Obligations (nondischargeable in 7 or 13) is somewhat expanded over the original §523(a)(5) liabilities to include such debts owed or recoverable by the child’s parent, legal guardian, or responsible relative; and to include debts voluntarily assigned to nongovernmental units. It also includes post–petition obligations It still does not include debts actually in the nature of property settlements.

Cases:

Alabama:

While child support is given first priority under BAPCPA, this does not require that plans pay it prior to administrative expenses such as attorneys fees. In re Sanders, 341 B.R. 47 (Bankr. N.D.Ala. 2006). (J. Caddell). The Alabama Dept. of Human Resourses objected to confirmation of a plan that paid administrative expenses including attorneys fees prior to other claims, and provided for payment of the child support arrearages by payroll deduction outside the plan pursuant to a prepetition garnishment order. The court sustained the state’s objection under §1322(a)(2) that the plan could not pay child support outside the plan absent consent of the creditor. The debtor then amended the plan to pay the two child support claims from the state in equal payments over 25 and 47 months respectively. BAPCPA moved the priority status of child support claims to first priority under §507(a)(1)(A) and (B) rather than 7^th priority under prior law. Alabama argued that §507(a)(1) requires the child support claim to be paid before any lower priority claim. The court noted that nothing in prior law, or in BAPCPA (with an exception under §1322(a)(4) not applicable to the case at bar) that requires payment of higher priority claims prior to lower priority. §507 only requires payment in full, in deferred cash payments of priority claims. It does not set the order in which such claims may be paid in the chapter 13 plan. This is to be distinguished from chapter 7, where §726(a)(1) requires priority claims to be paid first in the order of the priority. There is no similar provision in chapter 13. Further, §1322(b)(4) permits payment of unsecured claims concsrrenty with secured claims. Thus the plan may provide for concurrent payment of priority child support claims while still paying secured claims.

Colorado:

Where domestic support obligation was assigned not by the spouse or guardian, but by the Court to a non-governmental agency for collection, such debt was excluded from the definition of domestic support obligation by 11 U.S.C. 101(a)(14A)(D). In re Cordova, 439 B.R.756 (Bankr. D.Colo 2010).

Florida

Court looks behind language in marital settlement agreement to find that obligation designated as property settlement is actually spousal support. In re Throgmartin, 462 B.R. 836 (Bankr. M.D. Fla. 2012). (J. Schermer). The ‘Joint Property Settlement Agreement’ entered into the parties in the Indiana divorce proceeding provided for a ‘marital property judgment lien’ to the former wife of $7,490,000 payable by an initial payment of $81,000 followed by monthly payments of $31,000 ‘as and for [her] share of martial property distribution as not as income’. The payments continue for 20 years or the remainder of the former wife’s life, whichever is longer.

The matter came before Judge Schermer in an objection to the claim for the former spouse by the husband in his chapter 7 case, and the motion of the trustee to determine that the claim is a domestic support obligation.

Judge Schermer determined that 11^th Circuit law applied, requiring the Court to focus on the intent of the parties at the time the obligation was created. Cummings v. Cummings, 244 F.3d 1263, 1265 (11^th Cir. 2001). The court cannot rely solely on the labels used by the parties, rather it depends on whether the parties intended the debt to function as support or alimony at the time of its creation. This determination is guided by factors including (1) the agreement’s language, (2) the parties financial positions when the agreement was made, (3) the amount of the division, (4) whether the obligation ends upon the death or remarriage of the beneficiary, (5) the frequesncy and number of payments, (6) whether the agreement waives other support rights, (7) whether the obligation can be modified or enforced in state court, and (8) how the obligation is treated for tax purposes. In re Benson, 441 Fed.Appx. 650 (11^th Cir. 2011).

Judge Schermer determined that the absence of any alimony provision in the agreement, and the provision that the payments continue for the life of the former spouse, are indicative of the parties intent that the money be intended for her support for the remainder of her life.

Thus the claim was allowed as a priority domestic support obligation claim in the chapter 7 case.

Massachusetts:

One of the first cases raising an issue as to what is a Domestic Support Obligation under BAPCPA is In re O’Brien, 339 B.R. 529 (Bankr. D.Mass. 2006). The former spouse and the debtor’s own divorce attorney brought motions for relief from stay alleging that obligation to pay attorneys fees (both the former spouses’s fees and the fees to his own attorney in the divorce) were in the nature of Domestic Support Obligations. After litigation in the divorce court, the court awarded fees to the former spouse of $15,000 and to the debtor’s divorce counsel of $18,320.03, directing that they be paid from debtor’s retirement account. Debtor filed chapter 7 and claimed this account as exempt. The bankruptcy court declined to rule on the motion absent further evidence via an evidenciary hearing, but indicated that factors to be considered included the divorce decree, the separation agreement, Debtor’s divorce counsel’s written engagement terms (if any), the intent of the parties regarding support and their financial condition at the time of their divorce, and the scope of services rendered in respect of the Fee Awards.

Nebraska:

Overpayment of child support by state constitutes a domestic support obligation. In re Hernandez, 2012 WL 5457403 (Bankr. D. Neb. 2012). The debt is owed to a governmental unit, and is in the nature of support for the Debotor’s child, established by the state department of Health and Human Services. The source of the payments is not relevant.

Oklahoma:

Debt to former daughter-in-law for attorneys fees related to child visitation dispute did not constitute domestic support obligation. Tucker v. Oliver, 423 B.R. 378 (W.D. Okla. 2010). Debtors, grandparents of the child in question, sought unsuccessfully to obtain visition rights to the child in Oklahoma state courts. The debt in question is fees awarded against the debtors in this proceeding. §101(14A) expressly defines the persons to whome the court-ordered support related obgliation must be owed for it to qualify. Plaintiff alleged that they were asserting rights akin to those of a parent. However, the Court noted that BAPCPA changed the section relating to DSO’s and identifies specific and additional groups of persons to which it applies. This suggests a conscious decision on Congress’ part to focus on which debtors were, or were not, within the scope of the nondischargeability provision. Additionally, the fact that the statute sets out a distinct subsection for the requirements as to whome the debt is owed separate from the subsection setting forth the nature of the obligation suggests it viewed these as separate requirements to be met. The Court also found that visitation disputes did not qualify as custody disputes to be within the scope of a domestic support obligation.

§101(14A) The term ‘domestic support obligation’ means a debt that accrues before, on, or after the date of the order for relief in a case under this title, including interest that accrues on that debt as provided under applicable nonbankruptcy law notwithstanding any other provision of this title, that is –

(A) owed to or recoverable by-

(i) a spouse, former spouse, or child of the debtor or such child’s parent, legal guardian, or responsible relative; or

(ii) a government unit;

(B) in the nature of alimony, maintenance, or support (including assistance provided by a governmental unit) of such spouse, former spouse, or child of the debtor or such child’s parent, without regard to whether such debt is expressly so designated;

(C) established or subject to establishment before, on, or after the date of the order for relief in a case under this title, by reason of applicable provisions of –

(i) a separation agreement, divorce decree, or property settlement agreement;

(ii) an order of a court of record; or

(iii) a determination made in accordance with applicable nonbankruptcy law by a governmental unit; and

(D) not assigned to a nongovernmental entity, unless that obligation is assigned voluntarily by the spouse, former spouse, child of the debtor, or such child’s parent, legal guardian, or responsible relative for the purpose of collecting the debt.

§507(a) [The following claims have priority in the following order]

(1) First:

(A) Allowed unsecured claims for domestic support obligations that, as of the date of the filing of the petition in a case under this title, are owed to or recoverable by a spouse, former spouse, or child of the debtor, or such child’s parent, legal guardian, or responsible relative, without regard to whether the claim is filed by such person or is filed by a governmental unit on behalf of such person, on the condition that funds received under this paragraph by a governmental unit under this title after the date of the filing of the petition shall be applied and distributed in accordance with applicable nonbankruptcy law.

(B) Subject to claims under subparagraph (A), allowed unsecured claims for domestic support obligations that, as of the date of the filing of the petition, are assigned by a spouse, former spouse, child of the debtor or such child’s parent, legal guardian, or responsible relative to a governmental unit (unless such obligation is assigned voluntarily by the spouse, former spouse, child, parent, legal guardian, or responsible relative of the child for the purpose of collecting the debt) or are owed directly to or recoverable by a governmental unit under applicable nonbankruptcy law, on the condition that funds received under this paragraph by a governmental unit under this title after the date of the filing of the petition be applied and distributed in accordance with applicable nonbankruptcy law.

(C) If a trustee is appointed or elected under section 701, 702, 703, 1104, 1202, or 1302, the administrative expense of the trustee allowed under paragraphs (1)(A), (2), and (6) of section 503(b) shall be paid before payment of claims under subparagraphs (A) and (B), to the extent that the trustee administers assets that are otherwise available for the payment of such claims.

¶11.2 Taxes

¶11.21 Income type Taxes

There appears to be a slight change in the time period for priority status of taxes, adding an additional 30 days to the excluded time regarding pending offers of compromise, and providing that the exclusion period for prior bankruptcies is the duration of the automatic stay plus 90 days.

§507(a)(8) Eighth, allowed unsecured claims of governmental units, only to the extent that such claims are for –

(A) a tax on or measured by income or gross receipts for a taxable year ending on or before the date of the filing of the petition;

(i) for which a return, if required, is last due, including extensions, after three years before the date of the filing of the petition;

(ii) assessed within 240 days before the date of the filing of the petition, exclusive of –

(I) any time during which an offer in compromise with respect to that tax was pending or in effect during that 240-day period, plus 30 days; and

(II) any time curing which a stay of proceedings against collections was in effect in a prior case under this title during that 240-day period, plus 90 days,

(iii) other than a tax of a kind specified in section 523(a)(1)(B)( or 523(a)(1)(C) of this title, not assessed before, but assessable, under applicable law or by agreement, after, the commencement of the case; [no changes to subsection (iii)].

¶11.22 Property taxes

BAPCPA makes clear that property taxes only need be incurred, not assessed prepetition to be entitled to priority status, though still needed to be payable without penalty less than one year before the case was filed. Generally such claims will be secured, so this section is rarely applied.

§507(a)(8)(B) [Allowed unsecured claims of governmental units for] a property tax incurred before the commencement of the case and last payable without penalty after one year before the date of the filing of the petition.

¶11.23 Computation of time for priority government claims: an unnumbered ‘hanging’ paragraph at the end of §507(a)(8), apparently intended to apply to all of (a)(8) provides that in computing how old the government claims are, the time during which the claim was subject to a prior automatic stay, or collection was stayed due to a confirmed plan, or during which it was stayed due to a non-bankruptcy challenge to the claim, plus an additional 90 days, is excluded from the time computation period. This would seem to conflict with §507(a)(8)(ii)(I) providing for an additional 30 days to be added to an offer of compromise stay; whereas the hanging paragraph would add 90 days. Presumably the more specific provision applying specifically to offers of compromise would control.

§507(a)(8)(hanging paragraph) An otherwise applicable time period specified in this paragraph shall be suspended for any period during which a governmental unit is prohibited under applicable nonbankruptcy law from collecting a tax as a result of a request by the debtor for a hearing and an appeal of any collection action taken or proposed against the debtor, plus 90 days; plus any time period during which the stay of proceeding was in effect in a prior case under this title or during which collection was precluded by the existence of 1 or more confirmed plans under this title, plus 90 days.

¶11.3 While debts from death or personal injury from intoxicated operation of a motor vehicle had been nondischargeable under §523(a)(9), now such debts (expanded to include debts from the intoxicated operation of a vessel, but curiously not expanded as was the new §523(a)(9) to include aircraft) are now also priority.

§507(a)(10) Tenth: allowed claims for death or personal injury resulting from the operation of a motor vehicle or vessel if such operation was unlawful because the debtor was intoxicated from using alcohol, a drug, or another substance.

¶12 Changes to the automatic stay:

¶12.1 The court is now required to make a final ruling on any motion to lift stay within 60 days, unless the parties agree to an extension, or the court extends the stay for a specific time period based for good cause based on findings by the court.

§362(e)(2) Notwithstanding paragraph (1), in a case under chapter 7, 11, or 13 in which the debtor is an individual, the stay under subsection (a) shall terminate on the date that is 60 days after a request is made by a party in interest under subsection (d), unless –

(A) a final decision is rendered by the court during the 60-day period beginning on the date of the request; or

(B) such 60-day period is extended –

(i) by agreement of all parties in interest; or

(ii) by the court for such specific period of time as the court finds I required for good cause, as described in findings made by the court.

¶12.2 Evictions

¶12.21 Eviction actions from residential leaseholds where a judgment for possession was obtained prepetition are not stayed. However, if under state law the debtor still retains the right to cure the default after the judgment for possession was entered, the debtor may file with the petition a certification that it has such a right, and the debtor or an adult dependent of the debtor has deposited with the clerk of the court any rent that comes due within the 30 days. This then gives the debtor an additional 30 day stay to allow the debtor to cure the default itself, and file a certification to this effect with the court.

Cases:

Dist.Col. §362(b)(22) does not apply to foreclosed mortgage when mortgage company had no lease agreement with debtors. In re McCray, 2006 WL 1071683 (Bankr. D.Dist.Col. 2006). The mortgage went to sale prior. Debtor’s husband initially filed bankruptcy to stop the eviction after the sale. After the stay was lifted in his case, the wife filing next to stop the renewed eviction, then prior to completion of the eviction the debtor in this case filed claiming co–ownership in the property. §362(b)(22) only applies to a lessor under a rental or lease agreement. Since there was no lease or rental agreement between the parties, the court could not lift the stay on this basis. Neither would §362(d)(4) apply, since the mortgage company claims ownership in the property, not a security interest. However, the court found it could lift the stay under §105(a) to carry out any order necessary and appropriate to carry out the provisions of this chapter.

§362(b)[the filing of a petition does not operate as a stay] –

(22) subject to subsection (1), under section (a)(3), of the continuation of any eviction, unlawful detainer action, or similar proceeding by a lessor against a debtor involving residential property in which the debtor resides as a tenant under a lease or rental agreement and with respect to which the lessor has obtained before the date of the filing of the bankruptcy petition, a judgment for possession of such property against the debtor;….

§362(l)(1) Except as otherwise provided in this subsection, subsection (b)(22) shall apply on the date that is 30 days after the date on which the bankruptcy petition is filed, if the debtor files with the petition and served upon the lessor a certification under penalty of perjury that –

(C) under nonbankruptcy law applicable in the jurisdiction, there are circumstances under which the debtor would be permitted to cure the entire monetary default that gave rise to the judgment for possession, after that judgment for possession was entered; and

(D) the debtor (or an adult dependent of the debtor) has deposited with the clerk of the court, any rent that would become due during the 30-day period after the filing of the bankruptcy petition.

(2) If, within the 30-day period after the filing of the bankruptcy petition, the debtor (or an adult dependent of the debtor) complies with paragraph (1) and files with the court and serves upon the lessor a further certification under penalty of perjury that the debtor (or an adult dependent of the debtor) has cured, under nonbankruptcy law applicable in the jurisdiction, the entire monetary default that gave rise to the judgment under which possession is sought by the lessor, subsection (b)(22) shall not apply, unless ordered to apply by the court under paragraph (3).

(3)(A) If the lessor files an objection to any certification filed by the debtor under paragraph (1) or (2), and serves such objection upon the debtor, the court shall hold a hearing within 10 days after the filing and service of such objection to determine if the certification filed by the debtor under paragraph (1) or (2) is true.

(B) If the court upholds the objection of the lessor filed under subparagraph (A) –

(i) subsection (b)(22) shall apply immediately and relief from the stay provided under subsection (a)(3) shall not be required to enable the lessor to complete the process to recover full possession of the property; and

(ii) the clerk of the court shall immediately serve upon the lessor and the debtor a certified copy of the court’s order upholding the lessor’s objection.

(4) If a debtor, in accordance with paragraph (5), indicates on the petition that there was a judgment for possession of the residential rental property in which the debtor resides and does not file a certification under paragraph (1) or (2)–

(A) subsection (b)(22) shall apply immediately upon failure to file such certification, and relief from the stay provided under subsection (a)(3) shall not be required to enable the lessor to complete the process to recover full possession of the property; and

(B) the clerk of the court shall immediately serve upon the lessor and the debtor a certified copy of the docket indicating the absence of a filed certification and the applicability of the exception to the stay under subsection (b)(22).

(5)(A) [described in section # above, notes the requirement that debtor note on the bankruptcy petition that any judgment for possession of residential real property in which debtor holds a lease was obtained].

(B) The form of certification filed with the petition, as specified in this subsection, shall provide for the debtor to certify, and the debtor shall certify –

(i) whether a judgment for possession of residential rental housing in which the debtor resides has been obtained against the debtor before the date of the filing of the petition; and

(ii) whether the debtor is claiming under subparagraph (1) that under nonbankruptcy law applicable in the jurisdiction, there are circumstances under which the debtor would be permitted to cure the entire monetary default that gave rise to the judgment for possession, after that judgment of possession was entered, and has made the appropriate deposit with the court.

(E) The standard forms (electronic and otherwise) used in a bankruptcy proceeding shall be amended to reflect the requirements of this subsection.

(F) The clerk of the court shall arrange for the prompt transmittal of the rent deposited in accordance with paragraph (1)(B) to the lessor.

¶12.22 Evictions are also not stayed 15 days after the creditor files a certification that the property is endangered or that the debtor within 30 days of the filing of the case used or allowed the illegal use of controlled substances on the property. Debtor may contest the certification by denying it or alleging that the problem has since been remedied. Note that under §362(m)(2)(C) if the issues are contested, it is the debtor’s burden to prove a negative: that they are not endangering the property or are not permitting illegal use of controlled substances on the property. Query, what standards will the court use to prove a negative? Presumably an initial burden of going forward with evidence on the lessee, then if that burden is met, the ultimate burden on the lessor.

§362(b)[the filing of a petition does not operate as a stay] –

(23) subject to subsection (m), under subsection (a)(3), of an eviction action that seeks possession of the residential property in which the debtor resides as a tenant under a lease or rental agreement based on endangerment of such property or the illegal use of controlled substances on such property, but only if the lessor files with the court, and serves upon the debtor, a certification under penalty of perjury that such an eviction action has been filed, or that the debtor, during the 30-day period preceding the date of the filing of the certification, has endangered property or illegally used or allowed to be used a controlled substance on the property;

§362(m)(1) Except as otherwise provided in this subsection, subsection (b)(23) shall apply on the date that is 15 days after the date on which the lessor files and serves a certification described in subsection (b)(23).

(2)(A) If the debtor files with the court an objection to the truth or legal sufficiency of the certification described in subsection (b)(23) and serves such objection upon the lessor, subsection (b)(23) shall not apply, unless ordered to apply under this subsection.

(B) If a debtor files and serves the objection under subparagraph (A), the court shall hold a hearing within 10 days after the filing and service of such objection to determine if the situation giving rise to the lessor’s certification under paragraph (1) existed or has been remedied.

(C) If the debtor can demonstrate to the satisfaction of the court that the situation giving rise to the lessor’s certification under paragraph (1) did not exist or has been remedied, the stay provided under subsection (a)(3) shall remain in effect until the termination of the stay under this section.

(D) If the debtor cannot demonstrate to the satisfaction of the court that the situation giving rise to the lessor’s certification under paragraph (1) did not exist or has been remedied –

(i) relief from the stay provided under subsection (a)(3) shall not be required to enable the lessor to proceed with the eviction; and

(ii) the clerk of the court shall immediately serve upon the lessor and the debtor a certified copy of the court’s order upholding the lessor’s certification.

¶12.3 Leases

¶12.31 The time to assume a nonresidential real estate lease has been extended to 120days, but must be done prior to an order confirming a plan even if such order is entered before 120 days.

§363(d)(4)(A) Subjection to paragraph (B), an unexpired lease of nonresidential real property under which the debtor is the lessee shall be deemed rejected, and the trustee shall immediately surrender that nonresidential real property to the lessor, if the trustee does not assume or reject the unexpired lease by the earlier of –

(i) the date that is 120 days after the date of the order for relief; or

(ii) the date of the entry of an order confirming a plan.

(B)(i) The court may extend the period determined under subparagraph (A), prior to the expiration of the 120 day period, for 90 days on the motion of the trustee or lessor for cause.

(ii) if the court grants an extension under clause (i), the court may grant a subsequent extension only upon prior written consent of the lessor in each instance.

¶12.32 If not assumed by the trustee, leased personal property ceases to be property of the estate and the stay terminates. The debtor may assume such a lease if the lessor agrees to the assumption and the parties agree as to provisions regarding a cure of any default. This appears to require an initial notice to the creditor of interest in assuming the lease, and a final notice of assumption within 30days thereafter. The lease will become a liability of the debtor rather than the estate if the debtor follows this assumption procedure. If a personal property lease is not assumed by conclusion of a chapter 13 confirmation hearing the lease is deemed rejected and the stay is automatically terminated as to the leased property. Query, while paragraph (2)(A) appears to require the creditor’s consent to the debtor’s assumption of the lease, paragraph (2)(B) appears to allow the debtor to assume the lease without the consent of the creditor. What if the creditor does not respond to the initial request, or responds negatively, but the debtor sends the notice in compliance with (2)(B)?

§365(p)(1) If a lease of personal property is rejected or not timely assumed by the trustee under subsection (d), the leased property is no longer property of the estate and the stay under subsection 362(a) is automatically terminated.

(2)(A) If the debtor in a case under chapter 7 is an individual, the debtor may notify the creditor in writing that the debtor desires to assume the lease. Upon being so notified, the creditor may, at its option, notify the debtor that it is willing to have the lease assumed by the debtor and may condition such assumption on cure of any outstanding default on terms set by the contract.

(B) If, not later than 30 days after notice is provided under subparagraph (A), the debtor notifies the lessor in writing that the lease is assumed, the liability under the lease will be assumed by the debtor and not by the estate.

(C) The stay under section 362 and the injunction under section 524(a)(2) shall not be violated by notification of the debtor and negotiation of cure under this subsection.

(3) In a case under chapter 11 in which the debtor is an individual and in a case under chapter 13, if the debtor is the lessee with respect to personal property and the lease is not assumed in the plan confirmed by the court, the lease is deemed rejected as of the conclusion of the hearing on confirmation. If the lease is rejected, the stay under section 362 and any stay under section 1301 is automatically terminated with respect to the property subject to the lease.

¶12.4 If the debtor does not timely file a statement of intent showing an intent to reaffirm, redeem, or surrender personal property, the stay will expire as to claims secured by such personal property or leases of personal property, and the property will be deemed to not be property of the estate. This would apply if the statement of intent fails to list the creditor or states an intent to continue payments without reaffirmation. The stay will also expire if the stated intent is not carried out timely (thought the statement can be amended before the expiration of the time to take such action). If the statement declares an intent to reaffirm the debt, and the creditor refuses to reaffirm on the original contract terms, then the stay does not expire and property remains property of the estate. Query, if the creditor charges fees for reaffirmation, and the contract generally provides for fees, is this the original terms?

The trustee may seek to continue the automatic stay despite the debtors failure under this section and if the court determines that the property is of consequential value to the estate it must award adequate protection to the creditor and must require the debtor to turnover possession of the collateral to the trustee.

4^th Circuit

Failure to redeem or reaffirm vehicle within 45 days of 341 can constitute default under ipso facto clause, giving creditor right to repossess vehicle based solely on default created by the filing of the bankruptcy. In re Jones, 591 F.3d 308 (4^th Cir. 2010). Debtor purchased vehicle and financed it through Daimler-Chrysler prior to filing chapter 7. Statement of intentions stated debtor would continue payments on vehicle, but did not state he would redeem or reaffirm. After 45 days passed from the 341 meeting, Daimler-Chrysler moved to confirm the termination of the automatic stay. Bankruptcy Court granted this motion, and creditor repossessed vehicle without giving written notice of default and right to cure. Repossession was pursuant to ipso-facto clause providing default upon filing of bankruptcy. Circuit Court cited to §562(h) as requiring reaffirmation or redemption of personal property as eliminating ride-through as recognized under pre-BAPCPA law in In re Belanger, 962 F.2d 345 (4^th Cir. 1992). Court specifically declined to rule on propriety of back door ride-through where debtor has substantially complied with §§521(a)(2) and 362(h) but has been frustrated in his effort to fully comply (see In re Chim, 381 B.R. 191 (Bankr. D.Md. 2008).

Circuit Court went on to note that while generally ipso-facto clauses in an installment contract were unenforceable as a matter of law, §521(d) creates an exception to this general rule. 591 F.3d at 312. Court further found that acceptance of a postpetition payment through automated system prior to ruling that stay did not exist did not constitute waiver of default. The Court finally found that the failure of Daimler-Chrysler to give notice of default and right to cure under state law was inapplicable in that the triggering event, the filing of the bankruptcy, could not be cured.

Florida:

Court ruled that automatic stay is automatically terminated 30 days following filing of petition with respect to vehicle when statement of intention did not clarify intent to either reaffirm, redeem, or surrender. In re Record, 347 B.R. 450 (Bankr. M.D.Fla. 2006) (J. Funk). Fact that discharge was entered prior to ruling did not affect outcome.

Idaho:

While §362(h) provides for automatic termination of the stay, the creditor is not entitled to an order requiring turnover of the collateral for failure to reaffirm, redeem, or surrender within 30 days of the meeting of creditors. In re Steinhaus, 349 B.R. 694 (Bankr. D. Idaho 2006). Prior to Bapcpa the Ninth Circuit recognized the debtor’s option to allow ride-through of secured claims, by continuing payments without reaffirmation. While this is still permitted under Bapcpa, it is limited by §362(h). Under this provision, if the debtor does not provide for reaffirmation or redemption, then the stay expires. The express relief under §521(a)(6) for failure to reaffirm or redeem consists of three parts: termination of the stay, abandonment as property of the estate, and explicit permission for the creditor to proceed under state law. No provision for an order requiring surrender of the collateral is present. Further, an order compelling surrender would be inconsistent with the provision under §521(a)(6) that the creditor may take whatever action as to such property as is permissible by applicable nonbanrkutpcy law.

§362(h)(1) In a case where the debtor is an individual, the stay provided by subsection (a) is terminated with respect to personal property of the estate or of the debtor securing in whole or in part a claim, or subject to an unexpired lease, and such personal property shall no longer be property of the estate if the debtor fails within the applicable time set by section 521(a)(2)-

(A) to file timely any statement of intention required under section 521(a)(2) with respect to such personal property or to indicate in such statement that the debtor will either surrender such personal property or retain it and, if retaining such personal property, either redeem such personal property pursuant to section 722, enter into an agreement of the kind specified in section 524(c) applicable to the debt secured by such personal property, or assume such unexpired lease pursuant to section 365(p) if the trustee does not do so, as applicable; and

(B) to take timely the action specified in such statement, as it may be amended before expiration of the period for taking action, unless such statement specifies the debtor’s intention to reaffirm such debt on the original contract terms and the creditor refuses to agree to the reaffirmation on such terms.

(2) Paragraph (1) does not apply if the court determines, on motion of the trustee filed before the expiration of the applicable time set by section 521(a)(2), after notice and a hearing, that such personal property is of consequential value or benefit to the estate, and orders appropriate adequate protection of the creditor’s interest, and orders the debtor to deliver any collateral in the debtor’s possession to the trustee. If the court does not so determine, the stay provided by subsection (a) shall terminate upon the conclusion of the hearing on the motion.

¶12.5 The provision for damages for violation of the automatic stay has been amended that if the creditor in good faith believes that subsection 362(h) (regarding filing and compliance with the statement of intentions) applies to terminate the stay, the recovery shall not include punitive damages.

§362(k)(1) Except as provided in paragraph (2), an individual injured by any willful violation of a stay provided by this section shall recover actual damages, including costs and attorneys’ fees, and in appropriate circumstances, may recover punitive damages.

(2) If such violation is based on an action taken by a entity in the good faith belief that subsection (h) applies to the debtor, the recovery under paragraph (1) of this subsection against such entity shall be limited to actual damages.

¶12.6 Taxes

¶12.61 Setoff of prepetition tax refunds against prepetition tax liabilities is allowed when permitted under non-bankruptcy law. If there is a pending action to determine the amount or legality of a tax refund the government may withhold the refund pending the resolution of that action unless the trustee files a motion seeking the refund and the court awards the government adequate protection.

§362(b) [the filing of a petition does not operate as a stay] –

(26) under subsection (a), of the setoff under applicable nonbankruptcy law of an income tax refund, by a governmental unit, with respect to a taxable period that ended before the date of the order for relief against an income tax liability for a taxable period that also ended before the date of the order for relief, except that in any case in which the setoff of an income tax refund is not permitted under applicable nonbankruptcy law because of a pending action to determine the amount or legality of a tax liability, the governmental unit may hold the refund pending the resolution of the action, unless the court, on the motion of the trustee and after notice and a hearing, grants the taxing authority adequate protection (within the meaning of section 361) for the secured claim of such authority in the setoff under section 506(a);

¶12.62 Tax court litigation: the bankruptcy stays tax court proceedings for individuals regarding prepetition taxes (or for corporate taxes for any period subject to bankruptcy court determination).

§362(a)(8) [The filing of a petition operates as a stay of] the commencement or continuation of a proceeding before the United States Tax Court concerning a corporate debtor’s tax liability for a taxable period the bankruptcy court may determine or concerning the tax liability of a debtor who is individually liable for a taxable period ending before the date of the order for relief under this title.

¶12.63 Ad Valorem tax liens for post petition taxes: governmental units may create and perfect statutory liens on the debtors property for post-petition taxes including special taxes or special assessments.

§362(b)[the filing of a petition does not operate as a stay] –

(18) under subsection (a) of the creation or perfection of a statutory lien for an ad valorem property tax, or a special tax or special assessment on real property whether or not ad valorem, imposed by a governmental unit, if such tax or assessment comes due after the date of the filing of the petition;

¶12.7 Divorce type obligations: the stay does not apply to actions to determine paternity, the creation or modification of support orders (see definition in ¶11.1 above), child custody or visitation actions, or divorce actions (except as to division of estate property in such divorce actions), or actions regarding domestic violence. The following collection methods are allowed: 1) collection of support from non-estate property, 2) withholding income even if estate property to pay support obligations determined by judicial or administrative order or statute, 3) actions against drivers, professional, occupational, or recreational licenses, 4) reporting overdue support owed by a parent to a consumer reporting agency, 5) interception of tax refunds, or 5) enforcement of medical obligations (regarding state aid to dependent children and reimbursement rights). Query, could this lead to collection of DSO obligations from otherwise exempt homesteads? If so, clients should be warned that their homestead may be more vulnerable to creditors in bankruptcy than out, just as in §§522(o), (p), and (q). Since DSO still cannot be collected from estate property, this may be a basis to include in the chapter 13 plan a provision delaying revesting of property of the estate in the debtor until discharge. Cases have also ruled that a confirmed plan binds all creditors, including those collecting back domestic support obligations. See In re Gonzalez.

Cases:

Florida:

The Florida Department of Revenue was found in contempt for continuing to send collection letters to a debtor for past due child support after the chapter 13 plan providing for such support was confirmed. The State appealed, and the contempt and attorney fee sanction was affirmed by the District Court in In re Gonzalez, 2013 WL 5308020 (S.D. Fla., Sept 20, 2013). The State argued that there had to be specific injunctive language in the order confirming plan to prevent post-confirmation collection activity for child support arrearages. Judge Marra ruled that In re Rodriguez, 367 Fed. Appx. 25 (11th Cir.2010), cert. denied, ----U.S.---, 131. S.Ct. 128, 179 L.Ed.2d 34 (2010) supported the finding of contempt.

In Rodriguez the 11th Circuit found that the sending of post-confirmation collection letters by the Fla. D.O.R. violated the confirmed plan and affirmed the award of fees to Debtor's counsel. Id. 367 Fed.Appx. at 30. It also found the filing of claim had waived sovereign immunity. Id.

Appellant's conduct was unambiguously proscribed by 11 U.S.C. § 1327(a). It was not necessary for the Bankruptcy Court to add anything additional to its order.

Finally, Judge Marra found that BAPCPA did not not change the result in Rodriguez. Had Congress intended support obligation creditors to not be bound by orders confirming plans, it would have amended §1327 to so state.

New Hampshire:

Confirmation order prohibiting setoff of tax refunds for payment of Domestic Support Obligations is enforceable despite §362(b)(2)(F). In re McGrahan, 448 B.R. 611 (Bankr. D.N.H. 2011). New Hampshire Dept of Health and Human Services continued to setoff tax refunds annually to pay back child support, which was being paid in full through the chater 13 plan, and refused to modify their claim or notify the trustee of such setoffs. The Debtor complained of the necessity of annual modification of the plan to provide credit for such setoffs, and successfully sought an amendment of the plan precluding future setoffs. DHHS argued that the amended plan was in contravension of the code, and therefore void. The Court distinguished between exceptions to the automatic stay and requirements for plan confirmation.

§362(b) [the filing of a petition does not operate as a stay] –

(2) under subsection (a)–

(A) of the commencement or continuation of a civil action or proceeding –

(i) for the establishment of paternity;

(ii) for the establishment or modification of an order for domestic support obligations;

(iii) concerning child custody or visitation;

(iv) for the dissolution of a marriage, except to the extent that such proceeding seeks to determine the division of property that is property of the estate; or

(v) regarding domestic violence;

(B) of the collection of a domestic support obligation from property that is not property of the estate;

(C) with respect to the withholding of income that is property of the estate or property of the debtor for payment of a domestic support obligation under a judicial or administrative order or a statute;

(D) of the withholding, suspension, or restriction of a driver’s license, a professional or occupational license, or a recreational license, under State law, as specified in section 466(a)(16) of the social security act;

(E) of the reporting of overdue support owed by a parent to any consumer reporting agency as specified in section 466(a)(7) of the Social Security Act;

(F) of the interception of a tax refund, as specified in sections 464 and 466(a)(3) of the Social Security Act or under an analogous State law; or

(G) of the enforcement of a medical obligation, as specified under title IV of the Social Security Act; ….

¶12.8 Wage deductions for repayments of loans from pensions, profit-sharing, stock bonus or other qualified retirement plans sponsored by the employer or predecessor, successor, or affiliate of the employer.

§362(b)[the filing of a petition does not operate as a stay] –

(19) under subsection (a), of withholding of income from a debtor’s wages and collection of amounts withheld, under the debtor’s agreement authorizing that withholding and collection for the benefit of a pension, profit-sharing, stock bonus, or other plan established under section 401, 403, 408, 408A, 414, 457, or 501(c) of the Internal Revenue Code of 1986, that is sponsored by the employer of the debtor; or an affiliate, successor, or predecessor of such employer –

(A) to the extent that the amounts withheld and collected are used solely for payments relating to a loan from a plan under section 408(b)(1) of the Employee Retirement Income Security Act of 1974 or is subject to section 72(p) of the Internal Revenue Code of 1986; or

(B) a loan from a thrift savings plan permitted under subchapter III of chapter 84 of title 5, that satisfies the requirements of section 8433(g) of such title;

but nothing in this paragraph may be construed to provide that any loan made under a governmental plan under section 414(d), or a contract or account under section 403(b), of the Internal Revenue Code of 1986constitutes a claim or a debt under this title; ….

¶13 Prior filings

¶13.1 Creditor can obtain an order that subsequent bankruptcies for 2 years will not invoke an automatic stay as to real property if court finds that filing of the case was part of a scheme to hinder, delay, and defraud creditors that involved either transfer of an interest in real estate without the consent of the creditor or court order; or multiple bankruptcies involving such property; subject to the right of the debtor to have the court rule that the refiling was in good faith based on changed circumstances. Query, isn’t every filing to stop a foreclosure and cure the mortgage done with an intent to delay the creditor’s foreclosure? Will refiling to stop foreclosures require debtor motions to determine that the filing was in good faith? Note that section requires intent to delay, hinder, and defraud creditor. Presumably if the initial case was filed in good faith the filing of a second case should not automatically trigger this motion.

Also note that §362(d)(4)(B) requires the order to be recorded in order to be effective. If it is not recorded, does the stay go into effect if not otherwise prevented from taking effect? But see §362(b)(20), where no recording is required for effectiveness of such order.

Cases:

Dist.Col.

Court determined that §362(d)(4) not expressly applicable to creditor that claimed ownership interest rather than lienholder interest in real estate upon 3^rd filing by co-owners in property, but court granted same relief under §105(a). In re McCray, 342 B.R. 669 (Bankr. D.Dist.Col. 2006). Court barred any future filing for the next two years by anyone that gives rise to an automatic stay of the eviction efforts.

§362(d) [The court shall grant relief from or condition continuance of the automatic stay] –

(4) with respect to a stay of an act against real property under subsection (a), by a creditor whose claim is secured by an interest in such real property, if the court finds that the filing of the petition was part of a scheme to delay, hinder, and defraud creditors that involved either –

(A) transfer of all or part ownership of, or other interest in, such real property without the consent of the secured creditor or court approval; or

(B) multiple bankruptcy filings affecting such real property; if recorded in compliance with applicable State laws governing notices of interests or liens in real property, an order entered under paragraph (4) shall be binding in any other case under this title purporting to affect such real property filed not later than 2 years after the date of the entry of such order by the court, except that a debtor in a subsequent case under this title may move for relief from such order based on changed circumstances or for good cause shown, after notice and hearing. Any Federal, State, or local governmental unit that accepts notices of interests or liens in real property shall accept any certified copy of an order described in this subsection for indexing and recording.

§362(b)[the filing of a petition does not operate as a stay] –

(20) under subsection (a), of any act to enforce any lien against or security interest in real property following entry of the order under subsection (d)(4) as to such real property in any prior case under this title, for a period of 2 years after the date of the entry of such an order, except that the debtor, in a subsequent case under this title, may move for relief from such order based upon changed circumstances or for other good cause shown, after notice and a hearing;…

¶13.2 The automatic stay never comes into effect as to enforcing liens or security interests in real property if the debtor was ineligible for relief under §109(g) (180 day bar for dismissal for willful failure to comply with court orders or to appear in proper prosecution of the case or if debtor requested an obtained a voluntary dismissal following a filing for relief from the automatic stay) or if the case was filed in violation of a prior court order.

§362(b) [the filing of a petition does not operate as a stay] –

(21) under subsection (a) of any act to enforce any lien against or security interest in real property –

(A) if the debtor is ineligible under section 109(g) to be a debtor in a case under this title; or

(B) if the case under this title was filed in violation of a bankruptcy court order in a prior case under this title prohibiting the debtor from being a debtor in another case under this title;

¶13.3 If a debtor in chapter 7, 11, or 13 (but not 12) was in another case (it is unclear whether this includes a chapter 12) within the last year that was dismissed the automatic stay terminates 30 days after the 2^nd case is filed unless a party in interest files a motion within 30 days of the filing of the 2^nd case to continue the stay. This does not apply if the first case was a chapter 7 that was dismissed after a §707(b) motion and the 2^nd case is not a chapter 7. It also does not apply if the prior case was discharged (but see ¶5.2 and ¶5.3 re ability to get a new discharge). In order to continue the stay, the movant needs to show that the filing of the case was in good faith as to the creditors to which the continued stay is to apply. .There is a presumption of bad faith if more than one chapter 7, 11, or 13 was pending during the prior year or if the prior case was dismissed due to failure to file or amend required documents without substantial excuse, or to provide adequate protection, or to perform the terms of a confirmed plan. There is also a presumption of bad faith if there has not been a substantial change in the financial or personal affairs of the debtor since dismissal of the prior case; or some other reason to conclude that the current case will be successfully completed. As to a particular creditor, there is a presumption of bad faith to the creditor if they had filed a motion to lift stay prior to dismissal, unless the motion was withdrawn or denied without adequate protection. Note, the law requires both a showing of changed circumstances (or other reason to assume the latter case will be concluded successfully) and that the prior case was not dismissed for the reasons stated. Once a case is confirmed, it will be difficult to escape application of this provision. One exception to this provision is if a case is dismissed due to the creation of a debt repayment plan, it will not count as a dismissal for this subsection. Also, creditors should beware assuming too much from this section. Read carefully, it appears the stay expires as to the debtor, but not as to the estate after 30 days.

Cases:

Alabama:

Court could not extend stay for debtor who waited until 64 days after filing petition to seek extension under §362(c)(3). In re Berry, 340 B.R. 636 (Bankr. M.D. Ala. 2006). Since the debtor had a prior case during the year before filing, §362(c)(3) applies. Under this section, the stay expires under operation of law 30 days after the case is filed. §362(c)(4)(B) cannot be used to grant additional time, since under that section as well the motion must be filed within 30 days of the filing of the petition. Both sections set forth an elaborate scheme of rebuttable presumptions regarding extension of the stay. If the court were to grant debtor’s motion this statutory scheme would be undermined. The court also noted that the motion could be denied in that the debtor sought to extend the stay as to all creditors but only served the trustee and bankruptcy administrator.

California:

Setting forth the standards for continuing the stay under §362(c)(3), and finding that a voluntary dismissal prior to a motion to lift stay does not trigger a presumption of bad faith, the court continued the stay in In re Montoya 342 B.R. 312 (Bankr. S.D.Cal. 2006). The automatic stay “may” be continued beyond the 30-day period prescribed by subparagraph (A) of §362(c)(3) if four minimum requirements are met: (1) a motion is filed; (2) there is notice and a hearing; (3) the hearing is completed before the expiration of the 30-day stay; and (4) the debtor proves that the filing of the new case “is in good faith as to the creditors to be stayed.” If a presumption of bad faith is created by §362(c)(3)(C), then debtor must overcome that presumption with clear and convincing evidence; otherwise the burden of proof on debtor is simply the preponderance of the evidence. The burden of proving a presumption of bad faith under §362(c)(3)(C) falls on the opponent of the motion to extend the stay. However, even in the absence of an objection the court is required to make its own determination of good faith under the applicable standard in order to continue the stay. Thus, the motion seeking an extension must either show the nonexistence of the presumption or admit and rebut such presumption of bad faith. The fact that the prior case was filed prior to 17 October 2005 is irrelevant in determining whether §362(c)(3)(C)’s presumption arises. A voluntary dismissal prior to any motion seeking relief from stay will not trigger the presumption either.

The “totality of circumstances” test for determining whether a debtor filed a chapter 13 case in good faith includes: 1) whether debtor misrepresented facts in the petition or the plan, unfairly manipulated the Code or otherwise filed the current chapter 13 plan or petition in an inequitable manner; 2) debtor's history of filings and dismissals; 3) whether debtor only intended to defeat state court litigation; and 4) whether egregious behavior is present. The fact that the second filing pays more to unsecured than the prior case; that debtor testifies she is determined to complete the plan, and the improved financial situation shown by the budget support a finding of good faith.

Connecticut:

It is the Debtor’s burden to insure that the hearing on the motion to extend the automatic stay is held within the statutorily required 30 days. In re Ziolkowski, 338 B.R. 543 (Bankr. D.Conn. 2006). Despite the fact that the motion was filed with the initial bankruptcy petition, Debtor did not seek an expedited hearing when the initial hearing was scheduled after the 30 day stay expired, and then continued to allow correction of service deficiencies. When the notice of hearing was not issued timely (ie within three days) it was debtor’s counsel’s burden to contact the clerk’s office to ensure that the hearing would be held within the time required; or alternatively to file an emergency motion.

Georgia:

Section 105(a) authority to enter necessary and appropriate orders can be used as authority to reimpose the stay in a second case when debtors waited until shortly prior to expiration of the 30 day stay to file the motion, court could not enter order within 30 days, and continued stay benefited both debtors and creditors. In re Whitaker, 341 B.R. 376 (Bankr. S.D.Ga. 2006) (J. Dalis). §362(c)(3) raises compelling issues of due process and equal protection under the U.S. Constitution.

While the debtors did not raise the Consitutional issues, and only and Article III court can determine that a statute is unconstitutional, the court raises the issue to show the abuse of process invited by §§362(c)(3) and (c)(4). Because §362(c)(3) requires notice of hearing to all parties and completion of the hearing within 30 days, it creates an unprecedented burden on the courts, the creditors, and the debtors. No other section of the code conditions a priviledge or right on providing notice and hearing to so many parties in such a short time. Depending on the timeliness of the notice, the notice required and the space on the court’s docket, completion of the notice and hearing within the 30 days allowed may be difficult or impossible. The Fifth Amendment right to due process is triggered by the affect §362(c)(3) motions have on creditor’s property interests. While courts have the power to shorten the 20 days notice generally required, such notice still must satisfy due process concerns.

Due process generally requires consideration of three distinct factors: First, the private interest that will be affected by the official action; second, the risk of an erroneous deprivation of such interest through the procedures used, and the probable value, if any, of additional or substitute procedural safeguards, and finally, the Government's interest, including the function involved and the fiscal and administrative burdens that the additional or substitute procedural requirements would entail. Here the government’s fiscal and administrative burden would be substantially reduced if more than 30 days were allowed for completion of the hearing. Also troubling are the equal protection concerns raised by the statute. Regarding bankruptcy discharges, the applicable standard of review of Congressional classification is rational justification. Arguably, a greater standard would be required to safeguard the interests protected by the automatic stay; as this affects both the secured and unsecured creditors as well as the debtor, all of which are entitled to due process. There is no apparent reason for the higher burdens provided to the class of debtors under §362(c)(3) to complete the hearing within 30 days than to the class of multiple prior filers under §362(c)(4).

The debtors met their burden of overcoming the presumption of abuse, showing that the husband had been laid off in the middle of the prior case, causing the ultimate dismissal of the prior case. The husband is now reemployed and the plan provides for 100% dividend to unsecured creditors. The motion to extend the stay was filed on the 27^th day after the filing of the petition.

The court determined that §362(c)(4)’s allowance of a hearing after the 30day period applied only to debtors who had more than one case pending during the past year. The court disagreed with Toro-Arcila that §362(c)(4)(D) was superfluous unless §362(c)(4)(B) was read to both single and multiple repeat filers. However, contrary to Toro-Arcila’s analysis, §362(c)(4)(B) should be read as placing consecutive burdens on multiple refilers to establish good faith.

The chief means of rebutting the presumption of bad faith under §362(c)(3) is to show a substantial change in personal or financial affairs of the debtor or other reason to presume that the current filing will be successful.

Section 105 of the bankruptcy code authorizes the court to enter any order necessary and appropriate to carry out the provisions of the bankruptcy code. The court determined that reimposition of the stay was necessary and appropriate to insure the orderly distribution of property to the creditors of the estate. In making this determination, the court was affected by the following factors. 1) A desire not to deprive the debtors of a decision based on the merits of their case. 2) the motion was served on the trustee and creditors, and no objection was filed. 3) Concern that the parties should not suffer due to the inadvertence of their counse.

Maryland:

Debtor overcame presumption of bad faith caused by refiling after dismissal of initial case caused by loss of employment. The new case was offering a 100% dividend to creditors. Debtor also showed commencement of a new business, and not only testified as to expectations of greater income in this business but showed that he has received profit from the business. Thus showing a reasonable prospect of paying creditors through the new case, the extension of the stay was granted. In re Mark, 336 B.R. 260 (Bankr. D.Md. 2006).

Minnesota:

Service of the motion to extend the stay was addressed in In re Collins, 334 BR 655 (Bankr. D. Minn. 2005). Ruling that all creditors must be served with such motion, the court found that the provisions of §362(c)(3) constituted a right to the creditors, and that they must be notified of any request for relief by the debtor from such right, and the particulars alleged as a basis for such relief.

The short deadline for the hearing on requests for extension of time caused problems for the debtors in In re Taylor, 334 BR 660 (Bankr. D. Minn. 2005). While the debtors served all creditors on the matrix, which was sufficient as to the identity of the creditor’s served; the Court found that there was insufficient advance notice to the creditors of the hearings on the motions for extension. Constitutional due process requires sufficient advance notice that the creditors have an adequate opportunity to review the motion, evaluation their options, and oppose the motion via formal participation in the case if they so choose. Service eight days prior to the hearing was inadequate notice to the creditors, requiring denial of the motions. Additionally, the local rules required service of motions at least ten days (for actual delivery) or 14 days (for mail service) prior to the hearing date.

New Hampshire:

Judge Deasy of New Hampshire appeared to agree with the analysis of Judge Small in Paschal that the action referred to in §362(c)(3) is formal prepetition judicial, administrative, or quasi–administrative actions. However, since a foreclosure had commenced prepetition, the statute applied regardless of which definition of action was used. The debtor conceded that there was a presumption of bad faith as to the mortgage since relief from the stay had been requested and obtained in a prior case. Given the presumption, the debtor must first overcome the presumption by clear and convincing evidence of filing the subsequent chapter 13 case in good faith.

In the Fifth Circuit, this good faith requirement is made under the totality of circumstances test. The factors to be considered by the Court in applying the totality of the circumstances test to determine good faith under § 362(c)(3) include: (1) the timing of the filing of the later petition, (2) how the debts in the later case arose, (3) why the debtor's prior case was dismissed, including the debtor's conduct in that case, (4) how the debtor's actions affected creditors who are stayed, (5) the debtor's motive in filing the later petition and whether the Bankruptcy Code is being unfairly manipulated, (6) whether the debtor's circumstances have changed since the prior dismissal and the likelihood that the debtor will be able to properly fund a plan, and (7) whether the case trustee or creditors object to the motion to extend. The court found that the debtor met this test by showing that he attempted to negotiate with the mortgage company after the prior case was dismissed, and filed only when his final offer was rejected the day prior to the foreclosure sale. The new case showed no more consumer debt (other than attorneys fees for the filing of the bankruptcy) than the prior case. The prior case was dismissed due to illness, which prevented him from obtaining income as an independent sales representative, and thus due to circumstances beyond the debtor’s control. The prejudice to the mortgage (the only objecting creditor) is mitigated by its decision to continue foreclosure while negotiating with the debtor. The debtor’s motive in filing, to save his home; and the fact that he would not be required to pay anything back in a chapter 7 favor a finding of good faith. The non–filing spouse now has stable employment, and the debtor has changed medication to enable him to work more. Further, the trustee did not object to the extension of the stay.

Even given a finding of good faith, the debtor must convince the court to exercise its discretion to extend the stay. The factors showing good faith support this result, but the refiling and continued health problems make the continued payments on the mortgage somewhat problematic, therefore the court ordered adequate protection by continued contractual payments for six months and permitted ex-parte relief to the mortgage is payments were not made. In re Baldassaro, 338 BR 178 (Bankr. D.N.H. 2006).

New York

The presumption of bad faith refiling under §362(c)(3) was examined in In re Warneck, 336 BR 181 (Bankr. S.D. N.Y. 2006). Here, Judge Morris determined that a third filing on November 9, 2005; where the first was dismissed in June 2004, and the second dismissed Jan 19, 2005 was not presumed to be filed in bad faith. The first case was dismissed for unreasonable delay which was prejudicial to creditors. The second was dismissed for failure to make plan payments. Debtors’ income was solely from social security. The affidavit attached to the motion for extension showed that when the second case was filed, debtors were receiving help from their daughter and son–in–law; but that subsequently the daughters employment hours were reduced and the son–in–law was laid off. The affidavit alleged that the daughter had now started her own business with steady income and that the son–in–law had returned to work, and that both were now living with debtors.

Initially the court determined that the first case is irrelevant to the determination, as the court only considers prior cases pending within the last year. The court also determined that §362(c)(3)(C)(i)(II)(cc) did not apply since the prior plan had not been confirmed. The Court also emphasized that the §362(c)(3)(C)(i)(III) analysis compares the situation at the time of the dismissal of the second case to the situation at the time of the refiling. In that the debtors provided the court with concrete and documented reasons why their financial prospects have improved, the court determined that the there was no presumption of bad faith.

In the absence of a presumption, the party seeking the extension of the stay is required to affirmatively demonstrate that the refiled case is filed in good faith as to the creditors to be stayed. The court determined that the evidence submitted to show no presumption of abuse satisfied this standard as well.

North Carolina:

A motion for extension of the stay was denied for lack of good faith in the 2^nd filing in In re Havner, 336 BR 98 (Bankr. M.D. N.C. 2006), despite the fact that no creditors or trustee objected to the extension. The court found that the failure to maintain the payments to the trustee in the prior case triggered the presumption of bad faith, despite the debtor’s argument of inability to make such payments. The Court also found no substantial change of circumstances and no reason to believe the refiling would be successful. The court agreed with Galanis as to what factors determine good faith for purposes of §362(c)(3). Supporting the Court’s finding of bad faith were the fact that most debts in the 2^nd case were for recurring personal and business expenses, the fact that two creditors hold liens on depreciating vehicles, that the prior case was dismissed for delinquency in payments to the trustee and that the debtor did not attempt to cure such delinquency, and the fact that the Debtor’s schedules show less income than required for the plan payment. These caused the Debtor to fail to carry his burden of proof by clear and convincing evidence to show good faith. The court appeared to believe that the motion must be granted or denied as to all creditors, rather than as to each individual creditor; and that the burden must be met as to all creditors so as to grant it to any.

Analyzing the requirements for extension of the stay under §362(c)(3) in a case where there were two prior cases pending during the last year (apparently not recognizing the applicability of §362(c)(4)), the Court nevertheless granted the extension in In re Ball, 336 B.R. 269 (Bankr. M.D. N.C. 2006). The background included the filing and dismissal of an initial chapter, the refiling of a chapter 13 which converted to chapter 7 and was discharged, and the refiling 45 days later of the current chapter 13. Debtors testified that they had intended to withdraw retirement funds to cure the arrearages after the chapter 7 discharge rather than refiling chapter 13, but were advised against this. The Court examined the Galanis factors to determine the good faith of the refiling. The court found feasibility of the new case despite income for both debtors being lower than in the prior cases. The budget showed that they could meet the plan payments, and the debtors testified as to an expectation of an increase in income. The mortgage company objected to the extension. The Court found that considering all the facts and circumstances indicated that the Debtors filed the current case in good faith.

The issue of what constitutes a pending prior case was examined by Judge Small in In re Moore, 337 B.R 79 (Bankr. E.D.N.C. 2005).

In this case, the later bankruptcy was filed on 4 November 2005. The prior case had been filed 10 October 2003, and dismissed on 2 August 2004, but the trustee’s final report and accounting was not filed until 27 October 2004, and the case closed on 10 November 2004. While the case was obviously open on 4 November 2004, the issue was whether it was pending for purposes of §362(c)(3). Examining the definition of pending from Blacks Law Dictionary, that a mater remains undecided awaiting decision; and examining 11 U.S.C. §109(g)’s cases computing such 180 day period from the date of dismissal; the court determined that the proper date terminating the ‘pending’ status of a case is the dismissal. The court also concluded that conformed with policy since the debtor no longer receives the benefit of the automatic stay after dismissal.

A narrow interpretation of the acts as to which the automatic stay terminates if not extended during the 30 days was espoused in In re Paschal, 337 BR 274 (Bankr. E.D.N.C. 2006). Judge Small read §362(c)(3)(A) as terminating only with respect to formal judicial, administrative, governmental, or quasi–judicial actions that were commenced prior to the filing of the latter bankruptcy.

In reaching this conclusion, Judge Small examined the literal language of the statute, and noted that a case is not filed, a petition is filed, after which a case is open. Next, the statute directs that the case must be filed by "[a] debtor who is an individual in a case ...." For a debtor to be an individual in a case in the present tense, a case must still be pending. Thus, this section literally applies only to a debtor who has a chapter 7, 11, or 13 case open when a new petition is filed by or against that individual. Finally, a single or joint case of the debtor had to be "pending within the preceding 1-year period but was dismissed." Taken all together, the section only applies to individuals who have had three cases pending in one calendar year: one case that has been dismissed, one case that is still pending when the petition at issue is filed, and the new case that is before the court for determination. Since this interpretation would render the statute meaningless, the court rejected this interpretation.

Judge Small then examined the legislative history, and concluded that the statute was intended to terminate all protections of the automatic stay. However, determining the legislative history is not conclusive either, and noting that Congress did provide language terminating all protections of the stay in §362(c)(4); the court determined that the two section have different effects on the extent by which the stay terminates. The court then examined the term ‘act’ as appearing in §362(a)(3) – (a)(5), and determined that the term ‘act’ is much broader than the term used in §362(c)(3): ‘action taken.’ The court noted that action also appears in §362(a)(1) in reference to commencement or continuation of judicial, administrative, or other actions or proceedings against the debtor. Similarly in a number of subsection of §362(b) action refers to formal proceedings. Based on use of this term in these other sections, the court concluded that action means a formal action, such as a judicial, administrative, governmental, quasi-judicial, or other essentially formal activity or proceeding. Furthermore, the action with respect to which the stay terminates is an "action taken," which means an action in the past, prior to the filing of the debtor's bankruptcy petition.

Judge Small ruled that the expiration of the automatic stay under §362(c)(3)(A) applies only to the debtor and property of the debtor, and not to property of the estate in In re Jones, 339 B.R. 360 (Bankr. E.D.N.C. 2006). The fight was between the debtor, arguing that the stay applied both to property of the debtor and property of the estate; and the holder of the mortgage on the homestead who argued that the stay was lifted altogether. The court noted this was an extension of the Paschal decision, wherein it ruled that the actions stayed were formal judicial, administrative, or quasi–judicial actions. Again, examining the statute itself, Judge Small noted that §362(a) distinguishes between acts against the debtor, acts against property of the debtor, and acts against property of the estate. §521 also recognizes a distinction between property of the debtor and property of the estate; providing in §521(a)(6) for the extinguishment of the stay as to both property of the debtor and property of the estate if a debt is not reaffirmed. If Congress had intended the stay to expire as to property of the estate as well as of the debtor under §362(c)(3), it would have used similar language. Similarly, Congress provided for an expanded expiration of the stay in §362(c)(4)(A)(i). The absence of such expanded language in §362(c)(3) shows intent to provide only a limited expiration of the stay.

The court rejected the debtor’s argument that the stay continued as to property of the debtor. Section 362(c)(3)(A) specifically refers to termination of the stay with respect to any action taken, with respect to a debt or with respect to “property securing such debts.” At a minimum, the stay would therefore terminate “with respect to the debtor” as it relates to a debt of the debtor and to property “securing such debt.” §102(2) provides for a rule of construction that claims against the debtor includes claims against property of the debtor. §101(12) defines debt as liability on a claim.

This interpretation conforms with policy concerns of protecting property necessary for completion of a plan and in chapter 7 cases to allow the trustee to administer assets of the estate.

Ohio:

In In re Moon, 339 B.R. 668 (Bankr. N.D. Ohio 2006) Judge Baxter ruled that Debtors failure to insure that the hearing on the motion to extend the stay under §362(c)(3) resulted in termination of the stay on the 30^th day following the filing of the petition; but that such stay only terminated as to property of the debtor and not as to property of the estate. The instant filing was the second within a year, with the prior one dismissed after a motion for relief from stay by the mortgage; thereby triggering the presumption of bad faith under §362(c)(3)(C)(ii). While the motion to extend was filed concurrently with the petition, the hearing date (apparently chosen by debtors) was more than 30 days after the filing. The court ruled that it was debtor’s burden as movant to insure that the motion was heard within the 30 day time limit set by the statute. Thus the court is bound to rule that the automatic stay terminated by operation of law on the 30^th day following the filing of the petition. However, the court then went on to examine the scope of the stay which terminated. Given the different language used in §362(c)(3) and (c)(4), it appears Congress intended a different extent of the injunction being termination. The language in §362(c)(3) only terminates the stay as to debts or property of the debtor. The stay continues as to property of the estate so long as it remains property of the estate. The concluding paragraph of the order is somewhat confusing, in granting Debtor’s motion for a declaratory judgment that the stay remains in effect as to property of the debtor ‘as determined herein.’ This would seem to imply that the court determined that the homestead was at least partially still property of the estate and thereby still at least partially subject to the automatic stay.

If not extended, the §362(c)(3) stay expires solely as to property of the debtor, not as to property which vested in the estate as of the filing of the case. In re Harris, 342 B.R. 274 (Bankr. N.D.Ohio 2006) (J. Shea–Stonum). The debtor initially filed a motion to extend the stay, but the motion was filed 33 days after filing. The court denied this request under §362(c)(3) on the basis that it was late (but declined to rule whether the court had jurisdiction to extend the stay otherwise); and on the basis that the debtor did not present evidence to show that the latter case was filed in good faith. Comparing the language of §362(c)(3) with that of §362(c)(4), the court concluded that the extent of the stay lifted after 30 days was limited in §362(c)(3) to 1) actions taken with respect to debts of the debtor; 2) actions with respect to property of the debtor; and 3) actions with respect to a lease of the debtor. It was not lifted as to acts against property of the estate. Thus, the case implies that the mortgage holder did not have the right to continue foreclosure.

Oklahoma:

Dismissal of a prior case due to delinquency in plan payments did cause presumption of bad faith, but presumption was overcome by Debtor’s showing of new employment. Debtor had paid approximately three years of a five year plan when prior case was dismissed after Debtor was laid off from her employment and went through a divorce. Debtor then started her own business, and has built it up to show sustained income of $300 to $400/week. Debtor also assists two children with their college expenses, and is attending school herself for an associate degree.

The court concluded that the dismissal of the first case was due to circumstances beyond her control: ie the layoff at work and the divorce. The court found that the debtor showed a substantial change in financial circumstances since the dismissal, and has shown stable income in the new case.

Finally, the court noted that it would grant these motions ex – parte if properly noticed to all creditors, if unopposed, and if counsel plead if the elements of §362(c)(3) including rebutting any presumption of bad faith. In re Phillips, 336 BR 818 (Bankr. E.D. Okla. 2006).

Pennsylvania:

A second bankruptcy filed after a foreclosure sale of the home, which the debtor sought to set aside as a fraudulent transfer, was found to trigger the presumption of bad faith which the debtor was unable to overcome in In re Ellis, 339 B.R. 136 (Bankr. E.D. Pa. 2006). The filing was the third by the debtor, both prior cases having stay litigation and dismissals for failure to pay the trustee, and both having issues of the debtor alleging that he was not receiving notices from the court. Only one of the prior cases was pending during the past year. After dismissal of the second case, the foreclosure sale was held, and the third case filed shortly after the sale. The Debtor alleged that the auctioneer at the sale overlooked a bid by the debtor’s brother upon selling the property to the mortgage company; and that the property was worth substantially more than the sale price; and filed a fraudulent transfer or preferential transfer action against the mortgage company in the third case. The court initially granted a short extension of the stay to allow the debtor to purchase the property from the mortgage for the amount of the debt, but despite the alleged ability of the brother to bid more than such amount at the foreclosure sale, the debtor was unable to raise funds to make such purchase.

The presumption of bad faith was triggered by the fact that there was an order lifting the stay on the mortgage in the prior case. Further, the court found that Debtor’s financial circumstances had not improved (but rather worsened given the foreclosure sale), triggering the presumption of abuse as to creditors generally. Additionally, the plan fails to provide for the mortgage company even if the sale were avoided, thus indicating no reason to believe that the plan would be completed successfully. The court rejected the Debtors arguments to overcome the presumption. The court indicated that the adversary was not likely to be successful in overturning the sale. The second argument, that the property was worth substantially more than the mortgage, was contradicted by the value alleged in the schedules in the prior bankruptcies. The court also found it significant that even if the adversary were successful, it would only return the Debtor to the situation he was in when the prior case was dismissed.

South Carolina:

Expiration of the stay under §362(c)(3) does not preclude confirmation of a plan providing for the secured claim. In re Fleming, 349 B.R. 444 (Bankr. D.S.C. 2006). No provision of §1325(a) requires the continued existence of the stay. Further, confirmation of a chapter 13 plan may prevent a creditor who obtained pre-confirmation relief from the stay from exercising state law rights to the extent that they provisions of the confirmed plan conflict with and/or replace the creditor’s pre-confirmation rights. 11 U.S.C. §1327(a).

Debtor must present convincing evidence to rebut presumption of abuse, arguments made by Debtor were confusing, and not supported by the evidence so extension was denied. In re Washington, 443 B.R. 389 (Bankr. D.S.C. 2011). Debtor argued that reason income was shown lower in present case than prior was that income was overstated in prior case. Debtor opened separate financial accounts for his rental properties, but was unable to say what rent was paid by each tenant and which tenants were current on the rent. Debtor asserted that expenses would be decreased going forward, but debtor was suffering from several instances of theft on the properties and had lowered his deductible on the insurance, thereby likely increasing overall expenses. Debtors plan to start making tenants pay utilities would only take effect as new leases are signed, and the ability of tenants to pay both rent and utilities is suspect given that many are form the homeless shelter. While debtor argued that he has more renters now than in the prior case, the Court noted that debtor was showing more lease agreements than apartments available to lease in one of the units, and included renewal of a lease where the tenant was behind six months on rent.

Tennessee:

Judge Boswell ruled that the language of the Order Confirming Plan itself, at least in the Western District of Tennessee, automatically extended the automatic stay so as to moot the necessity of filing a motion to extend the stay under §362(c)(3). Initially, the court determined that the stay would not expire as to the estate under the language of the statute as discussed in the main analysis of this section. But then, the court went on to note that under the local order confirming plan, all property defined by §541 or §1306 to be property of the estate, remained property of the estate until dismissal or discharge or a court order otherwise. In re Johnson, 335 B.R. 805 (Bankr. W.D. Tenn. 2006). Given the requirements for early confirmation in BAPCPA, this may be an approach followed by other courts.

Judge Stair set out requirements of motions to extend the automatic stay in In re Wilson, 336 B.R. 338 (Bankr. E.D. Tenn. 2005): 1) Motions must be served on affected creditors at least 20 days prior to the hearing in order to satisfy due process rights; 2) Motions must include the case number of the prior case and explain why they were dismissed; and 3) the motions must be properly served. If a presumption of bad faith arises, the debtor must file an affidavit relied upon to rebut the presumption. If an objection to the extension is filed, the Debtor may either rely on the affidavit or present testimony at the hearing. This affidavit must be served with the motion for extension of stay. The motion must contain the following information: 1) against which creditors the stay is sought; 2) the case number and commencement date and dismissal date of all prior cases within the last year; 3) Reasons why the presumption of bad faith would (or presumably would not) arise; 4) the change in financial circumstances or other reason the case will conclude with a discharge if chapter 7, or a confirmed plan if chapter 11 or 13. Not surprisingly, none of the motions before the court conformed with the requirements here announced, and all motions were denied.

Texas:

The first reported decision interpreting this statute raised a number of questions. The first issue was the adequacy of the notice to creditors, and what allegations should be made by the debtor to support extending the stay as to each individual creditor. The court ruled that the Debtor’s motion was sufficient only to put the mortgage company on notice of the issues regarding extension of the stay, and that the motion must be replead to put all other creditors on notice of the issues that will be addressed at the hearing on the motion to extend the automatic stay. The court noted that the burden of proof for the extension is on the debtor. The court then determined that simply determining that the 2^nd case was filed in good faith was insufficient, in and of itself, to meet the requirements to extend the stay. The debtor then must ‘demonstrate sufficient equitable factors’ to justify the court’s discretion to extend the stay. However, the court did note that it may extend the stay without hearing if no objections were filed. In re Charles, 332 B.R. 538 (Bankr. S.D. Tex. 2005) (J. Isgur).

After the hearing on the motion to extend the stay, Judge Isgur issued another ruling on the standards for such extension once proper notice is given. In re Charles, 334 B.R. 207 (Bankr. S.D. Tex. 2005). The first issue addressed by the court was the burden of proof. As to the rebuttable presumption of bad faith under §362(c)(3)(C), the party opposing extension of the stay has the burden to show that more than one case was pending in the prior year, as to whether the prior case was dismissed for one of the reasons described in §362(c)(3)(C)(i)(II), and if it was the creditor that filed a motion under §362 in the prior case which was granted in whole or in part or still pending as of dismissal of the prior case. The debtor has the burden of proof to show a change in circumstances or other basis to believe that the new case will result in a discharge. If the rebuttable presumption of bad faith arises, then the Debtor’s burden of proof to show good faith as to the creditors sought to be stayed is by clear and convincing evidence. If there is no presumption, then the debtor’s burden is by a preponderance of the evidence. The Debtor also has the burden of proof, by a preponderance of the evidence, to show cause why the Court should exercise its discretion to continue the automatic stay.

The court determined that the debtor showed a substantial change in circumstances in the 2^nd case by allowing automatic debit for payment of the trustee from the bank account in which his wage checks were deposited. Finding no presumption of bad faith, the Court concluded that the debtor need show good faith only by a preponderance of the evidence. In determining objective good faith under §362(c)(3)(C), the court must determine whether the case is likely to result in a discharge. This was further clarified to mean that the debtor has a ‘meaningful chance of success’ in the bankruptcy case as opposed to a filing merely to benefit from the ‘stay and delay.’ If objective good faith is demonstrated, then the Court proceeds to determine subjective good faith.

In determining subjective good faith, the court examines the ‘totality of the circumstances’ test in determining debtor’s motives and relationship with the creditors. “In reviewing the totality of the circumstances, the Court considers (i) the nature of the debts; (ii) the nature of any collateral; (iii) eve of bankruptcy purchases; (iv) the debtor's conduct in the present case; (v) reasons why the debtor wishes to extend the stay; and (vi) any other circumstances that weigh on the wisdom of an extension.” If the creditor agrees that the case was filed in good faith against it, then the inquiry ends. Since only one creditor agreed, and there was no response by the others, the court believed it was required to make the subjective good faith findings as to all other creditors.

(i) As to the nature of the debts: “[i]f the debt was incurred for reasonable and necessary living expenses, the Court is more likely to find that the debtor's relationship with the creditor (and thus the filing of the case) is characterized by good faith. If the debt arises from questionable conduct by the debtor, the Court is less likely to characterize the debtor's relationship with the creditor (and thus the filing of the case) as one of good faith.”

(ii) As to the nature of the collateral: “[i]f the creditor is secured by the debtor's homestead, by a sole source of transportation or by other necessities, the Court is more likely to find that the debtor's actions are in good faith. As with the evaluations set forth above, there will be a continuum. The Court is more likely to find that a debtor acts in good faith to forestall the foreclosure of a home or the repossession of a sole source of transportation but less likely to find that a debtor acts in good faith to re-file a case to forestall the repossession of a luxury item--such as a pleasure boat or a vacation timeshare.”
(iii) If the creditor against which the extension of the stay is sought is based on a debt incurred shortly before the filing of the case, this would factor against finding good faith.

(iv) As to the Debtor’s conduct in the present case: “[t]he Court should examine the debtor's conduct to see if the present case is filed in a bona fide effort to obtain a discharge. Important inquiries include whether the debtor attended required meetings with the trustee, filed her schedules and statements, and otherwise performed her duties under the Bankruptcy Code and Rules.”

(v) As to the reasons the Debtor wishes to extend the stay: if the stay is sought to retain an essential asset such as a home or needed transportation, good faith is indicated. If the stay is sought solely to delay a lawsuit or foreclosure, or for harassment, good faith is not shown as to such creditors.

(vi) Other unique circumstances: In the Charles case, the dismissal was to allow negotiations with the home lender. The refiling is the natural result of the failure of such negotiations. This is a further indication of good faith.

Finally, the Court noted that even finding objective and subjective good faith does not require the Court to extend the stay. Thus the movant must demonstrate equitable factors sufficient to justify the extension. Enabling debtor to retain the homestead alone raises substantial equitable considerations in favor of the debtor. Further, no creditor opposed extending the stay. The court appeared to find that the fact that creditors would receive ‘not less’ than they would have received in a chapter 7 liquidation was also an equitable factor for the debtor; despite the Code requirement for such a plan.

The Court denied a request for extension upon objections by creditors holding a mortgage on the home and a lien on a vehicle in In re Collins, 335 B.R. 646 (Bankr. S.D. Tex. 2005). J. Isgur. The court found that the debtor failed to show either a change in circumstances since the prior dismissal, or that there is some other reason to believe the present case will be successful. The budget showed less available income than the prior case, and include numerous inaccuracies. The court determined that the threshold issues in determining whether to extend the stay are 1) whether any creditors object, and 2) whether the new case is likely to result in a discharge. If the creditor agrees to the extension, then it should be granted. If the creditor does not, and the current case is not likely to result in a discharge, then it should be denied. If the creditor objects but the case is likely to result in a discharge, the court examines the six additional factors: 3) the nature of the debt held by the creditors; 4) the nature of the collateral held by creditors; 5) whether there are eve of bankruptcy purchases; 6) the Debtor’s conduct in the present case; 7) the reasons the debtor desires an extension of the stay; and 8) any unique factors or circumstances particular to the case. Based primarily on the fact that the debtor did not show a likelihood of success in the present case, together with the fact that creditors objected, the court denied the extension.

Utah:

The request to extend the stay was denied by the Court in In re Montoya, 333 B.R. 449 (Bankr. D. Utah 2005). This was the third petition filed by the debtor, the first chapter 13 having been filed in August 1999 and confirmed in March 2000. This plan provided for a few secured claims and a 29% dividend to unsecured creditors. When the debtor was fired from her job the case converted to chapter 7 and was discharged in November 2000 as a no–asset case. The debtor refiled chapter 13 in August 2004 providing for a valued car, approximately $4,500 in taxes, and a 10% dividend to unsecured. It was confirmed in March 2005, and dismissed in October 2005 with some abatements in the meantime for car repairs and surgery. It appears that the debtor ceased payments due to medical problems related to surgeries. A total of $1,111 was paid in, with no payment except to administrative claimants. The 3^rd case was filed 6 days after dismissal of the second, on October 27, 2005. Debtor had the same employer as the second case, and alleged that her medical problems had been resolved. The only objection to the motion for extension came from the chapter 13 trustee. The court found that a presumption of abuse did not arise under §362(c)(3)(C)(i)(I) since while there were more than one prior case, only one was pending in the prior year. However, the court found that the presumption of §362(c)(3)(C)(i)(II) did arise by interpreting subsection (cc)’s failure to perform the terms of a plan confirmed by the court as being satisfied by failing to make all payments under the plan. While the debtor argued that the change in medical status satisfied §362(c)(3)(C)(i)(III), the court determined that it did not need to reach this issue since §362(c)(3)(C)(i)(II) was satisfied.

This requires the debtor to rebut the presumption by putting on evidence proving the nonexistence of the presumption that the 3^rd case was not filed in good faith. In making this determination, the courts must consider the totality of the circumstances in a case by case basis. The court cited Geir v. Farmers State Bank (In re Geir), 986 F.2d 1326, 1329 (10^th Cir. 1993) for the 7 factors to be considered in making this determination. 1) the nature of the debt and whether the debt sought to be discharged would be nondischargeable in chapter 7. While finding that the debtor had no nondischargeable debt, the court still found against the debtor on this factor since debtor was taking advantage of chapter 13 to extend payment to priority and secured claims. 2) Whether debtor had filed before. While this is included in the statutory presumption, the court found that a refiling 6 days after a dismissal is more problematic than simply refiling within one year. 3) How the debt arose, ie excessive spending or medical problems. The court found that the debtor met this factor due to her medical expenses. 4) The debtor’s motivation. The debtor’s testimony of her intent to repay debt rather than eliminate it, and her testimony as to the stability of her employment and resolution of her prior medical problems satisfied the court as to this factor. 5) How debtor’s actions affected the creditors. Here the court appeared to put the burden on the Debtor to prove creditors had not suffered due to the refilings. Finding that the debtor had not met this burden, it ruled against the debtor on this factor. 6) The Debtor’s treatment of creditors both before and after the case was filed. The court found that this factor weighed most heavily against the debtor; that during the 14 months she was in the second case no payment was made by the trustee to non-administrative claimants, and the debtor was using depreciating collateral without compensation to the creditor. 7) Whether the debtor has been forthcoming with the bankruptcy court and creditors. No evidence was presented on this issue. Finding that four of the seven factors weighed against the debtor, the Court denied the request to extend the stay. In re Montoya, 2005 WL 3160532 (Bankr. D. Utah 2005).

Judge Thurman in In re Galanis, 334 B.R. 685 (Bankr. D. Utah 2005) found a clear and convincing standard of proof for debtors to show good faith under §362(c)(3)(C) if a presumption of abuse arose, and a preponderance of the evidence standard if not. Judge Thurman determined seven factors should be examined in determining good faith, a sort of modified Geir, test. “1) the timing of the petition; 2) how the debt(s) arose; 3) the debtor's motive in filing the petition; 4) how the debtor's actions affected creditors; 5) why the debtor's prior case was dismissed; 6) the likelihood that the debtor will have a steady income throughout the bankruptcy case, and will be able to properly fund a plan; and 7) whether the Trustee or creditors object to the debtor's motion.” The reported decision ruled on extension requests by two different debtors in separate cases. Since the prior cases were dismissed due to a failure to make plan payments: to comply with the terms of the plan, the presumption of abuse arose.

The court examined good faith under the clear and convincing standard. In examining the above factors the court found for or against the debtors as to each factor. 1) Interestingly, the court found that a prompt refiling was evidence of good faith, as it prevented creditors from incurring substantial additional collection costs. While a 105 day delay in refiling might indicate bad faith, if caused by medical problems this would also tend in favor of good faith. 2) Credit card debts for personal purchases rather than medical bills or necessities factored against good faith. 3) Good faith is shown by Debtor’s testimony that their intent in the new case is to pay as much of their debts as possible factored in favor of good faith, or by the fact that debtors income is not subject to garnishment in state court thus making a voluntary repayment in chapter 13 a sign of good faith. 4) If there is depreciating collateral, this would weigh against good faith. 5) Even though the prior case was dismissed for failure to make plan payments an attempt to a cure and/or nonresponsive counsel would tend to show good faith; as would the fact that the prior dismissal was caused by circumstances beyond debtor’s control such as medical problems. Also, payment of a significant dividend in the prior case prior to dismissal would tend to show good faith. 6) Debtor’s long and steady employment history, showing a likelihood of success in the new case weighed in favor of good faith. 7) The fact that neither the trustee nor any creditor objected to the extension is also evidence of good faith. The court granted the extension of the stay.

Even though extension of stay had previously been denied for lack of good faith, plan could still be confirmed as being filed in good faith. In re Tomasini, 339 BR 773 (Bankr. D.Utah 2006). (Judge Thurman). The court concluded that the standard under §362(c)(3) requiring the debtor to show that the latter case was filed in good faith as to the creditors to be stayed is similar but not identical to that of §1325(a)(7) requiring the debtor to show that the present case was filed in good faith. The court had previously found that §362(c)(3) required a showing of good faith by a clear and convincing standard. However, the standard under §1325, as with the burden of proof generally in bankruptcy, is by the preponderance of the evidence. The standard under §362(c)(3) refers to good faith as to the creditors, whereas §1327(a)(7) does not mention creditors. Based on this distinction, the court concluded the tests are distinct. The statutory framework of the sections further support this distinction. §362(c)(3) focuses on the effect on the creditors’ perspective while §1325 focuses on the nature of the debtor. §1325 is focused on the debtor’s actions in the bankruptcy.

What happens if the debtor waits until after the 30 days to first seek the extension, or if the court is unable to set a hearing within the 30 days? See In re Toro – Arcila, Beasley and Wright under ¶13.4 below.

§362(c) Except as provided in subsections (d), (e), (f), and (h) of this section –

(3) If a single or joint case is filed by or against [a] debtor who is an individual in a case under chapter 7, 11, or 13, and if a single or joint case of the debtor was pending within the preceding 1-year period but was dismissed, other than a case refiled under a chapter other than chapter 7 after dismissal under section 707(b)-

(A) the stay under subsection (a) with respect to any action taken with respect to a debt or property securing such debt or with respect to any lease shall terminate with respect to the debtor on the 30^th day after the filing of the later case;

(B) on the motion of a party in interest for continuation of the automatic stay and upon notice and a hearing, the court may extend the stay in particular cases as to any or all creditors (subject to such conditions or limitations as the court may then impose) after notice and a hearing completed before the expiration of the 30-day period only if the party in interest demonstrates that the filing o the later case is in good faith as to the creditors to be stayed; and

(C) for purposes of subparagraph (B), a case is presumptively filed not in good faith (but such presumption may be rebutted by clear and convincing evidence to the contrary) –

(i) as to all creditors, if –

(I) more than 1 previous case under any of chapters 7, 11, and 13 in which the individual was a debtor was pending within the preceding 1–year period;

(II) a previous case under any of chapters 7, 11, and 13 in which the individual was a debtor was dismissed within such 1-year period, after the debtor failed to-

(aa) file or amend the petition or other documents as required by this title or the court without substantial excuse (but mere inadvertence or negligence shall not be a substantial excuse unless the dismissal was caused by the negligence of the debtor’s attorney);

(bb) provide adequate protection as ordered by the court; or

(cc) perform the terms of a plan confirmed by the court; or

(III) there has not been a substantial change in the financial or personal affairs of the debtor since the dismissal of the next most previous case under chapter 7, 11, or 13 or any other reason to conclude that the later case will be concluded –

(aa) if a case under chapter 7, with a discharge; or

(bb) if a case under chapter 11 or 13, with a confirmed plan that will be fully performed; and

(ii) as to any creditor that commenced an action under subsection (d) in a previous case in which the individual was a debtor if, as of the date of dismissal of such as, that action was still pending or had been resolved by terminating, conditioning, or limiting the stay as to actions of such creditor; and

§362(i) If a case commenced under chapter 7, 11, or 13 is dismissed due to the creation of a debt repayment plan, for purposes of subsection (c)(3), any subsequent case commenced by the debtor under such chapter shall not be presumed to be filed in good faith.

§362(j) On request of a party in interest, the court shall issue an order under subsection (c) confirming that the automatic stay has been terminated.

¶13.4 If the debtor had 2 prior cases dismissed during the last year (excluding cases refiled under §707(b)) the stay does not come into effect in the 3^rd or later case, and upon request the court shall enter an order to that effect. A party in interest may request a stay within 30 days of the filing of the new case if it shows the filing is in good faith as to the creditors affected by the stay. Query, since this is seeking the imposition of an injunction, would this need to be by adversary against each creditor to which the debtor seeks to have the stay apply? The case is presumed to be in bad faith if 2 or more prior cases for the debtor were pending during the last year (ie in every instance subject to this section); or the debtor failed to file required documents with the court; or there has not been a substantial change in circumstances since dismissal of the last case. The case is presumed to be filed in bad faith as to a creditor if a motion to lift stay had been filed prior to dismissal and was not withdrawn or denied outright. Since §362(c)(4)(D)(i)(I) has the same definition as §362(c)(4)(A)(i), it would appear all instances wherein the debtor had 2 prior cases dismissed in the last year (except §707(b) refilings) are presumed to be in bad faith. The presumption may be rebutted by clear and convincing evidence to the contrary. (Query, what evidence is required to rebut the presumption given that the section already requires more than a showing that there has been a change in circumstances)?

Cases:

Arkansas:

Court followed In re Toro–Arcila that debtor who had only one prior case pending within the past year still could use §362(c)(4) to extend the automatic stay, even if hearing was not held within 30 days so long as motion was filed within 30 days. In re Beasley, 339 B.R. 472 (Bankr. E.D. Ark. 2006). J. Evans.

While agreeing with In re Toro–Arcila, that a debtor may not use §362(c)(4) to extend the time to hold a hearing on a motion to extend the automatic stay after the 30 day period in §362(c)(3) expires; such motion still must be filed within 30 days or the motion must be denied pursuant to §362(c)(4)(B). In re Wright, 339 B.R. 474 (Bankr. E.D. Ark. 2006). J. Evans.

Florida:

One of the first cases dealing with the adequacy of notice to creditors of short – noticed hearings on extensions of stay is In re Frazier, 339 B.R. 516 (Bankr. N.D. Fla. 2006) (J. Killian). The debtor filed a §362(c)(4) emergency motion to impose the automatic stay concurrently with the filing of the petition on February 17 2006. The foreclosure sale was scheduled for 24 February. The court set the matter for hearing on February 22, in part due to the pending foreclosure sale. Debtor’s counsel attempted to speak with, and did fax the notice of hearing to the law firm that represented the mortgage company in the prior case. At the hearing on the 22^nd, just debtor’s counsel and the trustee appeared. No objections were filed by any creditors. At this hearing the court granted the Debtor’s motion. Nine days after that order the mortgage company filed a request for reconsideration alleging that it did not receive notice in time to prepare an adequate response. No affidavit was attached to the motion for reconsideration, nor was allegation made that it did not receive notice of the hearing as early as February 17.

The court found that the short notice was inevitable given the pending foreclosure sale. §102(1) leaves it up to the court to determine the appropriate under the circumstances for notice and hearing. The creditor acknowledged at the hearing on reconsideration that its primary argument would have been based on the debtor’s prior filings and the dealings with the creditor; both of which were available to the creditor immediately via the court’s docket. Any lack of opportunity to prepare, respond, and attend the hearing was due to the creditor’s law firm’s internal procedures and the decision of the creditor to use a firm in the middle district of Florida to represent it in the northern district. The creditor’s request for reconsideration was denied.

Louisiana:

Statute is applied separately to spouses in joint filing, thus lifting the stay as to the husband who had two prior cases dismissed within the last year but not as to the wife who was not involved in the prior cases. In re Haisley, 350 B.R. 48 (Bankr. E.D.La. 2006). Agreeing with Parker, noting that the statute focuses on, and applies to the acts of a specific debtor, rather than joint debtors in the aggregate. Thus, the section must be analysed separately as to each debtor. The court lifted the stay as to the husband’s interest ‘in the current bankruptcy’ but not as to the wife. Query, does this mean something different that lifting the stay in his interest in his property in the current bankruptcy?

New York:

Apparently the first reported decision resulting from a creditor’s motion to determine that the stay did not come into effect based on §362(c)(4) is In re Parker, 336 BR 678 (Bankr. S.D. N.Y. 2006). This involved a somewhat unusual fact pattern of a joint case where the husband, but not the wife, had been in two prior cases within the past year. While the wife had been in two prior cases, they were dismissed in 2002 and 2003. Judge Morris determined that §362(c)(4) did not apply to the wife, and therefore while the stay did not come into effect as to the husband, it did as to the wife. While §362(c)(4) broadly states that where §362(c)(4) applies to one debtor, the stay shall not go into effect; that language cannot be read to apply to a joint debtor if §362(c)(4) would not independently apply to the joint debtor. For example, where §362(c)(3) applies, the statute expressly terminates the stay solely ‘with respect to the debtor’ in question. While that language is not repeated in §362(c)(4), both sections focus on, and apply to, the acts of the specific debtor rather than the joint debtors in the aggregate.

Ohio:

Order confirming non-existance of stay under §362(c)(4) does not supercede the bankruptcy court’s exclusive jurisdiction over property of the estate; and therefore does not permit recovery against property of the estate during the pending chapter 13 case except through further order of the bnakuptcy court. In re Murray, 350 B.R. 408 (Bankr. S.D. Ohio, 2006). Judge Waldron recognized that the terms of the statute required entry of an order finding that §362(c)(3) was met, however the Court went on to cite the jurisdictional provision of Title 28, as well as cases recognizing the bankruptcy court’s superior jurisdiction over a debtor’s property even though a state court has already exercised in rem jurisdiction over the property to place exclusive jurisdiction in the bankruptcy court for all actions involving property of the Debtor’s estate. §§541 and 1306 provide a broad definition of property of the estate, and, along with the chapter 13 plan, have the effect of vesting the property as propert of the estate estate; as well as binding creditors to the terms of the confirmed plan. The absence or termination of the state does not remove property from the debtor’s estate. 11 U.S.C. 554. The entry of an order confirming that the automatic stay is not in existence, in a case such as this, does not authorize any action against the property except in the bankruptcy court. A plan provision providing that property remains property of the estate until discharge has the effect of binding all creditors upon confirmation. The issues of adequate proertction, lack of equity, and necessity for a successful rehabilititation of the chapter 13 debtor were all res judicatea as of the confirmation of the plan. The court also noted that §362(h)(1) provided as to unexpired leases of personal property that such property would no longer be property of the estate; a provision not included in §362(c)(4).

Texas:

Writing the first published decision interpreting §362(c)(4), Judge Isgur ruled in In re Toro–Arcila, 334 BR 224 (Bankr. S.D. Tex. 2005) that §362(c)(4)(B) gives authority for the court to reimpose the stay even if a prior case was pending within the year and no ruling was made within the initial 30 day period. While §362(c)(3)(B) requires the hearing to be held within the initial 30 days, the requirement for the hearing itself to be within 30 days does not apply under §362(c)(4)(B). The motion in this case was filed on the 30^th day after the case was filed, thereby precluding any hearing within 30 days. On its face, §362(c)(4)(B) appears to only apply to individuals who had more than one case pending within the last 12 months. However, such a reading would make meaningless the provisions in §362(c)(4)(D) providing alternative grounds for determining that the last case was filed in bad faith other than just that there were two or more cases pending in the last 12 months. Read together with §§362(c)(4)(C) and (D), the Court concluded that Congress intended §362(c)(4)(B) to apply where there is a timely request for an extension of the stay, regardless of whether there were two or more cases pending within the last year.

The court did not a problem with this interpretation, that it the phrase ‘the later case’ in §362(c)(4)(B) lose its intended reference. The court then went on to set an evidentiary hearing on the request for the extension of the stay and indicated that the notice requirements set forth in In re Charles would apply.

§362(c) Except as provided in subsections (d), (e), (f), and (h) of this section –

(4)(A)(i) If a single or joint case is filed by or against a debtor who is an individual under this title, and if 2 or more single or joint cases of the debtor were pending within the previous year but were dismissed, other than a case refiled under section 707(b), the stay under subsection (a)9 shall not go into effect upon the filing of the later case; and

(ii) on request of a party in interest, the court shall promptly enter an order confirming that no stay is in effect;

(B) if, within 30 days after the filing of the later case, a party in interest requests the court may order the stay to take effect in the case as to any or all creditors (subject to such conditions or limitations as the court may impose), after notice and a hearing, only if the party in interest demonstrates that the filing of the later case is in good faith as to the creditors to be stayed;

(C) a stay imposed under subparagraph (B) shall be effective on the date of the entry of the order allowing the stay to go into effect; and

(D) for purposes of subparagraph (B), a case is presumptively filed not in good faith (but such presumption may be rebutted by clear and convincing evidence to the contrary) –

(i) as to all creditors if–

(I) 2 or more previous cases under this title in which the debtor was a debtor were pending within the 1 year period;

(II) a previous case under this title in which the individual was a debtor was dismissed within the time period stated in this paragraph after the debtor failed to file or amend the petition or other documents as required by this title or the court without substantial excuse (but mere inadvertence or negligence shall not be substantial excuse unless the dismissal was caused by the negligence of the debtor’s attorney), failed to provide adequate protection as ordered by the court, or failed to perform the terms of a plan confirmed by the court; or

(III) there has not been a substantial change in the financial or personal affairs of the debtor since the dismissal of the next most previous case under this title, or any other reason to conclude that the later case will not be concluded, if a case under chapter 7, with a discharge, and if a case under chapter 11 or 13, with a confirmed plan that will be fully performed; or

(ii) as to any creditor that commenced an action under subsection (d) in a previous case in which the individual was a debtor if, as of the date of dismissal of such case, such action was still pending or had been resolved by terminating, conditioning, or limiting the stay as to such action of such creditor.

¶14 Creditor addresses

¶14.1 A creditor may provide post-petition notice of a preferred address for service, but such notice must be served both on the debtor and the court.

§342(e)(1) In a case under chapter 7 or 13 of this title of a debtor who is an individual, a creditor at any time may both file with the court and serve on the debtor a notice of change of address to be used to provide notice in such case to such creditor.

(2) Any notice in such case required to be provided to such creditor by the debtor or the court later than 5 days after the court and the debtor receive such creditor’s notice of address, shall be provided to such address.

¶14.2 The clerk will maintain a list of the federal, state, and local tax collection agencies within the district, and any addresses designated by such agencies for service of process for determinations of tax liability and amount. If the agency does not designate an address, service may be made at the address for filing a return or protest with such agency.

§505(b)(1)(A) The clerk shall maintain a list under which a Federal, State, or local governmental unit responsible for the collection of taxes with the district may –

(i) designate an address for service of requests under this subsection; and

(ii) describe where further information concerning additional requirements for filing such request may be found.

(B) If such governmental unit does not designate an address and provide such address to the clerk under subparagraph (A), any request made under this subsection may be served at the address for the filing of a tax return or protest with the appropriate taxing authority of such governmental unit.

¶14.3 If a supplement to schedules is filed adding a creditor, the notice to the creditor must include the full taxpayer identification number, but the notice to the court should include only the last four digits.

§342(c)(1) If notice is required to be given by the debtor to a creditor under this title, any rule, any applicable law, or any order of the court, such notice shall contain the name, address, and last four digits of the taxpayer identification number of the debtor. If the notice concerns an amendment that adds a creditor to the schedules of assets and liabilities, the debtor shall include the full taxpayer identification number in the notice sent to that creditor, but the debtor shall include only the last 4 digits of the taxpayer identification number in the copy of the notice filed with the court.

¶15 Claims

¶15.1 If a creditor refused an offer by an approved nonprofit budget and credit counseling agency made at least 60 days before the bankruptcy was filed of payment of at least 60% of the debt over a period no greater than the contract repayment period, and if the debt was not nondischargeable, then the court may reduce the claim by up to 20% if the creditor acted unreasonably in refusing such offer. Query, what is reasonable or unreasonable? The code states that the Debtor has the burden of proof to show the creditor unreasonably refused to consider the proposal. Note that is different from the effective language of the statute: which requires only an unreasonable refusal to negotiate a reasonable alternative repayment schedule, rather than requiring refusal to consider the matter at all.

§502(k)(1) The court, on the motion of the debtor and after a hearing, may reduce a claim filed under this section based in whole on an unsecured consumer debt by not more than 20 percent of the claim, if-

(A) the claim was filed by a creditor who unreasonably refused to negotiate a reasonable alternative repayment schedule proposed on behalf of the debtor by an approved nonprofit budget and credit counseling agency described in section 111;

(B) the offer of the debtor under subparagraph (A)-

(i) was made at least 60 days before the date of the filing of the petition; and

(ii) provided for payment of at least 60 percent of the amount of the debt over a period not to exceed the repayment period of the loan, or a reasonable extension thereof; and

(C) no part of the debt under the alternative repayment schedule is nondischargeable.

(2) The debtor shall have the burden of proving, by clear and convincing evidence, that –

(A) the creditor unreasonably refused to consider the debtor’s proposal; and

(B) the proposed alternative repayment schedule was made prior to expiration of the 60-day period specified in paragraph (1)(B)(i).

¶15.2 If a nonresidential real estate lease is assumed, and later rejected, the lessor is entitled to an administrative expense for rent due for the next 2 years after the later of rejection or turnover of the property with reduction only for sums actually received or due to be received from a 3^rd party.

§503(b)[Administrative expenses shall be allowed, including] –

(7) With respect to a nonresidential real property lease previously assumed under section 365, and subsequently rejected, a sum equal to all monetary obligations due, excluding those arising from or relating to a failure to operate or a penalty provision, for the period of 2 years following the later of the rejection date or the date of actual turnover of the premises, without reduction or setoff for any reason whatsoever except for funds actually received or to be received from an entity other than the debtor, and the claim for remaining sums due for the balance of the term of the lease shall be a claim under section 502(b)(6);

¶15.3 If the deadline to object to a determination of ad valorem tax on real or personal property of the estate has expired under state or local law, the bankruptcy court may not determine the amount or legality of such tax.

§505(a)(2) [The court may not determine]

(C) the amount or legality of any amount arising in connection with an ad valorem tax on real or personal property of the estate, if the applicable period for contesting or redetermining that amount under any law (other than a bankruptcy law) has expired.

¶16 Liens and valuations

¶16.1 Valuation of claims shall be determined based on the replacement value of the property as of the date of the filing of the petition, without considering the costs of sale or marketing. The section makes a distinction between property business and consumer property. Under the first sentence, business property appears to allow more deductions in determining valuation than personal property.³ While overruling the Rash decision, thereby prohibiting deduction for costs of sale and marketing, it implies allowance of deduction for the retailer’s profit.³ In referring to ‘such property’ it also seems to imply that the property must be of similar age and condition.³ For personal, family, or household property, this shall be the price a retail merchant would charge for property of that kind considering the age and condition of the property. Is cost of reconditioning the property a cost of sale or marketing? Presumably reconditioning and repairs would be allowed reductions, as comparison to similar property should be assumed to be unreconditioned/unrepaired property. As to vehicles, this would seem to remove the by owner classified sale comparisons, and require actual dealer comparisons. Note this section applies only to valuation of claims and not to valuation of property for exemption purposes.

While retailer profit and costs should not be deducted from this value, the retail value in the NADA is for dealer reconditioned vehicles.³ Therefore, some deduction would have to be made off of the value shown there. Also, the retail value in the Kelly blue book is the asking price, not the amount actually charged in sales and also is for a fully reconditioned vehicle.³ Given the inflated book values, it has been suggested that courts should continue to use the mid–point of values a retail and wholesale book values for business property; and a 10% discount from retail for consumer property.³ fn3 at 406.

As to other consumer property, it may be difficult to find a seller of similar used items. Neither garage sales nor flea markets should be used, since these involve consumer to consumer transactions.³ Arguably, if no retail merchant sells similar items, then the retail value should be said to be zero.³

Cases:

10^th Cir BAP

Valuation at Kelly private party transaction rather than retail is proper since retail KBB is asking dealer’s asking price rather than sales price, and for a vehicle in excellent mechanical condition which needs no reconditioning, has had not paint or body work, is free of rus with a clean title history; with a complete and verifiable service history; less than 5% of vehicles fall into this category. In re De Anda-Ramirez, 359 B.R. 794 (10^th Cir. BAP, 2007), citing Kelly Blue Book (2007), https://www.kbb.com.

Tennessee:

Private sale value rather than retail is more accurate for all cash payment at time of sale as required for redemption. In re Kidwell, 2007 WL 2934866 (Bankr. E.D. Tenn. 2007).

§506(a)(2) If the debtor is an individual in a case under chapter 7 or 13, such value with respect to personal property securing an allowed secured claim shall be determined based on the replacement value of such property as of the date of the filing of the petition without deduction for costs of sale or marketing. With respect to property acquired for personal, family, or household purposes, replacement value shall mean the price a retail merchant would charge for property of that kind considering the age and condition of the property at the time value is determined.

¶16.2 Any lien related to domestic support obligations (alimony, property settlement, etc) is now unavoidable. See notes regarding DSO’s §101(14A). Previously just liens from alimony or child support were unavoidable.

§522(f)(1) [The debtor may avoid the fixing of a lien on debtor’s property that impairs an exemption if such lien is] –

(A) A judicial lien, other than a judicial lien that secures a debt of a kind that is specified in section 523(a)(5);…

§16.3 BAPCPA has now specified which items qualify as household goods for purposes of §522(f)(1)(B) lien avoidances. However, since §522(f)(1)(B) applies not only to household goods, but also to household furnishings, wearing apparel, appliances, musical instruments, or jewelry; as well as professional books and tools of the trade and health aids; it is unclear how much impact this will have. The drafters appear to have confused this in that household goods lists clothing, furniture, and appliances as being included as household good. Similarly, even within the definition of household goods, subsection (ii) lists all furniture, and subsection (xiii) lists a subset of furniture as if it were an additional category. Note that subsection B attempts to limit household goods, but a number of items there specified may still be subject to avoidance as qualifying as jewelry, furniture, or other categories not limited by the subsection.

Query since §522(f)(4)(B)(v) goes to the trouble to specify that motor vehicles and motorized recreational devices cannot qualify as household goods, does this imply that non-motorized recreational vehicles such as travel trailers may qualify?

§522(f)(4)(A) Subject to paragraph (B), for purposes of paragraph (1)(B) [permitting avoidance of nonpossessory, non-purchase-money security interests], the term ‘household goods’ means-

(i) clothing

(ii) furniture;

(iii) appliances;

(iv) 1 radio;

(v) 1 television;

(vi) 1 VCR;

(vii) linens;

(viii) china;

(ix) crockery;

(x) kitchenware;

(xi) educational materials and educational equipment primarily for the use of minor dependent children of the debtor;

(xii) medical equipment and supplies;

(xiii) furniture exclusively for the use of minor children, or elderly or disabled dependents of the debtor;

(xiv) personal effects (including the toys and hobby equipment of minor dependent children and wedding rings) of the debtor and the dependents of the debtor; and

(xv) 1 personal computer and related equipment;

(B) The term ‘household goods’ does not include-

(i) works of art (unless by or of the debtor, or any relative of the debtor);

(ii) electronic entertainment equipment with a fair market value of more than $500 in the aggregate (except 1 television, 1 radio, and 1 VCR);

(iii) items acquired as antiques with a fair market value of more than $500 in the aggregate;

(iv) jewelry with a fair market value of more than $500 in the aggregate (except wedding rings); and

(v) a computer (except as otherwise provided for in this section), motor vehicle (including a tractor or lawn tractor), boat, or a motorized recreational device, conveyance, vehicle, watercraft, or aircraft.

¶16.4 Trustee lien avoidance

¶16.41 Trustee lien avoidance under §545(2) has been modified, apparently to limit the trustee’s ability to avoid the fixing of statutory liens which are unperfected against bona-fide purchasers, if the bfp would be able to avoid the statutory lien in the circumstance when the agency asserting the lien had not yet filed appropriate notice of the lien under 26 USC 6323 or similar state or local laws.

§545 The trustee may avoid the fixing of a statutory lien on property of the debtor to the extent that such lien –

(2) is not perfected or enforceable at the time of the commencement of the case against a bona fide purchaser that purchases such property at the time of the commencement of the case, whether or not such a purchaser exists, except in any case in which a purchaser is a purchaser described in section 6323 of the Internal Revenue Code of 1986, or in any other similar provision of State or local law;

¶16.42 The Ordinary Course of Business exception to the Preference provision had been expanded, such that rather than the payment having to meet both 1) the ordinary course of business or financial affairs of the debtor and transferee requirement and 2) the ordinary business terms requirement, now the transfer is unavoidable if it meets either of these requirements. However, the debt itself (as opposed to the payment thereof described above) must also still be a debt incurred in the ordinary course of business or financial affairs of the debtor and transferee.

§547(c) The trustee may not avoid under this section a transfer –

(2) to the extent that such transfer was in payment of a debt incurred by the debtor in the ordinary course of business or financial affairs of the debtor and the transferee, and such transfer was –

(A) made in the ordinary course of business or financial affairs of the debtor and the transferee; or

(B) made according to ordinary business terms;

¶16.43 The preference exception for alimony and child support has been simplified to refer back to the definitions of a domestic support obligation, §101(14A), providing that if the payment was a bona fide payment of such a debt, it is unavoidable.

§547(c) The trustee may not avoid under this section a transfer –

(7) to the extent such transfer was a bona fide payment of a debt for a domestic support obligation;

¶16.44 A new preference exception has been added when a debtor’s debts are primarily business, the trustee cannot avoid a transfer if the total value of the property constituting (or affected by?) the transfer is less than $5,000. While the value of the property constituting the transfer is clear, it is not clear what is meant by the value of property affected by the transfer.

§547(c) The trustee may not avoid under this section a transfer –

(9) if in a case filed by a debtor whose debts are not primarily consumer debts, the aggregate value of all property that constitutes or is affected by such transfer is less than $5,000.

¶16.45 The fraudulent transfer section has been expanded both to double the time period examined (up to 2 years lookback) and to include transfers to insiders under employment contracts not in the ordinary course of business.

§548(a)(1) The trustee may avoid any transfer (including any transfer to or for the benefit of an insider under an employment contract) of an interest in the debtor in property, or any obligation (including any obligation to or for the benefit of an insider under an employment contract) incurred by the debtor, that was made or incurred on or within 2 years before the date of the filing of the petition, if the debtor voluntarily or involuntarily –

[(A), (B)(i), (B)(ii)(I – III) not changed]

(B)(ii)(IV) made such transfer to or for the benefit of an insider, or incurred such obligation to or for the benefit of an insider, under an employment contract and not in the ordinary course of business.

¶16.46 A new fraudulent transfer provision was added permitting avoidance of transfers within ten years prior to the bankruptcy by the debtor into a self–settled trust of which the debtor is one of the beneficiaries if the transfer was with actual intent to hinder, delay, or defraud a creditor then existing or later coming into existence. While §548(c)(2) defines certain types of debts that could be a motive for such transfer, since the subsection uses the word ‘includes’ it would seem that the provision is not limited to those types of obligations.

§548(c)(1) In addition to any transfer that the trustee may otherwise avoid, the trustee may avoid any transfer of an interest of the debtor in property that was made on or within 10 years before the date of the filing of the petition, if –

(A) such transfer was made to a self–settled trust or similar device;

(B) such transfer was by the debtor,

(C) the debtor is a beneficiary of such trust or similar device; and

(D) the debtor made such transfer with actual intent to hinder, delay, or defraud any entity to which the debtor was or became, on or after the date that such transfer was made, indebted.

(2) for the purposes of this subsection, a transfer includes a transfer made in anticipation of any money judgment, settlement, civil penalty, equitable order, or criminal fine incurred by, or which the debtor believed would be incurred by –

(A) any violation of the securities laws (as defined in section 3(a)(47) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(47))), any State securities laws, or any regulation or order issued under Federal securities laws or State securities laws; or

(B) fraud, deceit, or manipulation in a fiduciary capacity or in connection with the purchase or sale of any security registered under section 12 or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 781 and 78o(d)) or under section 6 of the Securities Act of 1933 (15 U.S.C. 77f).

¶17 Requirements after filing and before the meeting of creditors:

¶17.1 If the §707(b)(2)(C) statement filed with the petition shows a presumption of abuse under §707(b), the clerk shall give notice of this presumption to all creditors within 10 days of the filing of the petition. If no statement is filed, a notice to this effect is given to creditors, with a subsequent update if the debtor later files a statement showing a presumption of abuse. If the debtor later files a statement showing no abuse it appears that no update is required.

Rule 5008. Notice Regarding Presumption of Abuse in Chapter 7 Cases of Individual Debtors

In a chapter 7 case of an individual with primarily consumer debts in which a presumption of abuse has arisen under §707(b), the clerk shall give to creditors notice of the presumption of abuse in accordance with Rule 2002 within 10 days after the date of the filing of the petition. If the debtor has not filed a statement indicating whether a presumption of abuse has arisen, the clerk shall give notice to creditors within 10 days after the date of the filing of the petition that the debtor has not filed the statement and that further notice will be given if a later filed statement indicates that a presumption of abuse has arisen. If a debtor later files a statement indicating that a presumption of abuse has arisen, the clerk shall give notice to creditors of the presumption of abuse as promptly as practicable.

¶17.2 At least 7 days before the initial meeting of creditors the debtor must provide the trustee and any creditor that so requests, a copy of the federal tax return (or transcript thereof) for the last tax year ending before the filing of the bankruptcy and for which a return was filed. The court is required to dismiss the case if this is not complied with unless the debtor shows that the failure to comply is due to circumstances beyond the debtor’s control.

Note that this section only requires providing the trustee a copy of any return that was filed, it does not specifically require the filing of returns. Counsel is required to redact all but the last 4 digits of the debtors social security number on any public documents or documents sent to creditors; as well as removing any personal identifying disclosures regarding the name debtor’s dependents, instead using only initials, show only the year born rather than the date of birth if this information appears; use only the last 4 digits of any financial account information. See Administrative Office guidelines.

Case Law:

New Hampshire:

Failure to provide a copy of the tax returns to the trustee seven days prior to the meeting of creditors was not the debtor’s fault and therefore not a basis for dismissal when the returns were provided to debtor’s counsel more than seven days prior to the meeting. In re Merrill, 340 B.R. 671 (Bankr. D.N.H. 2006). Since the debtor provided them to counsel, the failure of counsel to deliver them timely to the trustee was a circumstance beyond the control of the debtor. The debtor in fact provided the returns to the trustee immediately prior to the meeting of creditors. The trustee also sought dismissal on the ground that the debtor provided a copy of the 2004 income tax return and not the 2005 tax return at the February 16 meeting of creditors (the case was filed January 20 2006). The court rejected this request finding that the 2005 tax return was not yet due until 15 April 2006. The court had an administrative order requiring the debtor to provide payment advices to the trustee at least seven days prior to the meeting of creditors. The trustee also sought dismissal since debtor did not comply with this order. However, the court noted that §521(a)(1)(B)(iv) and §521(i)(1) require the payment advices to be filed within 45 days of the filing of the petition, and found this to be a conflict with the administrative order. Where there is a conflict between an administrative order and the code, the code trumps. Since the debtor did file the payment advices within the 45 days, the court denied the request to dismiss the case.

Maine:

Where debtors have not been required to file tax returns for many years, and the IRS is unable to provide copies of the last return filed, failure to provide copies of the returns to the trustee as required by §521(e)(2) does not warrant dismissal. In re Ring, 341 B.R. 387 (Bankr. D.Me. 2006). Debtor’s income had been solely social security income for over 10 years. Debtor’s requested a copy of the last return filed from the IRS, but the IRS was unable to provide a copy. While the statute requires providing copies of the returns to the trustee upon penalty of dismissal, it is clear that dismissal is not automatic. This distinguishes the statute from §521(i)(1). While Debtors argued that only debtors who were required to file a return within 2 years of the bankruptcy are required to provide copies of the returns to the trustee, the court left that issue for a later day, ruling only on the specific facts of the case.

Oregon:

The trustee must use prosecutorial discretion in determining whether to file a motion to dismiss for failure to comply with requirments of §521(e)(2). In re Duffus, 339 B.R. 746 (Bankr. D.Or. 2006) (J. Alley). Debtors delivered a copy of their last return to the trustee only four days prior to the meeting of creditors, rather than the seven required by the statute. The trustee, while claiming not to be advocating dismissal, thought bound to file a motion to dismiss based on the failure to comply with the statute. The trustee also noted that there were assets available for distribution to creditors. While the court sought comment from the US Trustee’s office, no substantial response was received. The court found that the trustee had, and was required to use, prosecutorial discretion in determining whether to file a motion to dismiss where such dismissal is contary to the interest of the estate and creditors. It is the trustee’s primary duty to accumulate assets for distribution to creditors. These duties are not trumped by a perceived duty to police all other aspects of the case. Application of the wrong legal standard in the exercise of discretion constitutes an abuse of that discretion. Given the trustee’s erroneous conclusion that a motion to dismiss was required by failure to strictly comply with §521 such motion must be denied.

§521(e)(2)(A) The debtor shall provide –

(i) not later than 7 days before the date first set for the first meeting of creditors, to the trustee a copy of the Federal income tax return required under applicable law (or at the election of the debtor, a transcript of such return) for the most recent tax year ending immediately before the commencement of the case and for which a Federal income tax return was filed; and

(ii) at the same time the debtor complies with clause (i) a copy of such return (or if elected under clause (i), such transcript) to any creditor that timely requests such copy;

(B) If the debtor fails to comply with clause (i) or (ii) of subparagraph (A), the court shall dismiss the case unless the debtor demonstrates that the failure to so comply is due to circumstances beyond the control of the debtor.

(C) If a creditor requests a copy of such tax return or such transcript and if the debtor fails to provide a copy of such tax returns or such transcript to such creditor at the time the debtor provides such tax return or such transcript to the trustee, then the court shall dismiss the case unless the debtor demonstrates that the failure to provide a copy of such tax return or such transcript is due to circumstances beyond the control of the debtor.

Rule 4002. Duties of Debtor

(b) INDIVIDUAL DEBTOR’S DUTY TO PROVIDE DOCUMENTATION.

(3) Tax Return. At least 7 days before the first date set for the meeting of creditors under §341, the debtor shall provide to the trustee a copy of the debtor’s Federal income tax return for the most recent tax year ending immediately before the commencement of the case and for which a return was filed, including any attachments, or a transcript of the tax return, or provide a written statement that the documentation does not exist.

(4) Tax Returns Provided to Creditors. If a creditor, at least 15 days before the first date set for the meeting of creditors under §341, requests a copy of the debtor’s tax return that is to be provided to the trustee under subdivision (b)(3), the debtor shall provide to the requesting creditor a copy of the return, including any attachments, or a transcript of the tax return, or provide a written statement that the documentation does not exist at least 7 days before the first date set for the meeting of creditors under §341.

(5) The debtor’s obligation to provide tax returns under Rule 4002(b)(3) and (b)(4) is subject to procedures for safeguarding the confidentiality of tax information established by the Director of the Administrative Office of the United States Courts.

¶18 Requirements at meeting of creditors

¶18.1 While not specifying the time to be complied with, the code requires the Debtor to provide documentation establishing the debtor’s identity. This will likely continue to be met at the 341 meeting. Note that this section seems not to absolutely require a picture ID if some other personal identifying information establishes the debtor’s identity.

§521(h) If requested by the United States trustee or by the trustee, the debtor shall provide-

(1) a document that establishes the identity of the debtor, including a driver’s license, passport, or other document that contains a photograph of the debtor; or

(2) such other personal identifying information relating to the debtor that establishes the identity of the debtor.

¶18.2 Rule 4002(b) sets for the documents the debtor is required to bring to the 341. The new requirements include a picture identification, evidence of a social security number or a written statement that no such document exists, evidence of current income such as the most recent paystub, statements for each deposit or investment account for the time period including the date the case was filed, documentation of monthly expenses when required by §707(b)(2)(A) or (B).

Rule 4002. Duties of Debtor

(b) INDIVIDUAL DEBTOR’S DUTY TO PROVIDE DOCUMENTATION.

(1) Personal Identification. Every individual debtor shall bring to the meeting of creditors under §341:

(A) a picture identification issued by a governmental unit, or other personal identifying information that establishes the debtor’s identity; and

(B) evidence of social security number(s), or a written statement that such documentation does not exist.

(2) Financial information. Every individual debtor shall bring to the meeting of creditors under §341 and make available to the trustee the following documents or copies of them, or provide a written statement that the documentation does not exist or is not in the debtor’s possession:

(A) evidence of current income such as the most recent payment advice;

(B) unless the trustee or the United States trustee instructs otherwise, statements for each of the debtor’s depository and investment accounts, including checking, savings, and money market accounts, mutual funds and brokerage accounts for the time period that includes the date of the filing of the petition; and

(C) documentation of monthly expenses claimed by the debtor when required by §707(b)(2)(A) or (B).

¶19 Requirements after the meeting of creditors

¶19.1 Financial Management Course

¶19.11 The debtor is required to attend an financial management course prior to discharge, unless the U.S. Trustee determines that the approved instructional courses are not adequate to service the individuals required to complete such courses. The list of approved financial management course providers appears here.

§727(a) The court shall grant the debtor a discharge, unless –

(11) after filing the petition, the debtor failed to complete an instructional course concerning the personal financial management described in section 111, except that this paragraph shall not apply with respect to a debtor who is a person described in section 109(h)(4) or who resides in a district for which the United States trustee (or the bankruptcy administrator, if any) determines that the approved instructional courses are not adequate to service the additional individuals who would otherwise be required to complete such instructional courses under this section (The Unties States trustee (or the bankruptcy administrator, if any) who makes a determination described in this paragraph shall review such determination not later than 1 year after the date of such determination, and not less frequently than annually thereafter.); or

§1328(g)(1) The court shall not grant a discharge under this section to a debtor unless after filing the debtor has completed an instructional course concerning personal financial management described in section 111.

(2) Paragraph (1) shall not apply with respect to a debtor who is a person described in section 109(h)(4) or who resides in a district for which the United States trustee (or the bankruptcy administrator; if any) determines that the approved instructional courses are not adequate to service the additional individuals who would otherwise be required to complete such instructional course by reason of the requirements of paragraph (1).

(3) The United States trustee (or the bankruptcy administrator, if any) who makes a determination described in paragraph (2) shall review such determination not later than 1 year after the date of such determination, and not less frequently than annually thereafter.

¶19.12 A statement regarding completion of the financial management course must be filed with the clerk on the appropriate official form.

Rule 1007. Lists, Schedules, Statements, and Other Documents; Time Limits

(b) SCHEDULES, STATEMENTS, AND OTHER DOCUMENTS REQUIRED.

(7) An individual debtor in a chapter 7 or chapter 13 case shall file a statement regarding completion of a course in personal financial management, prepared as prescribed by the appropriate Official Form.

Case Law:

Idaho:

While granting the debtor’s request to reopen the case to allow filing a certificate of completion of the credit counseling course, the court denied the request to waive the filing fee for the reopening. In re Knight, 349 B.R. 681 (Bankr. D.Idaho 2006). The 341 notice warned the debtor and counsel of the financial management requirement, and that the certification must be filed within 45 days of the date set for the meeting of creditors. A second notice was sent when the notice was not filed within the initial 45 days. The case may be reopened pursuant to 11 U.S.C 350(b), to accord relief to the debtor. However, given the warnings provided by the court to the debtor, a waiver of the fee is not warranted.

Pennsylvania:

In In re Granda, 2005 WL 3348878 (Bankr. W.D. Pa. 2005) the Debtors filed a credit counseling certificate attached to their certification of completion of financial management for their filing. Judge Bentz looked to the certificate itself to determine that the debtors had completed credit counseling rather than the financial management as alleged by the title of their filed certification. The court then struck the debtors’ certification both due to the fact that the certification indicated that the course was completed prepetition, when the §727(a)(11) requires that the course be completed post-petition; and on the basis that the certificate itself showed only that the financial management course was completed. Since the debtors had, in fact, complied with the requirements to file the case, the case remained intact solely requiring completion of the financial management course prior to discharge. The court appeared less concerned with the fact that, with the initial certification stricken by the court, there was no timely certification of the credit counseling.

An almost identical issue arose in the next case published by Judge Bentz, the only difference being that the debtor filed a separate valid credit counseling certification. The court entered the same ruling, striking the financial management certification on the basis that it showed the course was completed prepetition, and that it showed credit counseling rather than financial management counseling. In re Skarbek, 2005 WL 3348879 (Bankr. W.D. Pa. 2005).

A third case appearing to reflect the same issue arose in In re Fuller, 2005 WL 3454699 (Bankr. W.D. Pa. 2005). Again, the debtor filed a prepetition credit counseling certificate attached to a certificate alleging prepetition completion of the financial management course. Again Judge Bentz struck the certificate, finding both that the financial management course must be completed post – petition, and that the certification was in error as to the course completed. By inference, since the debtor filed a certificate showing that they actually did meet the credit counseling requirement prepetition, the court did not consider dismissal of the case. Essentially identical facts are set forth in In re Rodgers, 2005 WL 3454702 (Bankr. W.D.Pa. 2005); In re Stidham, 2005 WL 3454709 (Bankr. W.D. Pa. 2005).

¶19.2 Intentions re secured

¶19.21 The time for carrying out the action declared in the statement of intentions has been shortened from 45 days to 30 days, though it appears the only relief specified in the statute for not carrying out the intention is to lift the automatic stay under §362(h). Also, the section has been expanded to both consumer and non-consumer security interests. Note the provision in §362(h)(1)(B) that if the statement of intention is to reaffirm, and the creditor refuses to reaffirm on the original terms, then the stay is not lifted.

§521(a)(2)[If an individual debtor’s schedule of assets and liabilities includes debts which are secured by property of the estate] –

(B) within 30 days after the first date set for the meeting of creditors under section 341(a), or within such additional time as the court, for cause, within such 30-day period fixes, the debtor shall perform his intention with respect to such property, as specified by subparagraph (A) of this paragraph;….

¶19.22 In chapter 7 individual cases, BAPCPA provides that the debtor ‘shall not retain’ possession of personal property subject to a purchase money security interest unless the debtor within 45 days (not the 30 days provided for in §521(a)(2)(B)) after the 341 meeting enters a reaffirmation agreement with the creditor or redeems the property under §722. The penalty for failing to comply with this subsection is specified as lifting the stay as to the property, unless the trustee within the 45 days files a motion with the court to determine that the property is of consequential benefit to the estate; in which case possession is delivered to the trustee and adequate protection awarded and adequate protection awarded (presumably against the trustee). Since the sanction is specified as lifting the stay, this should reverse any prior caselaw resulting in dismissal of a case or other sanctions for failure to comply with §521. Further, since the penalty is limited to personal property, a strong argument can be made for court protected ride-through (continued payments without reaffirmation) of debts secured by real estate.³ This section appears to be in direct conflict with §521(a)(2)(B) as to whether the appropriate time period for carrying out the intention is 30 or 45 days, since §362(h)(1)(A) appears to be self-executing to terminate the stay and make the property no longer property of the estate 30 days after the conclusion of the §341 meeting.

Arguably, if the theory of statutory construction is followed making the more specific statute supersede the conflicting less specific statute, the Debtor would have 45 days to carry out the intention as to purchase money security interests, and 45 days to carry out the statement of intention as to other secured debts.

Also note this section as well as under §521(a)(2)(B) refers to the carrying out of the intention, hence a strict interpretation of the statute would require a motion to redeem to not only be filed, but to be ruled upon and the redemption price be paid within the applicable time period unless a timely motion to extend the time period is filed.

§521(a)(6) in a case under chapter 7 of this title in which the debtor is an individual, not retain possession of personal property as to which a creditor has an allowed claim for the purchase price secured in whole or in part by an interest in such personal property, unless the debtor, not later than 45 days after the first meeting of creditors under section 341(a), either –

(A) enters into an agreement with the creditor pursuant to section 524(c) with respect to the claim secured by such property or

(B) redeems such property from the security interest pursuant to section 722,

If the debtor fails to act within the 45-day period referred to in paragraph (6), the stay under section 362(a) is terminated with respect to the personal property of the estate or of the debtor which is affected, such property shall no longer be property of the estate, and the creditor may take whatever action as to such property as is permitted by applicable nonbankruptcy law, unless the court determines after notice and a hearing, tat such property is of consequential value or benefit to the estate, orders appropriate adequate protection of the creditor’s interest, and orders the debtor to deliver any collateral in the debtor’s possession to the trustee;…

¶19.23 If the Debtor fails to carry out the statement of intentions, the ipso–facto clauses, putting the debtor in default solely due to the filing of the bankruptcy are specifically deemed to be valid under BAPCPA. This is another provision preventing debtor from simply providing to continue payment on secured claims without reaffirming. Since this clause refers only to provisions in agreements covered by §§521(a)(6) and 362(h), both of which only refer to personal property, arguably this section only applies to person property secured debts and not to real estate mortgage.³ The last sentence would not act as a savings clause for all debts if ‘such a provision’ is read to refer to the clauses as described previously, ie ipso facto clauses on obligations secured by personal property.³

§521(d) If the debtor fails timely to take the action specified in subsection (a)(6) of this section, or in paragraphs (1) and (2) of section 362(h), with respect to property which a lessor or bailor owns and has leased, rented, or bailed to the debtor or as to which a creditor holds a security interest not otherwise voidable under section 522(f), 544, 545, 547, 548, or 549, nothing in this title shall prevent or limit the operation of a provision in the underlying lease or agreement that has the effect of placing the debtor in default under such lease or agreement by reason of the occurrence, pendency, or existence of a proceeding under this title or the insolvency of the debtor. Nothing in this subsection shall be deemed to justify limiting such a provision in any other circumstance.

Virginia:

Ride-through option remains in effect as to debts secured by real property, reaffirmation disapproved absent some concession by lender. In re Lopez, 440 B.R. 447 (Bankr. E.D. Va., 2010). While §521(a)(6) eliminated the ride-through as to claims secured by personal property, it limits its application to allowed claims for ‘the purchase price secured’ by personal property. Since reaffirmation is not required for real property, and no concession is made by the credit union in this case, the Court finds no benefit to the Debtor for approval of the reaffirmation.

¶19.3 If the court, trustee, or a party in interest so requests, in chapter 7, 11, or 13 cases (but not chapter 12) individual debtors are required to file copies of their annual tax returns (or transcript of the return) each year while the case is pending. If any of the returns due within 3 years before the petition date are filed after the bankruptcy is filed, a copy of these return or transcripts must be filed with the court. Also, if any amendment to any of these returns are filed, the amendment must be filed with the court (if requested). These are to be filed with the court at the same time as they are filed with the taxing authority, and appear to be required even if they are filed long after the bankruptcy case is closed. The section itself does not provide a penalty for failure to file the returns, though §521(j) provides for dismissal or conversion upon request of the taxing authority if returns due are not filed.

In chapter 13 cases, again upon request of the court, US trustee, or party in interest, the debtor shall file annual statements of income and expenses, and how such income and expenses were computed, the sources of all income, the identity of any others responsible for the support of debtor’s dependents, the identity of any other person who contributed to the debtor’s household and the amount so contributed. This appears to be in addition to the requirement to file copies of the tax returns themselves. The first of these is due the later of 90 days after the end of the tax year or 1 year after the case was commenced. The subsequent ones are due at least 45 days before the anniversary of confirmation of the plan.

It is not clear whether this statement is to be an estimated monthly income and expenditure statement, or if the debtor is expected to detail every expenditure made during the duration of the bankruptcy and show it on an annual basis in this report. The latter would constitute a substantial burden on debtors in chapter 13 cases.

See also §521(g)(1) detailing further requirements of the §521(f)(4) statement.

§521(f) At the request of the court, the United States trustee, or any party in interest in a case under chapter 7, 11, or 13, a debtor who is an individual shall file with the court-

(1) at the same time filed with the taxing authority, a copy of each Federal income tax return required under applicable law (or at the election of the debtor, a transcript of such return) with respect to each tax year of the debtor ending while the case is pending under such chapter;

(2) at the same time filed with the taxing authority, each Federal income tax return required under applicable law (or at the election of the debtor, a transcript of such tax return) that had not been filed with such authority as of the date of the commencement of the case and that was subsequently filed for any tax year of the debtor ending in the 3-year period ending on the date of the commencement of the case;

(3) a copy of each amendment to any Federal income tax return or transcript filed with the court under paragraph (1) or (2); and

(4) in a case under chapter 13 –

(A) on the date that is either 90 days after the end of such tax year or 1 year after the date of the commencement of the case, whichever is later, if a plan is not confirmed before such later date; and

(B) annually after the plan is confirmed and until the case is closed, not later than the date that is 45 days before the anniversary of the confirmation of the plan;

a statement, under penalty of perjury, of the income and expenditures of the debtor during the tax year of the debtor most recently concluded before such statement is filed under this paragraph, and of the monthly income of the debtor, that shows how income, expenditures, and monthly income are calculated.

§521(g)(1) A statement referred to in subsection (f)(4) shall disclose –

(A) the amount and sources of the income of the debtor;

(B) the identity of any person responsible with the debtor for the support of any dependent of the debtor; and

(C) the identity of any person who contributed, and the amount contributed, to the household in which the debtor resides.

§521(j)(1) Notwithstanding an other provision of this title, if the debtor fails to file a tax return that becomes due after the commencement of the case or to properly obtain an extension of the due date for the filing of such return, the taxing authority may request that the court enter an order converting or dismissing the case.

(2) if the debtor does not file the required return or obtain the extension referred to in paragraph (1) within 90 days after a request is filed by the taxing authority under that paragraph, the court shall convert or dismiss the case, whichever is in the best interest of creditors and the estate.

¶19.4 The US Trustee is require to review all materials filed by the debtors and within 10 days after the meeting of creditors file a statement as to whether the case is presumed abusive under §707(b). The Court then must serve this notice on all creditors within five days of filing. Then, within 30 days of the filing of such statement, the UST must either file a motion to dismiss or a statement setting for the reasons such a motion is not appropriate if: 1) the UST determined that the case is presumed abusive under §707(b) and 2) the product of the debtors current monthly income, x 12, is greater than or equal to the median family income of the state for the family size.

§704(b)(1) With respect to a debtor who is an individual in a case under this chapter –

(A) the United States trustee (or the bankruptcy administrator, if any) shall review all materials filed by the debtor and, not later than 10 days after the date of the first meeting of creditors, file with the court a statement as to whether the debtor’s case would be presumed to be an abuse under section 707(b); and

(B) not later than 5 days after receiving a statement under subparagraph (A), the court shall provide a copy of the statement to all creditors.

(2) The United States trustee (or bankruptcy administrator, if any) shall, not later than 30 days after the date of filing a statement under paragraph (1), either file a motion to dismiss or convert under section 707(b) or file a statement setting forth the reasons the United States trustee (or the bankruptcy administrator, if any) does not consider such a motion to be appropriate, if the United States trustee (or the bankruptcy administrator, if any) determines that the debtor’s case should be presumed to be an abuse under section 707(b) and the product of the debtor’s current monthly income, multiplied by 12 is not less than –

(A) in the case of a debtor in a household of 1 person, the median family income of the applicable State for 1 earner; or

(B) in the case of a debtor in a household of 2 or more individuals, the highest median family income of the applicable State for a family of the same number or fewer individuals.

¶19.5 The trustee is now required to send notices regarding Domestic Support Obligation claims (§101(14A)) to the holder of the claim regarding the rights to use the state child support enforcement agency with the address and phone number of such agency (located where the holder of the claim resides) and the rights to payment of child support claims; and to provide similar notice to the state child support enforcement agency with the name, address, and phone number of the holder of the claim. A (presumably separate) notice must be sent upon the granting of the discharge to both the holder and the agency as to the granting of the discharge, the last known address of the debtor, the name and address of the debtor’s employer, and the name of each creditor that was reaffirmed or not discharged under §523(a)(2), (4), or (14A); from which creditor the holder or agency may request the last known address of the debtor.

§704(a) The trustee shall –

(10) if with respect to the debtor there is a claim for a domestic support obligation, provide the applicable notice specified in subsection (c);

§704(c)(1) In a case described in subsection (a)(10) to which subsection (a)(10) applies, the trustee shall –

(A)(i) provide written notice to the holder of the claim described in subsection (a)(10) of such claim and of the right of such holder to use the services of the State child support agency established under sections 464 and 466 of the Social Security Act for the State in which such holder resides, for assistance in collecting child support during and after the case under this title;

(ii) include in the notice provided under clause (i) the address and telephone number of such State child support enforcement agency; and

(iii) include in the notice provided under clause (i) an explanation of the rights of such holder to payment of such claim under this chapter;

(B)(i) provide written notice to such State child support enforcement agency of such claim; and

(ii) include in the notice provided under clause (i) the name, address, and telephone number of such holder; and

(C) at such time as the debtor is granted a discharge under section 727, provide written notice to such holder and to such State child support enforcement agency of –

(i) the granting of the discharge;

(ii) the last recent known address of the debtor;

(iii) the last recent known name and address of the debtor’s employer; and

(iv) the name of each creditor that holds a claim that –

(I) is not discharged under paragraph (2), (4), or (14A) of subsection 523(a); or

(II) was reaffirmed by the debtor under section 524(c).

(2)(A) The holder of a claim described in subsection (a)(10) or the State child support enforcement agency of the State in which such holder resides may request from a creditor described in paragraph (1)(C)(iv) the last known address of the debtor.

(B) Notwithstanding any other provision of law, a creditor that makes a disclosure of a last known address of a debtor in connection with a request made under subparagraph (A) shall not be liable by reason of making such disclosure.

¶20 Debtor duties During bankruptcy

¶20.1 Is the debtor required to file periodic financial reports? While §308(4)(C) refers to chapter 11 proceedings, §103(a) provides that chapter 3 provisions apply to chapters 7,11,12, and 13; and §109(51D) does not limit itself to chapter 11 business cases. Yet §1304 regarding the business debtor’s duties does not refer to section 308, instead referring to §704(8) (sic), apparently intending to mean §704(a)(8) which duplicates the requirement regarding filing tax returns from §308(b)(4)(A)(ii) as well as requiring ‘periodic reports and summaries of the operation of such business, including a statement of receipts and disbursements, and such other information as the United States trustee or the court requires…” Hopefully the US Trustee and/or local rules should clarify what reports are necessary in chapter 13 business cases.

§308(a) For purposes of this section, the term ‘profitability’ means, with respect to a debtor, the amount of money that the debtor has earned or lost during the current and recent fiscal periods.

§308(b) A small business debtor shall file periodic financial and other reports containing information including –

(1) the debtor’s profitability;

(2) reasonable approximations of the debtor’s projected cash receipts and cash disbursements over a reasonable period;

(3) comparisons of actual cash receipts and disbursements with projections in prior reports;

(4) (A) whether the debtor is –

(i) in compliance in all material respects with postpetition requirements imposed by this title and the Federal Rules of Bankruptcy Procedure; and

(ii) timely filing tax returns and other required government filings and paying taxes and other administrative expenses when due;

(B) if the debtor is not in compliance with the requirements referred to in subparagraph (A)(i) or filing tax returns or other required governmental filings and making the payments referred to in subparagraph (A)(ii), what the failures are and how, at what cost, and when the debtor intends to remedy such failures; and

(C) such other matters as are in the best interests of the debtor and creditors, and in the public interest in fair and efficient procedures under chapter 11 of this title.

§101(51D) The term ‘small business debtor’ –

(A) subject to subparagraph (B), means a person engaged in commercial or business activities (including any affiliate of such person that is also a debtor under this title and excluding a person whose primary activity is the business of owning or operating real property or activities incidental thereto) that has aggregate noncontingent liquidated secured and unsecured debts as of the date of the petition or the date of the order for relief in an amount not more than $2,000,000 (excluding debts owed to 1 ore more affiliates or insiders) for a case in which the United States trustee has not appointed under section 1102(a)(1) a committee of unsecured creditors or where the court has determined that the committee of unsecured creditors is not sufficiently active and representative to provide effective oversight of the debtor; and

(B) does not include any member of a group of affiliated debtors that has aggregate noncontingent liquidated secured and unsecured debts in an amount greater than $2,000,000 (excluding debt owed to 1 or more affiliates or insiders).

¶21 Reaffirmation

¶21.1 The disclosures required in reaffirmation agreements have been modified. BAPCPA requires significantly more details in the reaffirmation, including payments, interest rate, total debt reaffirmed, total of any fees and costs, listing any security for the debt. The disclosures also require more detailed warning as to the effect of the reaffirmation.

There is some question whether reaffirmations will be filed as often, given the complications described in the new statute. The creditor has substantially more information to disclose, all under the requirements of TILA.

Except in the case of reaffirming credit union debts (but see Rule 4008, which makes no distinction for credit unions), the debtor is required to give the statement described in §524(k)(6)(A) not only asserting a lack of undue hardship, but also listing income, expenses, and the net available to make the reaffirmed payment. This raises the question what income and expense figures are used. If the income and expense figures are those filed with the court based on the §707(b) analysis, the to be reaffirmed mortgage or car payment would already be included in the expenses under §707(b)(2)(iii)(I), and the formula would rarely show any funds available for the reaffirmed payment. This would result in a presumption of undue hardship in most cases under §524(m).

Because of this scenario, it would appear that the income and expenses shown on §524(k)(6)(A) should be actual income and expenses rather than the formula income and expenses required under §707(b), and hence the figures will conflict with the scheduled I & J. Even if the formula income and expenses are used, or if the actual income and expenses don’t show sufficient net income, the debtor can make a written explanation on the §524(k)(6)(A) statement why they can afford to make the payments despite a lack of available net income shown on the statement.

The attorney for the debtor is also required to make and file the certification under §524(k)(5)(A) which appears to be nearly (but not precisely) identical to the §524(c)(3) certification, which has not been deleted. An argument could be made that unless both certifications are filed, the agreement should not be approved. §524(k)(5)(B) appears to require an additional sentence in the attorney’s certification if the debtors §524(k)(6)(A) statement does not show sufficient income to make the payment. In that situation, then the attorney must also certify that in the attorney’s opinion the debtor is able to make the payment.

Different Debtor statements and attorney certifications are required for reaffirming credit union debts, generally omitting the statement of income and expenses and certification regarding undue hardship and ability to make payments.

The form of the reaffirmation agreement requires the creditor’s acceptance of the agreement, as well as the date of the acceptance. §524(k)(4). Hence, unless the creditor signs its acceptance of the agreement before it is sent to the debtor, it would appear that the agreement must be returned to the creditor prior to filing for its acceptance. However…

Once all the statements and certifications have been prepared, §524(k)(7) requires the Debtor to file the motion to approve the reaffirmation agreement. It appears under §524(m)(1) the court may approve an agreement for Debtors represented by counsel without a hearing, but must set a hearing for disapproval of any agreement.

All of these requirements must be read in context of §524(c), which was modified only to remove the disclosure requirements previously in §524(c)(2) and now further elaborated in §524(k), and to require that the debtor received the disclosures described in §524(k). This appears to be a conflict since §524(k) involves not just disclosures, but attorney certifications and debtor statements. Since the section setting the requirements for approval is primarily §524(c), it could be argued that the reaffirmation could be approved so long as the disclosures were provided without regard as to the other requirements of §524(k).

Documents: From Debtor: 1. Copies of original loan documents for any debts to be reaffirmed to confirm interest rate and terms.

2. Copies of the most recent statement on debts to be reaffirmed to confirm loan balance.

3. Copies of last notice of interest rate from creditor on debts to be reaffirmed to confirm interest rate on reaffirmation.

Arizona:

Debtor’s counsel could not exclude representation in reaffirmation agreement from general representation of debtor, and failure of counsel to endorse agreement renders the court without jurisdiction to review the agreement and renders the agreement unenforceable, however since debtor did everything required of them to reaffirm car loan, stay was not lifted and attempted repossession of vehicle by lender prior to or after discharge would violate stay or discharge injunction if there was no default in payment or insurance. In re Barron, 441 B.R. 131 (Bankr. D.Ariz. 2010). Court previously had policy allowing attorneys to unbundle reaffirmation representation from general representation of debtors in chapter 7, and allowing pro-se motions to approve reaffirmation agreements. While counsel actually assisted debtor regarding this reaffirmation with GMAC, the motion to approve was filed pro-se. The judge found that a majority of courts have found that the reaffirmation process is so critical in chapter 7 that representation therein is one of the necessary services in representing a chapter7 debtor. The requirements under §524(c) for a reaffirmation to be enforceable include requiring an attorney declaration in all cases where the debtor was represented by counsel during the course of negotiating the agreement. §524(c)(3). In the absence of such declaration the agreement is unenforceable. However, §524(d) permitting relief from the stay is inapplicable because the debtors have taken every action required by them under §362(h) and §521(a), and the court specifically noted that any attempt to repossess the vehicle absent a default in payment or insurance would constitute of violation of the stay or discharge injunction.

Idaho:

Deadline to approve reaffirmation under §524(m)(1) extended for excusable neglect when debtor promptly signed reaffirmation and relied on creditor to time file the agreement. In re Clark, 2009 WL 523099 (Bankr. D.Conn. 2009).

Ohio:

Mortgage servicing company with no legal interest in the note had no legal authority to reaffirm a debt owed to an unidentified trust. In re Waring, 2009 WL 499501 (Bankr. N.D. Ohio, 2009).

Oklahoma:

Debtor’s counsel could not exclude negotiation of reaffirmation agreement from scope of representation, and agreement negotiated by debtor without assistance of counsel could not be approved. In re Minardi, 399 B.R. 841 (Bankr. N.D.Okla. 2009). Counsel’s contract specifically excluded reaffirmation agreements from his representation, and while contract permitted separate agreements to retain for adversary proceedings, lien avoidances, and stay litigation, no such agreement was allowed for reaffirmation. Counsel indicated a concern that he could be held liable to the creditor upon representing that debtors were able to make the reaffirmed debt payments. Both §524(c)(3) and §523(d) require an affidavit of debtor’s counsel [that represented debtor during the course of negotiating the agreement]. The court concluded that reaffirmations plays such a critical role in the bankruptcy process that representation for it cannot be excluded fron a retainer contract.Also, the bankruptcy code sets the responsibility for advising debtors as to reaffirmations and evaluating the effect of the agreements on debtor’s counsel. The Oklahoma code of professional responsibility requires counsel to competently represent their clients and to resaonbaly consult with the client about themans by which the client’s objectives are to be accomplished. Reaffirmation agreement negotiations are part of the core responsibility for representing consumer debtors in chapter 7 cases.

§524(c) [A reaffirmation agreement is enforceable] only if –

(2) the debtor received the disclosures described in subsection (k) at or before the time at which the debtor signed the agreement;

§524(k)(1) The disclosures required under subsection (c)(2) shall consist of the disclosure statement described in paragraph (3), completed as required in that paragraph, together with the agreement specified in subsection (c), statement, declaration, motion and order described, respectively, in paragraphs (4) through (8), and shall be the only disclosures required in connection with entering into such agreement.

(2) Disclosures made under paragraph (1) shall be made clearly and conspicuously and in writing. The terms “Amount Reaffirmed” and “annual Percentage Rate” shall be disclosed more conspicuously than other terms, date or information provided in connection with this disclosure, except that the phrases “Before agreeing to reaffirm a debt, review these important disclosures” and “Summary of Reaffirmation Agreement” may be equally conspicuous. Disclosures may be made in a different order and may use terminology different from that set forth in paragraph (2) through (8), except that the terms “Amount Reaffirmation” and “Annual Percentage Rate” must be used where indicated.

(3) The disclosure statement required under this paragraph shall consist of the following:

(A) The statement: “Part A: Before agreeing to reaffirm a debt, review these important disclosures.”

(B) Under the heading “Summary of Reaffirmation Agreement”, the statement: “This Summary is made pursuant to the requirements of the Bankruptcy Code”

(C) The “Amount Reaffirmed”, using that term, which shall be –

(i) the total amount of debt that the debtor agrees to reaffirm by entering into an agreement of the kind specified in subsection (c), and

(ii) the total of any fees and costs accrued as of the date of the disclosure statement, related to such amount.

(D) In conjunction with the disclosure of the “Amount Reaffirmed”, the statements-

(i) “The amount of debt you have agreed to reaffirm”

(ii) “Your credit agreement may obligation you to pay additional amounts which may come due after the date of this disclosure. Consult your credit agreement.”

(E) The “annual Percentage Rate”, using that term, which shall be disclosed as-

(i) if, at the time the petition is filed, the debt is an extension of credit under an open end credit plan, as the terms “credit” and “open end credit plan” are defined in section 103 of the Truth in Lending Act, then-

(I) the annual percentage rate determined under paragraphs (5) and (6) of section 127(b) of the Truth in Lending Act, as applicable, as disclosed to the debtor in the most recent periodic statement prior to entering into an agreement of the kind specified in subsection (c) or, if no such periodic statement has been given to the debtor during the prior 6 months, the annual percentage rate as it would have been so disclosed at the time the disclosure statement is given to the debtor, or to the extent this annual percentage rate is not readily available or not applicable, then

(II) the simple interest rate applicable to the amount reaffirmed as of the date the disclosure statement is given to the debtor, or if different simple interest rates apply to different balances, the simple interest rate applicable to each such balance, identifying the amount of each such balance included in the amount reaffirmed, or

(III) if the entity making the disclosure elects, to disclose the annual percentage rate under subclause (I) and the simple interest rate under subclause (II); or

(ii) if, at the time the petition is filed, the debt is an extension of credit other than under an open end credit plan, as the terms “credit” and “open end credit plan” are defined in section 103 of the Truth in Lending Act, then-

(I) the annual percentage rate under section 128(a)(4) of the Truth in Lending Act, as disclosed to the debtor in the most recent disclosure statement given to the debtor prior to the entering into an agreement of the kind specified in subsection (c) with respect to the debt, or, if no such disclosure statement was given to the debtor, the annual percentage rate as it would have been so disclosed at the time the disclosure statement is given to the debtor, or to the extent this annual percentage rate is not readily available nor not applicable, then

(III) if the entity making the disclosure elects, to disclose the annual percentage rate under (I) and the simple interest rate under (II).

(F) If the underlying debt transaction was disclosed as a variable rate transaction on the most recent disclosure given under the Truth in Lending Act, by stating “the interest rate on your loan may be a variable interest rate which changes from time to time, so that the annual percentage rate disclosed here may be higher or lower.

(G) If the debt is secured by a security interest which has not been waived in whole or in part or determined to be void by a final order of the court at the time of the disclosure, by disclosing that a security interest or lien in goods or property is asserted over some or all of the debts the debtor is reaffirming and listing the items and their original purchase price that are subject to the asserted security interest, or if not a purchase-money security interest then listing b items or types and the original amount of the loan.

(H) At the election of the creditor, a statement of the repayment schedule using 1 or a combination of the following –

(i) by making the statement: :Your first payment in the amount of $XXX is due on XXX but the future payment amount may be different. Consult your reaffirmation agreement or credit agreement, as applicable.”, and stating the amount of the first payment and the due date of that payment in the places provided;

(ii) by making the statement: “Your payment schedule will be:” , and describing the repayment schedule with the number, amount, and due dates or period of payments scheduled to repay the debts reaffirmed to the extend then known by the disclosing party; or

(iii) by describing the debtor’s repayment obligations with reasonable specificity to the extent then known by the disclosing party.

(I) The following statement: Note: When this disclosure refers to what a creditor ‘may’ do, it does not use the word ‘may’ to give the creditor specific permission. The word ‘ma’ is used to tell you what might occur if the law permits the creditor to take the action. If you have questions about your reaffirming a debt or what the law requires, consult with the attorney who helped you negotiate this agreement reaffirming a debt. If you don’t have an attorney helping you, the judge will explain the effect of your reaffirming a debt when the hearing on the reaffirmation agreement is held.”

(J)(i) The following additional statements:

“Reaffirming a debt is a serious financial decision. The law requires you to take certain steps to make sure the decision is in your best interest. If these steps are not completed, the reaffirmation agreement is not effective, even though you have signed it.

“1. Read the disclosures in this Part A carefully. Consider the decision to reaffirm carefully. Then, if you want to reaffirm, sign the reaffirmation agreement in Part B (or you may use a separate agreement you and your creditor agree on).

“2. Complete and sign Part D and be sure you can afford to make the payments you are agreeing to make and have received a copy of the disclosure statement and a completed and signed reaffirmation agreement.

“3. If you were represented by an attorney during the negotiation of your reaffirmation agreement, the attorney must have signed the certification in Part C.

“4. If you were not represented by an attorney during the negotiation of your reaffirmation agreement, you must have completed and signed Part E.

“5. The original of this disclosure must be filed with the court by your or your creditor. If a separate reaffirmation agreement (other than the one in Part B) has been signed, it must be attached.

“6. If you were represented by an attorney during the negotiation of your reaffirmation agreement, your reaffirmation agreement becomes effective upon filing with the court unless the reaffirmation is presumed to be an undue hardship as explained in Part D.

“7. If you were not represented by an attorney during the negotiation of your reaffirmation agreement, it will not be effective unless the court approves it. The court will notify you of the hearing on your reaffirmation agreement. You must attend this hearing in bankruptcy court where the judge will review your reaffirmation agreement. The bankruptcy court must approve your reaffirmation agreement as consistent with your best interests, except that no court approval is required if your reaffirmation agreement is for a consumer debt secured by a mortgage, deed of trust, security deed, or other lien on your real property, like your home.

“Your right to rescind (cancel) your reaffirmation agreement. You may rescind (cancel) your reaffirmation agreement at any time before the bankruptcy court enters a discharge order, or before the expiration of the 60-day period that begins on the date your reaffirmation agreement is filed with the court, whichever occurs later. To rescind (cancel) your reaffirmation agreement, you must notify the creditor that your reaffirmation agreement is rescinded (or canceled).

“What are your obligations if you reaffirm the debt? A reaffirmed debt remains your personal legal obligation. It is not discharged in your bankruptcy case. That means that if you default on your reaffirmed debt after your bankruptcy case is over, your creditor may be able to take your property or your wages. Otherwise, your obligations will be determined by the reaffirmation agreement which may have changed the terms of the original agreement. For example, if you are reaffirming an open end credit agreement, the creditor may be permitted by that agreement or applicable law to change the terms of that agreement in the future under certain conditions.

“ Are you required to enter into a reaffirmation agreement by any law? No, you are not required to reaffirm a debt by any law. Only agree to reaffirm a debt if it is in your best interest. Be sure you can afford the payments you agree to make.

“What if your creditor has a security interest or lien? Your bankruptcy discharge does not eliminate any lien on your property. A ‘lien’ is often referred to as a security interest, deed of trust, mortgage or security deed. Even if you do not reaffirm and your personal liability on the debt is discharged, because of the lien your creditor may still have the right to take the security property if you do not pay the debt or default on it. If the lien is on an item of personal pro9perty that is exempt under your State’s law or that the trustee has abandoned, you may be able to redeem the item rather than reaffirm the debt. To redeem, you make a single payment to the creditor equal to the current value of the security property, as agreed by the parties or determined by the court.

(ii) In the case of a reaffirmation under subsection (m)(2), numbered paragraph 6 in the disclosures required by clause (i) of this subparagraph shall read as follows:

6. If you were represented by an attorney during the negotiation of your reaffirmation agreement, your reaffirmation agreement becomes effective upon filing with the court.

(4) The form of such agreement required under this paragraph shall consist of the following:

“Part B: Reaffirmation Agreement. I (we) agree to reaffirm the debts arising under the credit agreement described below.

“Brief description of credit agreement;

“Description of any changes to the credit agreement made as part of this reaffirmation agreement:

“Signature: Date:

“Borrower:

“Co-borrower, if also reaffirming these debts:

“Accepted by creditor:

“Date of creditor acceptance:”

(5) The declaration shall consist of the following:
(A) The following certification:

“Part C: Certification by Debtor’s Attorney (If Any),

“I hereby certify that (1) this agreement represents a fully informed an voluntary agreement by the debtor; (2) this agreement does not impose an undue hardship on the debtor or any dependent of the debtor; and (3) I have fully advised the debtor of the legal effect and consequences of this agreement and any default under this agreement.

“ Signature of Debtor’s Attorney: Date:

(B) If a presumption of undue hardship has been established with respect to such agreement, such certification shall state that in the opinion of the attorney, the debtor is able to make the payment.

(C) In the case of a reaffirmation agreement under subsection (m)(2), subparagraph (B) is not applicable.

(6)(A) The statement in support of such agreement, which the debtor shall sign and date prior to filing with the court, shall consist of the following:

“Part D: Debtor’s Statement in Support of Reaffirmation Agreement.

“1. I believe this reaffirmation agreement will not impose an undue hardship on my dependents or me. I can afford to make the payments on the reaffirmed debt because my monthly income (take home pay plus any other income received) is $XXX, and my actual current monthly expenses including monthly payments on post-bankruptcy debt and other reaffirmation agreements total $XXX, leaving $XXX to make the required payments on this reaffirmed debt. I understand that if my income less my monthly expenses does not leave enough to make the payments, this reaffirmation agreement is presumed to be an undue hardship on me and must be reviewed by the court. However, this presumption may be overcome if I explain to the satisfaction of the court how I can afford to make the payments here: XXX.

“2. I received a copy of the Reaffirmation Disclosure Statement in Part A and a completed an signed reaffirmation agreement.”

(B) Where the debtor is represented by an attorney and is reaffirming a debt owed to a creditor defined in section 19(b)(1)(A)(iv) of the Federal Reserve Act, the statement of support of the reaffirmation agreement, which the debtor shall sign and date prior to filing with the court, shall consist of the following:

“I believe this reaffirmation agreement is in my financial interest. I can afford to make the payments on the reaffirmed debt. I received a copy the Reaffirmation Disclosure Statement in Part A and a completed an signed reaffirmation agreement.

(7) The motion that may be used if approval of such agreement by the court is required in order for it to be effective, shall be signed and dated by the movant and shall consist of the following:

“Part E: Motion for Court Approval (To be completed only if the debtor is not represented by an attorney.). I (we), the debtor(s), affirm the following to be true and correct:

“I am not represented by an attorney in connection with this reaffirmation agreement.

“I believe this reaffirmation agreement is in my best interest based on the income and expenses I have disclosed in my Statement in Support of this reaffirmation agreement, and because (provide any additional relevant reasons the court should consider);

“Therefore, I ask the court for an order approving this reaffirmation agreement.”

(8) The court order, which may be used to approve such agreement, shall consist of the following:

“Court Order: The court grants the debtor’s motion and approves the reaffirmation agreement described above.”

(l) Notwithstanding any other provision of this title the following shall apply:

(1) A creditor may accept payments from a debtor before and after the filing of an agreement of the kind specified in subsection (c) with the court.

(2) A creditor may accept payments from a debtor under such agreement that the creditor believes in good faith to be effective.

(3) The requirements of subsections (c)(2) and (k) shall be satisfied if disclosures required under those subsections are given in good faith.

(m)(1) Until 60 days after an agreement of the kind specified in subsection (c) is filed with the court (or such additional period as the court, after notice and a hearing and for cause, orders before the expiration of such period), it shall be presumed that such agreement is an undue hardship on the debtor if the debtor’s monthly income less debtor’s monthly expenses as shown on the debtor’s completed and signed statement in support of such agreement required under subsection (k)6)(A) is less than the scheduled payments on the reaffirmed debt. This presumption shall be reviewed by the court. The presumption may be rebutted in writing by the debtor if the statement includes an explanation that identifies additional sources of funds to make the payments as agreed upon under the terms of such agreement. If the presumption is not rebutted to the satisfaction of the court, the court may disapprove such agreement. No agreement shall be disapproved without notice and a hearing to the debtor and creditor, and such hearing shall be concluded before the entry of the debtor’s discharge.

(2) This subsection does not apply to reaffirmation agreements where the creditor is a credit union, as defined in section 19(b)(1)(A)(iv) of the Federal Reserve Act.

Rule 4008. Discharge and Reaffirmation Hearing

Not more than 30 days following the entry of an order granting or denying a discharge, or confirming a plan in a chapter 11 reorganization case concerning an individual debtor an on not less than 10 days notice to the debtor and the trustee, the court may hold a hearing provided in §524(d) of the Code. A motion by the debtor for approval of a reaffirmation agreement shall be filed before or at the hearing. The debtor’s statement required under §524(k) shall be accompanied by a statement of the total income and total expense amounts stated on schedules I and J. If there is a difference between the income and expense amounts stated on schedules I and J and the statement required under §524(k), the accompanying statement shall include an explanation of any difference.

¶21.2 If the statement declares an intent to reaffirm the debt, and the creditor refuses to reaffirm on the original contract terms, then the stay does not expire and property remains property of the estate. See §362(h)(2)

¶21.3 Effect of Court Failure to Approve:

Delaware:

If court refuses approve reaffirmation, 4^th option remains available for debtor to retain collateral by continuing payments. In re Hart, 2009 WL 605739 (Bankr. D.Del. 2009). Option was not eliminated by BAPCPA. Court declined to approve reaffirmation due to failure to rebut undue hardship presumption.

Ford Motor Credit’s post-discharge repossession of vehicle after denial of reaffirmation agreement constituted violation of discharge injunction, since in absence of approval of reaffirmation agreement debtors may make use of 4^th option to continue payments on debt pursuant to In re Price, 370 F.3d 362 (3^rd Cir. 2004). In re Baker, 400 BR 136 (D. Del 2009). Debtors complied with BAPCPA by entering into reaffirmation agreement. The fact that the Court declined to approve the greement did not change this fact. Court also noted continuing payments on debt by Debtor post-petition.

Florida:

Judge Williamson has ruled that a reaffirmation agreement filed with the Court on a rental property with a debtor who was not represented by counsel was unenforceable since no hearing was held on the agreement. In re Pitts, 462 B.R. 844 (Bankr. M.D. Fla. 2012). (J. Williamson). The agreement mirrored the requirements of 11 U.S.C. 524 but omitted the motion for court approval. The chapter 7 discharge was entered and the case closed. The creditor subsequently foreclosed on the property and sought to enforce the reaffirmation agreement in order to obtain a deficiency judgment.

§542(c)(2) requires certain disclosures to be made in the reaffirmation agreement. These disclosures are described in §542(k), which includes a statement that if the debtor is not represented by counsel a judge will explain the effect of the reaffirmation agreement when a hearing is held on such agreement. §524(k)(3). It also requires the completion and debtor's signature on part E of the agreement, which includes a motion for approval of the reaffirmation. Part E was not included the reaffirmation agreement filed with the Court. Finally, §542(k)(3) includes language stating that the agreement will not be effective unless the court approves it.

While the Court has dispensed with the discharge hearing, as permitted under §524(d), but the section requires a hearing in the event that the debtor desires to enter into a reaffirmation agreement and was not represented by counsel while negotiating such agreement. Without compliance with these requirements, even if the fault in not filing the documents was arguably the debtors, the reaffirmation agreement is not enforceable.

¶22 Dischargeability

¶22.1 Old taxes: §523(a)(1) appears to have somewhat narrowed to provide that taxes may be discharged even if a formal return was not filed if an equivalent report or notice was filed. This would include the substitute for return done by the IRS if signed by the debtor (26 U.S.C. 6020(a) return); but not if the debtor does not sign the return (26 U.S.C. 6020(b) return) or a declaration of insufficient income to meet the requirements of filing a return. Apparently, it can even include determinations of liability by the tax court or other court or stipulations as to debt (could a confirmed plan be considered such an order?).

§523(a) A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt –

(1) for a tax or customs duty –

(A) of the kind and for the periods specified in section 507(a)(3) or 507(a)(8) of this title, whether or not a claim for such tax was filed or allowed;

(B) with respect to which a return, or equivalent report or notice, if required-

(i) was not filed or given; or

(ii) was filed or given after the date on which such return, report, or notice was last due, under applicable law or under any extension, and after two years before the date of the filing of the petition;

(C) with respect to which the debtor made a fraudulent return or willfully attempted in any manner to evade or defeat such tax;

§523(a)(hanging paragraph)

For purposes of this subsection, the term “return” means a return that satisfied the requirements of applicable nonbankruptcy law (including applicable filing requirements). Such term includes a return prepared pursuant to section 6020(a) of the Internal Revenue Code of 1986, or similar State or local law, or a written stipulation to a judgment or a final order entered by a nonbankruptcy tribunal, but does not include a return made pursuant to section 6020(b) of the Internal Revenue Code of 1986, or a similar State or local law.

¶22.2 Recent purchases and cash advances: §523(a)(2) has been expanded to reduce the threshold amount of luxury goods or services to $500 from the $1,225 in the prior law; and to expand the lookback from 50 to 90 days in determining whether there is a presumption of nondischargeability. The cash advance threshold was also reduced from $1,225 to $750 and the lookback increased to 70 days from the prior 60 in determining the presumption of nondischargeability. It is not clear that the definitions included in §523(a)(2)(C)(ii) make any substantive change in current law.

§523(a) A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt –

(2) for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by –

(A) false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor’s or an insider’s financial condition;

[subsection (B) not modified]

(C)(i) For purposes of subparagraph (A) –

(I) consumer debts owed to a single creditor and aggregating more than $500 for luxury goods or services incurred by an individual debtor on or within 90 days before the order for relief under this title are presumed to be nondischargeable; and

(II) cash advances aggregating more than $750 that are extensions of consumer credit under an open end credit plan obtained by an individual debtor on or within 70 days before the order for relief under this title, are presumed to be nondischargeable; and

(ii) for purposes of this subparagraph-

(I) the terms ‘consumer’, ‘credit’, and ‘open end credit plan’ have the same meanings as in section 103 of the Truth in Lending Act; and

(II) the term ‘luxury goods or services’ does not include goods or services reasonably necessary for the support or maintenance of the debtor or a dependent of the debtor.

¶22.3 Alimony & Child Support: §523(a)(5) was simply modified to conform with and make dischargeable the obligations defined as ‘domestic support obligations’ under §101(14A).

§523(a) A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt –

(5) for a domestic support obligation;

¶22.4 Student Loans: The types of loans qualifying as nondischargeable student loans has been expended to include any qualified educational loan as defined in section 221(d)(1) of the internal revenue code of 1986. 26 USC 221(d)(1) (as of 1/1/03) defined qualified educational loans as debts incurred solely to pay educational expenses of the debtor, spouse, or dependent of the debtor incurred a reasonable time before or after the debt is incurred, while the recipient was an eligible student; and includes refinancing of educational loans.

§523(a) A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt –

(8) unless excepting such debt from discharge under this paragraph would impose an undue hardship on the debtor and the debtor’s dependents, for –

(A)(i) an educational benefit overpayment or loan made, insured, or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or nonprofit institution; or

(ii) an obligation to repay funds received as an educational benefit, scholarship, or stipend; or

(B) any other educational loan that is a qualified education loan, as defined in section 221(d)(1) of the Internal Revenue Code of 1986, incurred by a debtor who is an individual;

26 USC 221(d) Definitions

    For purposes of this section--

                    (1) Qualified education loan

        The term ``qualified education loan'' means any indebtedness

    incurred by the taxpayer solely to pay qualified higher education

    expenses--

            (A) which are incurred on behalf of the taxpayer, the

        taxpayer's spouse, or any dependent of the taxpayer as of the

        time the indebtedness was incurred,

            (B) which are paid or incurred within a reasonable period of

        time before or after the indebtedness is incurred, and

            (C) which are attributable to education furnished during a

        period during which the recipient was an eligible student.

    Such term includes indebtedness used to refinance indebtedness which

    qualifies as a qualified education loan. The term ``qualified

    education loan'' shall not include any indebtedness owed to a person

    who is related (within the meaning of section 267(b) or 707(b)(1))

    to the taxpayer or to any person by reason of a loan under any

    qualified employer plan (as defined in section 72(p)(4)) or under

    any contract referred to in section 72(p)(5).

               (2) Qualified higher education expenses

        The term ``qualified higher education expenses'' means the cost

    of attendance (as defined in section 472 of the Higher Education Act

    of 1965, 20 U.S.C. 1087ll, as in effect on the day before the date

    of the enactment of this Act) at an eligible educational

    institution, reduced by the sum of--

            (A) the amount excluded from gross income under section 127,

        135, 529, or 530 by reason of such expenses, and

            (B) the amount of any scholarship, allowance, or payment

        described in section 25A(g)(2).

    For purposes of the preceding sentence, the term ``eligible

    educational institution'' has the same meaning given such term by

    section 25A(f)(2), except that such term shall also include an

    institution conducting an internship or residency program leading to

    a degree or certificate awarded by an institution of higher

    education, a hospital, or a health care facility which offers

    postgraduate training.

¶22.5 Intoxicated operation of vehicle: §523(a)(9) has been slightly expanded to include operation of vessels and aircraft in addition the operation of motor vehicles as being subject to creation of nondischargeable debts. Curiously, the related priority section does not make the corresponding debts from intoxicated operation of aircraft priority, though they are still nondischargeable. See §507(a)(10).

§523(a) A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt –

(9) for death or personal injury caused by the debtor’s operation of a motor vehicle, vessel, or aircraft if such operation was unlawful because the debtor was intoxicated from using alcohol, a drug, or another substance;

¶22.6 Debts incurred to pay nondischargeable state taxes: while previous §523(a)(14) made debts incurred to pay nondischargeable US taxes into nondischargeable obligations; 523(a)(14)(A) expands this to debts incurred to pay nondischargeable governmental units other than the US government (ie state, local, and foreign taxes).

Indiana

Credit card charge to pay property taxes last payable, without penalty, less than one year before bankruptcy was filed determined nondischargeable under §523(a)(14A). In re Redmond, 399 B.R. 628 (Bankr. N.D.Ind. 2008).

§523(a) A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt –

(14A) incurred to pay a tax to a governmental unit, other than the United States, that would be nondischargeable under paragraph (1).

¶22.7 Debts incurred to pay from fines or penalties imposed under Federal election laws are now nondischargeable. While unlikely to come up much in consumer practice, again this section is oddly worded. Under a strict reading, this section does not make the fine or penalty itself nondischargeable (§523(a)(7) may or may not make the fine or penalty nondischargeable); this makes the debt for the money borrowed to pay the fine nondischargeable, presumably even if the fine or penalty did not fall within the parameters of §523(a)(7) (for instance, it was compensation for a pecuniary loss).

§523(a) A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt –

(14B) incurred to pay fines or penalties imposed under Federal election law;

¶22.8 Property Settlements: a very important change is that the balancing of the harms under prior law as to property settlements has been eliminated, such that all debts to a spouse, former spouse, or child incurred in connection with a divorce or separation are now nondischargeable in chapter 7 (but still dischargeable in chapter 13). §523(c)(1) was also slightly modified to remove (a)(15) from the list of sections where a complaint must be timely filed to prevent discharge of the debt.

§523(a) A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt –

(15) To a spouse, former spouse, or child of the debtor and not of the kind described in paragraph (5) that is incurred by the debtor in the course of a divorce or separation or in connection with a separation agreement, divorce decree or other order of a court of record, or, a determination made in accordance with State or territorial law by a governmental unit;

§523(c)(1) Except as provided in subsection (a)(3)(B) of this section, the debtor shall be discharged from a debt of a kind specified in paragraph (2), (4), or (6) of subsection (a) of this section, unless, on request of a creditor to whom such debt is owed, and after notice and a hearing, the court determines such debt to be excepted from discharge under paragraph (2), (4), or (6), as the case may be, of subsection (a) of this section.

Cases:

Equitable distribution claim in divorce found to be in nature of property settlement, and therefore dischargeable in chapter 13 case. In re Clark, 441 B.R. 752 (Bankr. M.D.N.C. 2011). In order for a debt to qualify as a Domestic Support Obligation (DSO), it must 1) be owed to or recoverable by the plaintiff; 2) in the nature of alimony, maintenance or support; 3) established before the bankruptcy filing by a separation agreement or divorce decree; and 4) not be assigned other than for collection purposes. Plaintiff has the burden of proof to show the obligation qualifies as a DSO. Given the unambiguous language of the divorce order and the failure of plaintiff to show evidence to the contrary the Court found that the obligation in the case was not a DSO.

¶22.9 Homeowner and Condo fees: the new law expands the nondischargeability of such dues and expands the applicability from just condominium association fees incurred after the case is filed to include under the same provisions dues to homeowners associations incurred after the case is filed. The nondischargeability of such post-petition dues is substantially expanded. Under prior law (at least as to condo fees) the debtor had to physically occupy the property or receive payments from a tenant in order to be liable for post-petition dues. Under the new section, so long as the property remains titled in the debtors or the trustee’s name, or either the debtor or trustee have an interest in the property even though there may be an order lifting stay consented to by debtor, or even if the trustee has the property and is taking years to sell the property. The best advice may be to have the debtor do a deed in lieu to the secured creditor prior to filing to avoid a risk of being liable for substantial post-petition assessments and fees. There has also been a suggestion that it may be possible to create a new company to transfer the deed to, though I have not seen this tested in practice.

Cases:

Arizona:

Individual chapter 11 debtor not discharged from post-petition condominium assessments depite confirmed plan and order lifting stay. In re Burgueno, 451 B.R. 1 (Bankr. D.Ariz. 2011). Debtor who owned five investment properties filed chapter 11 bankruptcy in 2009. In February 2010 the debtor stipulated with Wells Fargo bank to allow immediate foreclosure on one of the investment properties subject to on-going condominium assessments. In August 2010 the chapter 11 plan was confirmed, referring to the stipulation for immediate lifting of the stay as to Wells Fargo. However, at least as of April 2011 Wells Fargo had not foreclosed on the property and two condominium associations are attempting to collect post-petition fees from the debtor. The Debtor filed a motion seeking a determination that the associations were bound by the confirmed plan and limited to their prepetition claims. The associations alleged they could continue to collect so long as legal title remained in the Debtor. As of April 2011 the combined fees were approximately $8,000.

The Court ruled that the plain language of §523(a)(16) provides that the chapter 11 debtor remains liable for postpetition assessments so long as the debtor possesses a legal, equitable, or possessory interest in the property. The Court noted that such fees would also constitute an administrative expense, but that this was inapplicable as no claim or request for administrative expense was filed by the associations. Had the plan expressly stated that it discharged these obligations, the plan would be res judicata as to the debts. However, no such provision was included in this plan, and such provisions could be subject to Rule 11 sanctions.

The problem arises in the bank taking over a year to foreclose, a problem the Court noted is occurring with increasing frequency. While the lifting of the stay may terminate the debtor’s possessory interest, it does not affect the legal title. One solution is for the debtor to quit-claim the property to either the bank or the association, which would require a motion, notice, and hearing pursuant to §363(b)(1). Alternatively the plan could presumably transfer the title to the property to the bank pursuant to §1123(a)(5)(B). The Court found the post-petition association fees, as well as the resultant attorneys fees in litigating the matter to be nondischargeable.

Massachusetts:

Chapter 7 Debtor who moved out of condomium and stated intention to surrender condo remained liable for nondischargeable post-petition fees and assessments until sale of property. In re Ames, 447 B.R. 680 (Bankr. D.Mass. 2011). Association filed for relief from stay not only to assert lien on condo and to sell the unit to enforce the lien, but to hold debtor personally liable for common expense obligations due postpetition. §523(a)(16) makes post-petition fees and assessments on condominiums nondischargeable to chapter 7 and 11 debtors (or for hardship discharges in chapter 12 or 13) so long as the debtor or trustee retains a legal, equitable, or possessory interest in the unit.

The Debtor argued that his statement of intent showing surrender of the unit terminated his interest in the unit, citing Pratt v. GMAC, 462 F.2d 14 (1^st Cir. 2006). The Court ruled that this case was inapplicable, as it simply dealt with whether debtor complied with his obligations under the statement of intent, and did not affect the debtor’s titular interest in the collateral. The Court found no authority that disclosure of an intent to surrender on a statement of intent had any effect on the debtor’s title to property.

The Court granted the motion to lift stay, but ruled that the association could seek in personam liability against the debtor only to the extent the proceeds of the sale were insufficient to pay the post-petition charges. Query how the proceeds of the sale would be allocated between prepetition and post-petition liabililty; and whether there is a duty of the association to proceed promptly to sale to minimize the debtor’s ongoing liability?

§523(a) A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt –

(16) for a fee or assessment that becomes due and payable after the order for relief to a membership association with respect to the debtors interest in a unit that has condominium ownership, in a share of a cooperative corporation, or a lot in a homeowners association, for as long as the debtor or the trustee has a legal, equitable, or possessory ownership interest in such unit, such corporation, or such lot, but nothing in this paragraph shall except from discharge the debt of a debtor for a membership association fee or assessment for a period arising before the entry of the order for relief in a pending or subsequent bankruptcy case;

¶22.93 Fees, costs, and expenses imposed by a court for filings has been significantly narrowed to apply only to such fees, costs, and expenses imposed on prisoners. Unless congress decides to pass bankruptcy deform bills reintroducing debtor’s prisons, this section is likely to see little use. It appears that the section would prevent waiving fees for bankruptcy or lawsuits unrelated to the status of the debtor as a prisoner.

§523(a) A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt –

(17) for a fee imposed on a prisoner by any court for the filing of case, motion, complaint, or appeal, or for other costs and expenses assessed with respect to such filing, regardless of an assertion of poverty by the debtor under subsection (b) or (f)(2) of section 1915 of title 28 (or a similar non-Federal law), or the debtor’s status as a prisoner, as defined in section 1915(h) of title 28 (or a similar non-Federal law);

¶22.96 Debts to qualified retirement plans for monies borrowed from them are excepted from discharge. While the statute may be somewhat broader (ie loans by the plan for the establishment and operation of the plan) there should be minimal effect on current practice, as such loans are generally considered secured for the full amount of the loan.

§523(a) A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt –

(18) owed to a pension, profit-sharing, stock bonus, or other plan established under section 401, 403, 408, 408A, 414, 457, or 501(c) of the Internal Revenue Code of 1986, under-

(A) a loan permitted under section 408(b)(1) of the Employee Retirement Income Security Act of 1974, or subject to section 72(p) of the Internal Revenue Code of 1986; or

(B) a loan from a thrift savings plan permitted under subchapter III of chapter 84 of title 5, that satisfies the requirements of section 8433(g) of such title;

but nothing in this paragraph may be construed to provide that any loan made under a governmental plan under section 414(d), or a contract or account under section 403(b), of the Internal Revenue Code of 1986 constitutes a claim or a debt under this title; or

¶23 Chapter 13

¶23.1 Tax returns, claims

¶23.11 Debtor must file all tax returns due within 4 years of the filing of the bankruptcy by the day before date first set for the meeting of creditors. If under the tax laws, no return is due, it would appear this does not require the filing of returns. The trustee may hold the meeting open up to 120 days after the meeting for returns that were past due when the bankruptcy was filed, or (if this results in a later date) up to August 15 if the debtor timely requested an extension of time with the IRS to file the return. The court can extend the time period to file returns past due as of the filing of the case an additional 30 days after notice and hearing but the order must be entered before the time expires. To get this extension, the debtor must show by a preponderance of the evidence that the failure to file was due to circumstances beyond the debtor’s control. If the trustee declines to hold the meeting of creditors open, and again if the order is entered before the time period expires (which would seem impossible unless the trustee gave the debtor’s counsel advance notice that they would not hold the meeting open) the court can extend the time period to file them 30 days for returns past due as of the date the case was filed, or up to August 15 when returns were not past due when the return was not past due when the case was filed (again, if the debtor requests a timely extension with the IRS).

In order to avoid any uncertainty, it may be advisable for the court to enter a standing order extending the time to file non-delinquent returns until April 15.

§1308(a) Not later than the day before the date on which the meeting of creditors is first scheduled to be held under section 341(a), if the debtor was required to file a tax return under applicable nonbankruptcy law, the debtor shall file with the appropriate tax authorities all tax returns for all periods ending during the 4-year period ending on the date of the filing of the petition.

(b)(1) Subject to paragraph (2), if the tax returns required by subsection (a) have not been filed by the date on which the meeting of creditors is first scheduled to be held under section 341(a), the trustee may hold open that meeting for a reasonable period of time to allow the debtor an additional period of time to file any unfiled returns, but such additional period of time shall not extend beyond –

(A) for any return that is past due as of the date of the filing of the petition, the date that is 120 days after the date of that meeting; or

(B) for any return that is not past due as of the date of the filing of the petition, the later of –

(i) the date that is 120 days after the date of that meeting; or

(ii) the date on which the return is due under the last automatic extension of time for filing that return to which the debtor is entitled, and for which request is timely made, in accordance with applicable nonbankruptcy law.

(2) After notice and a hearing, and order entered before the tolling of any applicable filing period determined under this subsection, if the debtor demonstrates by a preponderance of the evidence that the failure to file a return as required under this subsection is attributable to circumstances beyond the control of the debtor, the court may extend the filing period established by the trustee under this subsection for –

(A) a period of not more than 30 days for returns described in paragraph (1); and

(B) a period not to extend after the applicable extended due date for a return described in paragraph (2).

(c) For purposes of this section, the term ‘return’ includes a return prepared pursuant to subsection (a) or (b) of section 6020 of the Internal Revenue Code of 1986, or a similar State or local law; or a written stipulation to a judgment or a final order entered by a nonbankruptcy tribunal.

¶23.12 The deadline for the government to file any tax claims for tax returns ‘filed under’ (presumably for which the time to file is extended under §1308) is extended to the latter of 180 days after the case is filed, or 60 days after the return itself is filed. An argument could be made that while the government can seek an extension for filing claims for non §1308 taxes, the section does not permit an extension beyond that provided for returns filed under §1308.

§502(b) [The court shall allow claims except to the extent that -]

(9) [the claim not timely filed, allowing 180 days for government claims] and except that in a case under chapter 13, a claim of a governmental unit for a tax with respect to a return filed under section 1308 shall be timely if the claim is filed on or before the date that is 60 days after the date on which such return was filed as required.

Rule 3002. Filing Proof of Claim or Interest

(c) TIME FOR FILING.

In a chapter 7 liquidation, chapter 12 family farmer’s debt adjustment, or chapter 13 individual’s debt adjustment case, a proof of claim is timely filed if it is filed not later than 90 days after the first date set for the meeting of creditors called under §341(a) of the Code, except as follows:

(1) A proof of claim filed by a governmental unit, other than for a claim resulting from a tax return filed under §1308, is timely filed if it is filed not later than 180 days after the date of the order for relief. On motion of a governmental unit before the expiration of such period and for cause shown, the court may extend the time for filing of a claim by the governmental unit. A proof of claim filed by a governmental unit for a claim resulting from a tax return filed under §1308 is timely filed if it is filed not later than 180 days after the date of the order for relief or 60 days after the date of the filing of the tax return, whichever is later.

¶23.13 The debtor must be current on all ‘applicable’ Federal, State, and local tax returns as required by §1308 in order to have the case confirmed. Bringing §1308 into this section would seem to permit confirmation so long as the extension requirements of §1308 are met even if the returns have not yet been filed. As a practical matter, courts may well elect to continue confirmation hearings until all prepetition tax returns are filed (§1308(b)(1)(A) allowing 120 days after the 341 to file such returns whereas §1324(b) requiring the initial confirmation hearing to be held no later than 45 days after the meeting of creditors).

§1325(a) Except as provided in subsection (b), the court shall confirm a plan if –

(9) the debtor has filed all applicable Federal, State, and local tax returns as required by section 1308.

¶23.14 Interest on tax claims:

BAPCPA provides that if the bankruptcy code requires interest on a tax or administrative claim, the rate of interest to provide present value of the claim shall be the rate determined under non-bankruptcy law; and in chapter 13 shall be determined as of the calendar month in which the plan is confirmed. Does this mean that the interest rate shall be whatever amount is shown per tax statutes without regard to the present value computation, or only statutes attempting to emulate present value in determining the interest rate? If the statutory non-bankruptcy interest rate is applied, doesn’t this simply statutorily overrule any provision as to determination of the present value of payment stream? Yet the statute still uses the term present value, so it would seem the intent is not to overrule that requirement.

Also note §1322(b)(10) now provides that a plan may provide for interest on nondischargeable claims, and §1328(a)(2) now includes §523(a)(1)(B) [regarding tax returns filed late] and §523(a)(1)(C) [regarding fraudulent returns and willful evasion of taxes] as nondischargeable debts. Hence, §511 may be used to determine the interest rate for nondischargeable late-filed or fraudulent taxes in chapter 13 plans.

Cases:

5^th Cir.

Third party lender who paid ad-valorem taxes receiving transfer of the tax lien is protected from modification to reduce the interest rate on the obligatin. In re Kizzee-Jordan, 628 F.2d 239 (5^th Cir. 2010). Debtors had borrowed money from creditor pre-petition to pay off the property taxes on their Texas home, and agreed to a 14.8% interest rate on the debt. The creditor paid off the property tax lien and received a transfer of the tax lien against the property. Debtors then filed chapter 13 and roosed payment of the debt at 5%. Upon objection by the creditor the bankruptcy court approved the plan finding that the debt was now based on a new promissory note and that the tax claim had been extinguished. The district court reversed finding that the claims was tax claim entitled to protection under §511. The 5^th Circuit affirmed, finding that the languge of§511 uses the broad term ‘creditor’ rather than the more specific ‘governmental unit’ as the entity entitled to protection. Under Texas law a tax lien may be transferred to the person who pays it on behalf of the owner, which is then subrogated to the rights of the taxing unit. The Debtors argued that only the tax lien is transferred, rather than the tax claim. However, the code defines a claim as a right to payment, and a lien as a charge against or interest in property to secure payment of a debt or performance of an obligation. Debt is a liability on a claim. Therefore a hoder of a lien has a secured right to payment on a claim. The debtors argued that the lien secures only a regular claim rather than a tax claim since the taxes have been paid. The 5^th Circuit rejected this finding that Texas law provides that upon payment the tax collector shall issue a tax rectipt to that transferee, thus providing that only the entity to whom the tax debt is owed has changed, not the nature of the underlying debt. Finally, the subrogation scheme created by statute resumes that the rights and obligations of the taxing authority.

§511(a) If any provision of this title requires the payment of interest on a tax claim or on an administrative expense tax, or the payment of interest to enable a creditor to receive the present value of the allowed amount of a tax claim, the rate of interest shall be the rate determined under applicable nonbankruptcy law.

(b) In the case of taxes paid under a confirmed plan under this title, the rate of interest shall be determined as of the calendar month in which the plan is confirmed.

¶23.2 Payments to the trustee, to lessor of personal property, and adequate protection payments to purchase money security interest secured creditors must commence within 30 days after the case is filed. On its face, the section appears to require contractual payments to PMSI secured creditors commencing 30 days after the case is filed even if the creditor is being provided for in the plan, and appears to require direct payment to such creditors. Since confirmation has been moved up, courts will have to decide whether debtors must make this payment directly, and reduce the trustee payment accordingly, or the trustee pays it prepetition, or may interpret the ‘unless the court orders otherwise’ language to allow payment by the trustee after confirmation. The trustee is generally not supposed to pay creditors until the plan is confirmed (though the court may order otherwise). If confirmation is denied, the trustee will pay any amounts held as adequate protection to the secured creditors, pay any administrative expenses, and return the balance to the debtor.

Cases:

North Carolina

The first published decision interpreting this section is In re Beaver, 337 B.R. 281 (Bankr. E.D. N.C. 2006). Here, Judge Small ruled that adequate protection under §1326(a)(1) need not be monthly contractual payments, or even a monthly payment at all to the creditor itself. Rather, monthly payments to the creditor from the debtor are only required if that is the method of adequate protection chosen by the debtors. If the debtor has chosen another method of adequate protection (which is satisfactory to the court), then no direct payments are required. Cases have long established that direct payments to creditors are not the only possible method of providing adequate protection. Had Congress intended to reverse this precedent, it would have done so more explicitly.

However, the court also rejected Debtors’ proffer that proposed payment of the secured claim through the plan is itself adequate protection. Since this does not cover the depreciation in the collateral, it is not sufficient adequate protection. In the case before him, the parties agreed to have the trustee make preconfirmation payments to the creditor of 1% of the value of the collateral each month as adequate protection.

§1326(a)(1) Unless the court orders otherwise, the debtor shall commence making payments not later than 30 days after the date o the filing of the plan or the order for relief, whichever is earlier, in the amount –

(A) proposed by the plan to the trustee;

(B) scheduled in a lease of personal property directly to the lessor for that portion of the obligation that becomes due after the order for relief, reducing the payments under subparagraph (A) by the amount so paid and providing the trustee with evidence of such payment, including the amount and date of payment; and

(C) that provides adequate protection directly to a creditor holding an allowed claim secured by personal property to the extent the claim I attributable to the purchase of such property by the debtor for that portion of the obligation that becomes due after the order for relief, reducing the payment under subparagraph (A) by the amount so paid and providing the trustee with evidence of such payment, including the amount and date of payment.

(2) A payment made under paragraph (1)(A) shall be retained by the trustee until confirmation or denial of confirmation. If a plan is confirmed, the trustee shall distribute any such payment in accordance with the plan as soon as is practicable. If a plan is not confirmed, the trustee shall return any such payments not previously paid and not yet due and owing to creditors pursuant to paragraph (3) to the debtor, after deducting any unpaid claim allowed under section 503(b).

(3) Subject to section 363, the court may, upon notice and a hearing, modify, increase, or reduce the payments required under this subsection pending confirmation of a plan.

¶23.3 Budget/Means test

¶23.31 The disposable income test under §1325(b) appears very similar but apparently not identical to that of §707(b)(2)(A) and (B). The disposable income requirement has been somewhat modified to change the 3 years to the applicable commitment period, and to provide that all disposable income shall be applied to make payments to unsecured creditors. This could still permit zero percent plans if there is no disposable income.

One section dealing with property of the estate appears to effect the chapter 13 means test. §541(b)(7)(A)(i)(III) provides that amounts withheld from an employee’s wages for 26 USC §403(b) tax deferred annuities (presumably voluntary or involuntary contributions) shall not constitute disposable income under §1325(b)(2). It is not clear, but seems like this also applies to ERISA retirement plans and deferred compensation funds under §541(b)(7)(A)(i)(I) and (II). This appears to be the approach taken on line 55 of the official form B22C.

Disposable income is defined as income (excluding payments received for the support of children or foster children) less amounts reasonably necessary for the support of debtor and debtor’s dependents, and any post–petition DSO’s, charitable contributions (up to 15% of debtor’s income) and business expenses. If the debtor makes more than median income, the §707(b)(2) standards apply and the plan must run for 5 years (unless unsecured are paid in full in less time). While this would seem to imply that debtor’s who make less than median income should have less stringent standards, it will be left to be seen how the courts interpret these.

Based on the apparent difference between the §707 means test and the §1325(b)(2) means test, it is possible that the chapter 7 test could require the debtor to file chapter 13, while the §1325 test shows no available disposable income. One possible solution would be to require a nominal repayment in the chapter 13 plan. Alternatively, it may be possible to read §707(b)(2)(A) and (B) as coming to the same result as §1325(b)(2). This argument assumes that the ‘income from all sources’ included in CMI by §101(10A) equates to the ‘gross income’ defined by 26 USC §61(a). Gross income under the Internal Revenue Code excludes income from child support (26 USC §74(c)) and foster care payments (26 USC §131). While it would seem unnecessary to specifically mention these in §1325(b)(2) if they were already excluded from §101(10A)’s Current Monthly Income, §1325(b)(2)(A) and (B) specifically note other expenses that are already allowed under §707(b). Further, if that is the only way to read the statutes to avoid the inconsistencies arising when §707(b)(2) shows available funds for unsecured creditors that §1325(b)(2) does not show, statutory interpretation theory should support such argument.

Another problem with this section is the reference in §1325(b)(4)(A)(ii) to the ‘current monthly income’ of the debtor and debtor’s spouse. Strictly defined, the non–filing spouse has no current monthly income since the definition of current monthly income excludes income of the non–filing spouse.¹ See §101(10A)

Case Law

See ¶6.4

¶23.311 Applicable Commitment Period

6^th Circuit:

The applicable commitment period sets a temporal requirement, and plans must extend the full 60 months upon objection by the trustee or a creditor in interest; it is not sufficient to simply pay the dollar amount computed by multiplying the projected disposable income by sixty. Baud v Carroll, 2011 WL 338001 (6^th Cir., 2011).

11^th Circuit:

The Applicable Commitment Period for above median-income debtors sets a minimum duration of the repayment plan, rather than a monetary minimum payment. In re Tennyson, 601 F.3d 873 (11^th Cir. 2010). Debtor was above median income, but negative disposable income under B22C. Debtor argued that the Applicable Commitment Period was zero since he had no projected disposable income. The 11^th Circuit rejected this finding that Applicable Commitment period required a minimum duration, and recognized the possiblility of a change in income during such period.

Florida:

§1329 modifications do not incorporate §1325(b)(4)’s applicable commitment period, and thus plans may be modified after confirmation to allow an early payout if such proposal is filed in good faith. In re Tibbs, 2012 WL 380074 (Bankr. S.D. Fla., Sept 4, 2012). Judge Kimball allowed chapter 13 debtors to make a lump sum payment after just over one year of payments in a plan confirmed at 60 months. When the plan was initially confirmed, it was required to be a five year plan under §1322(b)(4)(A)(ii) since the debtor's were above median income. Mrs. Tibbs became unemployed after filing preventing them from continuing the monthly payments. Instead, they proposed to have her parents make them a cash gift to payoff the chapter 13, which gift was conditioned upon approval of the early payoff. The chapter 13 trustee objected, asserting that this would encourage other chapter 13 debtors to attempt to pay the plans off early.

Since §1329, the section permitting modifications after confirmation, does not incorporate §1325(b), the section referencing the applicable commitment period, a modification may occur that shortens the plan so long as the other requirements referenced in §1329 are met. The sections referenced in §1329 are §§1322(a), 1322(b), 1323(c), and 1325(a). While §1325(a) begins with the phrase 'except as provided in subsection (b)' this does not necessarily result in the incorporation of §1325(b) into §1329.

This conclusion derives from the two rules of statutory construction. First, the language of the statue is clear as to the subsections it incorporates. Because the section includes only the specified subsections, it “excludes other provisions, under the maxim expressio unius est exclusio alterius.” If Congress intended to include §1325(b) in the requirements for modified plans, it had the ability to do so.

Secondly, including §1325(b) in the requirements for modification based solely on that introductory phrase collides with the rule that statutes should be read to avoid redundancies, as such a reading would result in the section including §1325(a) twice: directly and by reference to §1322(b) which also refers to §1325(a). Further, the provisions of §1325(b) are not requirements of §1325(a), but rather an exception to the confirmation that §1325(a) otherwise mandates.

This reading does not result in an absurd result. Congress mandated that confirmation of a plan sets a time period for payment based on the debtor's income. If there is an increase in income, unsecured creditors have the right to request a modification of the plan. §1329 recognizes that a modification may result in a change in the payment term and Congress provided leeway in how such modifications may be structured. §1325(a) still requires any amendment to be proposed in good faith.

The motion contained a conspicuous warning in bold capitalization that if the modification is granted it would result in unsecured creditors losing the right to take advantage in any increase in debtor's disposable income during the five year repayment period. This supports the finding of good faith. No objections were filed by creditors to the proposed modification.

The Trustee's argument that Whaley v. Tennyson (In re Tennyson), 611 F.3d 873 (11th Cir.2010) requires a contrary result is unavailing. This case ruled that an above median income debtor with negative disposable income was still required to propose a plan with a five year payment schedule. While some language in Tennyson seems to indicate that such plans must continue five years or until unsecured claims receive a 100% dividend, such language is dicta in that the case involved the initial confirmation of a plan, rather than the modification of a confirmed plan.

Georgia:

If debtor is above median income when case is filed, subsequent change of circumstances, including job loss, cannot be a basis to reduce length of plan. In re Buck, 443 B.R. 463 (Bankr. N.D.Ga. 2010). Court is bound by In re Tennyson to require full five year plan even if debtors circumstances change.

Illinois:

If the means test computations show an applicable commitment period of three years, neither uncounted social security income, nor the fact that the income during the prior six months was less than average or future income (ie due to summer unemployment by school teachers) warrant extending the plan over three years. In re Beasley, 342 B.R. 280 (Bankr. C.D.Ill. 2006) (J. Gorman). The applicable commitment period, as distinguished from the disposable income statute (distinguishing Hardacre), looks solely to the means test with no adjustment for projected income. Under §707(b)(2)(B) the court granted flexibility to the means test in chapter 7 be creating soley a presumption of abuse which could be overcome. No such flexibility exists in §1325(b)(4).

Massachusetts:

Above median income debtors cannot obain early discharge prior to 60 month term with 16.35% dividend. In re Filion, 452 B.R. 329 (Bankr. D.Mass. 2011). Plan provided for 60 month plan but debtors completed dollar amount of payment early and sought discharge after 58 months. The Court ruled that §1325(b)(4) requires five year applicable commitment period, and that temporal reading of statute is supported by Hamilton v Lanning and the 11^th Circuit’s decision in In re Tennyson. Hamilton determined that the payment required under a plan may not be based on a strict interpretation of §1325(b)(1)(B), implying that applicable commitment period must have an existence independent of such calculation. If applicable commitment period is independent of the initial computations, this would leave the plan as in indeterminate term, thus to have any meaning its definition must be of a temporal term derived from §1325(b)(4) and independent of §1325(b)(1).

BAPCPA was enacted to correct perceived abuses in the bankruptcy system and insure that debtors repay creditors the maximum they can afford. Plan modifications provide one of the tools by creditors or the trustee to increase payments based on changes of circumstances. One of the requirements of chapter 13 is that debtor’s run the gauntlet of exposure to requests for increased plan payments. Allowing early completion controverts this policy by rendering §1325(b)(4)(A) and (B) meaningless and depriving creditors of the opportunity of receiving the maximum possible repayment under the plan.

North Carolina:

Finding that the applicable commitment period of §1325(b)(1) is a temporal, rather than a monetary requirement, the court denied confirmation of a plan providing payments of $151/month for 16 months, then $0 for 20 months; and that disposable income and projected disposable income are the same in determining whether to confirm the plan; but modifications after confirmation look to amended schedules I and J. In re Girodes, 350 B.R. 31 (Bankr. M.D. N.C. 2006). The court found that the plain language of the statute supports a temporal interpretation. If Congress had intended for ACP to function as a multiplier, it could have described it as such. While under pre-BAPCPA the court did look to schedules I & J to determine the amount the debtor should commit to the plan, that analysis is no longer valid under BAPCPA. The Court agrees with Alexander that disposable income and projected disposable income are one and the same, and have been defied by 11 U.S.C. §1325(B)(2). However, disposable income must still be computed based on means test CMI less expenses shown on schedule J. However, this does not prevent a later modification, since §1322(d) which defines CMI is expressly excluded from post-confirmation plan modifications. Similarly §1322(b) which again defines CMI is also expressly excluded from post-confirmation modifications. If CMI does not apply to these modifications, the court must determine post-confirmation plan payments upon ameded schedules I and J, and a debtor’s ability to pay after deducting reasonable and necessary expenses. To give meaning to the post-confirmation plan modification section, debtors, trustees, and holders of allowed secured claims must be given the right to request modification for the full life of the plan. Note that an issue with using B22C for income and J for expenses, is that this would normally ignore any expenses deducted from the paycheck (ie taxes, insurance). Query whether an amended J could be filed showing these expenses for examination under this analysis, or are debtors forced simply to immediately file a motion to modify after confirmation?

The court also determined that applicable commitment period was a temporal requirement, rather than simply a multiplier, however if the debtor has no disposable income the applicable commitment period requirement does not apply. In re Alexander, 344 B.R. 742 (Bankr. E.D.N.C. 2006). Since the projected disposable income figure is based on certain fictions under the means test, a debtor may have no projected disposable income and still be able to fund a chapter 13 plan. Supporting the temporal interpretation of the applicable commitment period is the fact that the statute states that the only way to reduce the plan below 3 years is to pay unsecured creditors in full. If the debtor’s theory that the applicable commitment period was simply a multiplier were correct; (ie that if projected disposable income were $150 and the applicable commitment period were 36 months, the plan could end when $5,400 was paid into the plan, even if that was paid in 12 months); then this would violate the requirement of §1325(b)(4)(B). However, because applicable commitment period is a term the statute makes relevant only with regard to the payment of projected disposable income to unsecured creditors, it does not apply to debtors whose Form B22C computations show no projected disposable income. Thus, length of the plan is determined solely by the other requirements of §1322 and §1325 without regard to applicable commitment period for debtors with no disposable income. The specific language of §1325 regarding the required payment into the plan supercedes the general good faith requirement as to disposable income.

Pennsylvania

Above median-income debtor with no disposable income could have 36 month plan. In re Lopatka, 400 BR 433 (Bankr. MD Pa 2009). Chapter 13 trustee objected that above median income debtors must file 60 month plans. Court overruled objection. While the applicable commitment period is five years, this is not to say that the plan duration must necessarily be five years. SO long as the debtor proives that the total amount paid in the plan is the amount computed by multiplying the projected disposable income by the number of months in the applicable commitment period, the test is satisfied. The Court cited Jude Keith Lundin’s Chapter 13 bankruptcy treatise as supporting this position. Because Current monthly income (CMI) is an artificial construct based on the historical income in the six months prior to filing there will be many chapter 13 cases in which changed financial circumstances dictate a plan length that is longer or shorter than the maximum generated by §1322(d). The Court compared the language in §1322(d) where the statute states that the plan may not provide for payments over a period that is longer than 3 or 5 years, thus showing the Congress can be unambiguous regarding the term if it so desired.

South Carolina:

Finding that the applicable commitment period is a time requirement rather than a multiplier, Judge Waites sustained the US Trustee’s objections to proposed plans in In re Cushman, 350 B.R. 207 (Bankr. D.S.C. 2006). The court noted that nothing in the statute shows that the requirement is a multiplier rather than a requirement for how long a debtor must remain in bankruptcy. The court also cited legislative history referring to repayment over an extended period; and requiring a mandatory repayment period as supporting the determination.

¶23.312 Projected Disposable Income from I/J or B22C

New York:

When debtors are above median income, projected disposable income under §1325(b)(1)(B) is computed based on they means test rather than schedules I and J. In re Rotunda, 349 B.R. 324 (Bankr. N.D.N.Y. 2006). This case, which involves an extensive analysis of prior caselaw, rejected the argument that projected meant that the court must examine projected income and expenses under I and J. In this case schedules I and J showed a monthly net income of $3,299.03/mo, yet the plan proposed payments of $800/month for four months and $1,200 for 56 months, for a 25% dividend to unsecured creditors. The trustee’s argument, that the court must use schedule I’s income in determining projected disposable income, fails to address the fact that Congress defined ‘disposable income’ after that provision, in §1325(b)(2). The first subsection, §1325(b)(1)(B) first makes reference to ‘projected disposable income’ and then the next subsection, §1325(b)(2), goes on to explain what is being ‘projected,’ namely, CMI ‘received by the debtor … to the extent necessary to be expendeed….’ To conclude that ‘projected’ as referenced in §1325(b)(1)(B) must refer to whatever income is left after the payment of actual expenses as set for in schedules I and J is no more exact than using the last 6 months average of income in the calculations on Form B22C. After all, the expenses listed on schedule J are only estimates or ‘averages’. Most bills are never the same each month.

In determining whether to confirm a plan, the debtor is still required to propose a plan that meets the standards of goof faith as set forth in §1325(a)(3) as well as the best interest of creditors test of §1325(a)(4). CMI is simply a starting point, §1323 remains a viable option for a debtor, as does §1329 for the debtor a trustee to modify the plan should need arise before or after confirmation. It may be appropriate for the trustee to request copies of annual tax returns and request a modification of the plan if the returns indicate an increase of yearly income, exclusive of social security benefits, just as debtors may seek modification if incomes decrease.

North Carolina:

Where the means test shows no available income to fund a chapter 13 plan, the court may not require a higher payment to unsecured based on schedules I & J. In re Barr, 341 B.R. 181 (Bankr. M.D.N.C. 2006). The debtors’ means test showed that while they were above median income, they had a slight negative figure for disposable income. However, schedules I and J showed $2,038/month in disposable income. The trustee objected to confirmation alleging that the debtor had not met the good faith requirement of §1325(a)(3). The debtor countered that §1325(b) rather than §1325(a)(3) determined the debtors’ ability to pay. Even prior to BAPCPA, many courts had rejected the argument that §1325(a)(3) required a minimum payment to unsecured creditors, looking rather to the totality of the circumstances to determine whether the proposed plan involved an abuse of the provisions, purpose, or spirit of chapter 13. Following BAPCPA, most courts determined that such portion of §1325(a)(3) dealing with the debtors’ ability to pay was subsumed by §1325(b). Citing COLLIER ON BANKRUPTCY “Because Congress dealt with the issue [amount of plan payment] quite specifically in the ability-to-pay provisions, there is no longer any reason for the amount of a debtor's payments to be considered even as a part of the good faith standard.” This is supported by the statory language. There are new definitions of income and expenses to be used in determining disposable income than under prior law. These definitions are detailed and inflexible. §1325(b)(3), by using the term ‘shall’ requires use of the §707(b)(2) means test in determining income available to fund the plan. The legislative history supports the fact that Congress recognized it was setting a new standard for determing debtor’s expenses.

Judge Leonard disagreed with Hardacre, and defined projected disposable income as the figure provided by form B22C, absent a substantial change in circumstances. The court also determined that applicable commitment period was a temporal requirement, rather than simply a multiplier, however if the debtor has no disposable income the applicable commitment period requirement does not apply. In re Alexander, 344 B.R. 742 (Bankr. E.D.N.C. 2006).

Puerto Rico:

The Court rejected the Trustee’s argument that the above median income debtor must pay more to unsecured creditors when schedules I & J showed higher income than the means test. In re O’Neill Miranda, Bankr. D. Puerto Rico 2011). The trustee had objected to a number of expenses on schedule J alleging the Debtors had not provided proof of their electricity, water, cable, and mobile expenses. Debtors argued that under §1322(b)(2) the amount reasonably necessary to be expended for above median income debtors is determined in accordance with §707(b)(2)(A) and (B), ie the National and Local Standards, regardless of the actual amounts expended. The trustee argued that the montly expenses of debtors for clothing, food, and water were not reasonable and should be reduced by the Court, and that the court should allow only actual expenses for Other Necessary Expenses.
The Court found that the means test supplants the pre-BAPCPA practice of calculating the debtors’ reasonable expenses on a case-by-case basis. Hamilton v. Lanning provides that the above median income debtor’s monthly expenses shall be the applicable monthly expense amounts 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. 130 S.Ct. at 2470, fn2. The Government’s position as posited in its Amicus Curiae brief in the Ransom case took the position that if an above median income debtor has some expense which is specified under the IRS’s National and Local Standards, the debtor is allowed to deduct the standardized amount even if the same exceeds his or her actual expense. The Court noted this position strikes a balance between precision and ease of administration, supporting Congress’ policy of the uniform application of a bright line test. Allowing schedule J back into the disposable income equation, as the trustee urges, would undo what Congress attempted to accomplish in §1325(b)(3), to limit judicial involvement and discretion by making a mechanical determination of abuse. This interpretation is in conformity with the consensus view amount the bankruptcy courts and with the view o the Advisory Committee on the Federal Rules of Bankruptcy Procedure; see Keith M. Lundin & William H. Brown, Chapter 13 Bankruptcy, 4^th ed., §476.1, www.ch13online.com.

The Trustee next argued that the plan was not proposed in good faith because it overstates Debtor’s expenses resulting in a significant decrease in distribution to unsecured creditors. The Court rejected this, finding that good faith does not require a higher distribution than required in the means test.

The Court disallowed the debtor’s request for additional food and clothing expense as no showing was made to support the increase over the Standards, and required the Debtor’s annual bonuses to be taken into account in determining the distribution to unsecured creditors.

Texas:

The first published decision interpreting this section comes to a few surprising conclusions. In In re Hardacre, 338 B.R. 718 (Bankr. N.D. Tex. 2006) Judge Nelms initially examines the income portion of the means test, and concludes that the test refers not to current monthly income as defined by §101(10A), but rather to a modified version of the pre-BAPCPA projected future income. The modification being that those sources of income excluded under §101(10A) remain excluded. Judge Nelms reaches this conclusion by examining §1325(b)(1)(B), which provides if a creditor or trustee objects to confirmation, the trustee cannot confirm a plan unless all projected disposable income during the applicable commitment period is paid to unsecured creditors. He then points out that §1325(b)(2) defines disposable income as current monthly income reduced by allowed expenses. However, since §1325(b)(1)(B) uses the term ‘projected’, it must have a different meaning than the ‘disposable income’ defined in §1325(b)(2). Further, §1325(b)(1) requires the court to determine whether the debtor is committing all their disposable income as of the effective date of the plan, implying that income as of confirmation rather than prefiling income is relevant to determine the projected disposable income test.

Utah:

Judge Thurman ruled that the means test definition of disposable income should be presumed to be the income available in chapter 13 absent rebuttal of such presumption by the debtor that it does not accurately reflect the income available during the chapter 13 repayment period. In re Jass, 340 B.R. 411 (Bankr. D.Utah 2006). In this case the schedule I&J disposable income showed less income than the Form B22C means test, since the debtor had suffered medical problems shortly after filing reducing the available income. §1325(b)(1) requires a plan to pay all available disposable income to unsecured creditors if an objection is filed. §1325(b)(2) defines disposable income as current monthly income less expenses referenced in the means test of form B22C. §101(10A) defines current monthly income as the average of the debtor’s income for the six months preceding the bankruptcy filing. Given §1325(b)(1)(B)’s requirement to pay ‘projected’ disposable income, this implies that the means test is just the starting point of such analysis. While the means test is based entirely on historical figures, projected income must be based on future predictions. Thus projected disposable income as thus defined requires the court to examine both historical and future finances of the debtor. Under the clear meaning of the statute, a debtor must propose to pay unsecured creditors the number resulting from Form B22C, unless the debtor can show that this number does not adequately represent the debtor's budget projected into the future.

This conclusion is further supported by the precedent of pre–BAPCPA jurisprudence. BAPCPA only changed the definition of disposable income, not the practice of bankruptcy court’s in interpreting projected income to estimate future income during the plan. Further, given the ultimate policy of the bankruptcy code to afford a debtor a fresh start, a contrary interpretation; requiring strict adherence to the historical figures in the means test would violate that policy would contradict that policy for a number of debtors otherwise eligible for relief. This is further in accord with §707(b)(2)(B) allowing chapter 7 debtors to show special circumstances rebutting the means test.

¶23.313 Projected Disposable Income computation

Illinois:

In computing projected disposable income, Court must examine not only debtor can anticipate receiving during the applicable commitment period, but also reduce such amount by any necessary expenses during such period. Computation is not simply applying historically-based disposable income over such period. In re Johnson, 400 BR 639 (Bankr. N.D. Ill. 2009).

S.Ct.:

Means test analysis in chapter 13 for confirmation of plan is forward looking, taking into account changes in income or expenses subsequent to the intial 6 month pre-bankruptcy means test computations. Hamilton v. Lanning, 560 U.S. ___, 130 S.Ct. 2464, 177 L.Ed.2d 23 (2010). Court noted that prior to BAPCPA courts routinely took into account changes of circumstances after cases were filed. There was no indication that BAPCPA intended to reverse this practice. To require mechanical application of the means test would require more income than the Debtor had available if income decreased post-means test and would not pay creditors what the debtor could reasonably afford if income increased.

Florida:

In In re Vandenbosch, 459 B.R. 140 (M.D. Fla. 2011) Judge Steele reversed the Ft. Myers Bankruptcy Court's decision finding that social security income must be included in projected disposable income devoted to the chapter 13 plan. Prior to BAPCPA social security income was typically included in determining disposable income in chapter 13. While some courts have ruled that this practice continues in a forward-looking examination of projected disposable income, Judge Steele determined that that approach was erroneous.
§101(10A) excludes social security benefits from the defined term current monthly income. The inclusion of this section amending current monthly income was a clear indication of an intended departure from prior law. Thus, the forward-looking approach to determining projected disposable income is to take the average monthly income from all sources derived in the 6 months prior to filing, less the amounts reasonably necessary for maintenance, but excluding benefits received under the Social Security Act. This plain reading of the statute is consistent with 42 U.S.C. §407(a) providing that the right to payment under such chapter is not subject to legal process or to the operation of any bankruptcy or insolvency law.
The appellate court noted that the lower court also indicated that it would consider the failure to devote social security income in future cases as a factor in determining bad faith. However, since no ruling was made as to the bad faith in this case, no ruling is made as to this in the appellate decision.

Georgia:

Relying on Hamilton, Court ruled that debtor with disposable income per the means test more than sufficient to pay creditors in full does not need to pay interest to creditors in chapter 13 and may terminate plan in less than 60 months. In re Stewart-Harrel, 2011 WL 322391 (Bankr. N.D. Ga., 2011). The plan filed by the chapter 13 debtor proposed a 100% dividend to unsecured creditors over 51 months, and trustee objected on the ground that §1325(a)(3) good faith standard and §1325(b)(1) that the the value of distributions under the plan was less than the claims. The Court noted that while the language ‘as of the effective date of the plan’ is the same as §1325(a)(5)(B)(ii), the placement of the phrase dictates a different result. In §1325(b)(1) the phrase refers to the date when the court was to determine the whether the plan proposes to pay creditors in full. In most code sections referring to the effective date of the plan, the phrase modifies the term value, however under §1325(b)(1) the phrase precedes the term value and precedes two sections establishing the basis for the debtor to overcome the objection. Applying the phrase to both subsections (A) and (B) of §1325(b)(1) the only logical interpretation is to apply the phrase to the date of the court’s determination rather than the value of the property paid in the plan. Thus while the liquidation/best interest of creditors test may require interest, the means test would not.

§1325(b)(1) If the trustee or the holder of an allowed unsecured claim objects to the confirmation of the plan, then the court may not approve the plan unless, as of the effective date of the plan –

(A) the value of the property to be distributed under the plan on account of such claim is not less than the amount of such claim; or

(B) the plan provides that all of the debtor’s projected disposable income to be received in the applicable commitment period beginning on the date that the first payment is due under the plan will be applied to make payments to unsecured creditors under the plan.

§1325(b)(2) For purposes of this subsection, the term ‘disposable income’ means current monthly income received by the debtor (other than child support payments, foster care payments, or disability payments for a dependent child made in accordance with applicable nonbankruptcy law to the extent reasonably necessary to be expended for such child) less amounts reasonably necessary to be expended –

(A)(i) for the maintenance or support of the debtor or a dependent of the debtor, or for a domestic support obligation, that first becomes payable after the date the petition is filed; and

(ii) for charitable contributions (that meet the definition of ‘charitable contributions’ under section 548(d)(3) to a qualified religious or charitable entity or organization (as defined in section 548(d)(4)) in an amount not to exceed 15 percent of gross income of the debtor for the year in which the contributions are made; and

(B) if the debtor is engaged in business, for the payment of expenditures necessary for the continuation, preservation, and operation of such business.

(3) Amounts reasonably necessary to be expended under paragraph (2) shall be determined in accordance with subparagraphs (A) and (B) of section 707(b)(2), if the debtor has current monthly income, when multiplied by 12, greater than –

(A) in the case of a debtor in a household of 1 person, the median family income of the applicable State for 1 earner;

(B) in the case of a debtor in a household of 2, 3, or 4 individuals, the highest median family income of the applicable State for a family of the same number or fewer individuals; or

(C) in the case of a debtor in a household exceeding 4 individuals, the highest median family income of the applicable State for a family of 4 or fewer individuals, plus $525 per month for each individual in excess of 4.

(4) For purposes of this subsection, the ‘applicable commitment period’ –

(A) subject to paragraph (B), shall be –

(i) 3 years; or

(ii) not less than 5 years, if the current monthly income of the debtor and the debtor’s spouse combined, when multiplied by 12, is not less than –

(I) in the case of a debtor in a household of 1 person, the median family income of the applicable State for 1 earner;

(II) in the case of a debtor in a household of 2, 3, or 4 individuals, the highest median family income o the applicable State for a family of the same number or fewer individuals; or

(III) in the case of a debtor in a household exceeding 4 individuals, the highest median family income of the applicable State for a family of 4 or fewer individuals, plus $525 per month for each individual in excess of 4; and

(B) may be less than 3 or 5 years, whichever is applicable under subparagraph A), but only if the plan provides for payment in full of all allowed unsecured claims over a shorter period.

¶23.32 Plans may be extended over three years if the debtor has less than median disposable income only for cause. Plans still may not be extended over five years. Note, while this provision does not require plans to continue for 5 years for those over median income, §1325(b)(4) does. It is likely that courts will not penalize debtors below median income who want plans to extend beyond 3 years, ie for additional time to cure mortgage arrearages or pay priority tax claims.

§1322(d)(1) If the current monthly income of the debtor and the debtor’s spouse combined, when multiplied by 12, is not less than –

(A) In the case of a debtor in a household of 1 person, the median family income of the applicable State for 1 earner;

(B) in the case of a debtor in a household of 2, 3, or 4 individuals, the highest median family income for the applicable State for a family of the same number or fewer individuals; or

the plan may not provide for payments over a period that is longer than 5 years.

(2) If the current monthly income of the debtor and the debtor’s spouse combined, when multiplied by 12, is less than –

(A) in the case of a debtor in a household of 1 person, the median family income of the applicable State for 1 earner;

(B) in the case of a debtor in a household of 2, 3, or 4 individuals, the highest median family income of the applicable State for a family of the same number or fewer individuals; or

The plan may not provide for payments over a period that is longer than 3 years, unless the court, for cause, approves a longer period, but eh court ma nto approve a period that is longer than 5 years.

¶23.4 DSO Obligations

¶23.41 Cases may be dismissed if the debtor falls behind in post–petition DSO obligations. §1307(c)(11)

¶23.42 Failure to remain current on post – petition DSO obligations will also prevent confirmation of a plan.

§1325(a) Except as provided in subsection (b), the court shall confirm a plan if –

(8) the debtor has paid all amounts that are required to be paid under a domestic support obligation and that first become payable after the date of the filing of the petition if the debtor is required by a judicial or administrative order, or by statute, to pay such domestic support obligation; and

¶23.43 And the debtor must certify that all DSO payments due on or before the date of the certification have been paid in order to obtain a chapter 13 discharge. §1328(a). The only exception is prepetition DSO debts not provided for by the plan.

¶23.5 Confirmation hearings should be set between 20 and 45 days after the date of the meeting of creditors, and may be set earlier if there is no objection. While the section refers to ‘the’ confirmation hearing, it does not specifically appear to prohibit continuances of the hearing.

§1324(a) Except as provided in subsection (b) and after notice, the court shall hold a hearing on confirmation of the plan. A party in interest may object to confirmation of the plan.

(b) The hearing on confirmation of the plan may be held not earlier than 20 days and not later than 45 days after the date of the meeting of creditors under section 341(a), unless the court determines that it would be in the best interests of the creditors and the estate to hold such hearing at an earlier date and there is no objection to such earlier date.

¶23.6 Secured claims

¶23.61 Section 506 does not apply for valuations of purchase money security interest liens in motor vehicle incurred for the personal use of the debtor is prohibited if the debt was incurred within 910 days (about 2 ½ years) before the filing of the case or other pmsi’s if the debt was incurred within 1 year of the filing of the case. Does this mean that such property cannot be valued? Not necessarily. While §506 no longer applies to this property, §1325(a)(5)(B)(ii) still applies to these debts, and may permit valuation without the ‘retail value’ requirements set by §506(a)(2).³ The language of §1325(a)(5) has long been read as allowing payment of the present value of the allowed secured claim.³ While creditor attorneys will argue that this requires full payment of recently acquired secured debts, the code does not say this.³ The more plausible reading is that the court must determine the value without regard to the definitions of value in §506; but rather should interpret value based on ordinary language and the purpose of bankruptcy policies.³ fn3 at 472. This would seem likely to result in use of either wholesale value, or the midpoint between wholesale and retail as under pre-BAPCPA practice.³ Policy arguments further support this argument, if the purpose of the act is to promote the use of chapter 13, as was argued by the credit industry, then the intent could be to use lower values for recently purchased secured items, where rapid depreciation is likely, resulting in a larger gap between the value and the debt.³ Further, the possibility of a significant cramdown can be viewed as a carrot in the legislation to lure debtors into chapter 13.³ This also promotes equity to the other unsecured creditors, allowing a larger dividend to them by reducing the amount required to be paid to recently incurred secured debts.³

Another approach, as set forth in Collier on Bankruptcy (8 COLLIER ON BANKRUPTCY ¶1325.06[1](a) (Alan N. Resnick & Henry J. Sommer eds., 15^th ed. Rev. 2005) is that such ‘recent’ secured claims are still subject to valuation, but their modification is no longer limited by §1325(a)(5); but rather they can be modified under §1322(b)(2). Under either approach, courts must determine valuation without recourse to §506, allowing great discretion to the Courts in setting value.³

The only published decision so far has rejected these arguments, finding that BAPCPA prevents valuation of vehicles purchased within 910 days under any section of the code.

Section 506 would still apply as to valuation of vehicles purchased for business use. Query if the use is both business and personal? Arguably the section would still apply if any of the use intended at the time of the purchase was personal. If the use at the time of the purchase was business, and the use later became personal, a strict reading would indicate that this section would not apply.

Debtors and creditors may negotiate valuations in the plan despite the language of §1325(a), on threat of the debtor to return the vehicle if the creditor refuses to negotiate. Creditors may go along with this both to avoid return of the vehicle post–petition.

¶23.611 Cramdown

Georgia:

Ruling that cramdown (reducing the interest rate of a secured claim) is still permitted even if strip–down (reducing the amount of the secured claim) is not, Judge Dalis in In re Brown, 339 B.R. 818 (Bankr. S.D. Ga. 2006) rejected the debtor’s argument that in the absence of application of §506, creditors cannot have an allowed secured claim. Initially, the court determined that §506 does not define an allowed secured claim. §502 governs whether a claim is allowed. §101, and specifically §101(37) define whether a claim is secured. Since the 910–claims are allowed under §502 and are secured by the underlying lien, they are allowed secured claims for purposes of §1325(a)(5) and must be paid in full. However, no provision in BAPCPA changes the requirements of Till v. SCS Credit Corp., 541 U.S. 465, 124 S.Ct. 1951, 158 L.Ed.2d 787 (2004); thus the interest rate on the claims may be modified.

South Carolina:

Ruling that 910-claims must be paid in full over the life of the plan if debtor intends on retaining the collateral, the court in In re Turner, 34 B.R. 437 (Bankr. D.S.C. 2006) sustained a creditors objection to a plan treating it as unsecured.

¶23.612 Failure of Creditor to object to treatment

Massachusetts:

Creditor has reasonable expectation that court will not approve treatment of its claim that violates bankruptcy code, therefore failure to object to motion seeking bifurcation of 910 claim does not effect consent by the creditor to such motion. In re Bethoney, 2008 WL 179509 (Bankr. D.Mass. 2008). Debtor filed motion to value claim of Capital One, and no response was filed. Court denied the motion after finding Debtor failed to prove business use (see ¶23.614).

Utah:

Judge Boulden ruled that the 910 creditor’s failure to object to bifurcation of its claim did not amount to an acceptance of the plan and therefore confirmation of a plan valuing the 910 claim must be denied. In re Montoya, 341 B.R. 41 (Bankr. D.Utah 2006). The plan was properly served and noted that failure to timely object would constitute acceptance thereof. The trustee joined debtor’s arguments that the creditor’s acceptance of the plan satisfied the requirements of §1325 despite the 910 claim limitation, and that the creditor’s failure to object constituted acceptance of the plan. The court disagreed, first concluding that the creditor held an allowed secured claim under non–bankruptcy law and the contract. The court found that the section as a whole prevented use of §1325(a)(5)(B) to cramdown the 910 claim. While acknowledging that a failure to object could constitute acceptance of a plan that otherwise meets the requirements of §1325(a); when a plan contradicts the unambiguous provisions of the code silence alone will not constitute acceptance. (Query why acceptance of the plan would matter if the plan met all requirements of §1325(a)). Further, even if implied acceptance could by found by failure to object, the court has an independent duty to insure that the plan complies with the provisions of §1325 even if there is no objection, thus confirmation must be denied. In light of this right, plan treatment contrary to the Code should require some sort of affirmative assent or waiver on the part of the creditor. Waiver is “the intentional relinquishment of a known right” and requires the following: “(1) an existing right, benefit, or advantage; (2) knowledge of its existence; and (3) an intention to relinquish the right.” The court specifically noted that the opinion does not address issues where the creditor bifurcates its own claim, noting that further issues would be raised under that scenario.

¶23.613 Interest

Case Law

Alabama:

The debtor is may pay a reduced interest rate on the balance of the debt to a creditor secured by a purchase money security interest in a motor vehicle purchased within 910 days, such interest to be determined in accordance with Till v. SCS Credit Services Corp., 541 U.S. 465, 124 S.Ct. 1951, 158 L.Ed.2d 787 (2004). So ruled Judge Williams in In re Wright, 338 B.R. 917 (Bankr. M.D. Ala. 2006). BAPCPA does not affect the interest rate being paid on secured claims, and Till is not limited to strip–down liens.

Georgia:

In re Carver, 338 B.R. 521 (Bankr. S.D. Ga. 2006) Once these 910 claims are removed from §506, it is up to the Court to determine how they should be paid in a chapter 13 plan. There is no provision for interest on such claims, since they are not secured. The court rejected the argument that such claims should be dealt with as unsecured, since it is unlikely Congress intended to punish such claimants. Rather it appears Congress intended the 910 claimants to receive better treatment than under prior law, even at the expense of other unsecured claimants. The only guide the court found to special treatment of similar creditors was §1111(b), giving creditors a choice in treatment. Using that section as a guide, the Court held that 910 claimants must be paid the greater of their entire claim without interest or the amount they would have received if the claim were bifurcated and the creditor received cramdown interest on the secured portion of the bifurcated claim. The court also noted that §1325(a)(5)(B)(iii)(II) requiring plan payments to be sufficient to provide adequate protection to the creditor does not apply to 910 claims.

Missouri:

In In re Robinson, 338 BR 70 (Bankr. W.D. Mo. 2006) Judge Federman agreed with Johnson that the debtor could not reduce the value of the secured claim, but could modify the interest rate. The debtor did not argue that the claims were subject to bifurcation, so the only issue actually before the court was the allowed interest rate. The court found that Till v. SCS Credit Corp., 541 U.S. 465, 468-69, 124 S.Ct. 1951, 1955, 158 L.Ed.2d 787 (2004) was still good law. §1322(b)(2) allows a chapter 13 plan to modify the interest rate paid to a creditor. If Congress intended to overturn Till, it would have included a similar provision on car loans as has been included regarding debts secured solely by real estate homesteads. The legislative history supports this view in no where mentioning change in interest provisions regarding these debts.

Following Johnson, Robinson, and Wright, Judge Schermer (apparently joined by Judge Surratt–States found that debtors could not reduce the amounts of 910 – claims, but could modify the interest rate to be paid on such claims. In re Fleming, 339 B.R. 716 (Bankr. E.D. Mo. 2006). §1322(b)(2) permits modification of secured claims other than holders of claims secured only by a mortgage on debtor’s principal residence. BAPCPA did not change this provision. §1325 requires debtor to choose one of three possible options regarding secured creditors: to surrender the collateral, provide for payments equal to the allowed secured claim, or provide for such treatment as the creditor accepts. If the Debtor chooses to provide a payment stream equal to the secured claim the plan must provide that the creditor retains its lien [§1325(a)(5)(B)(i)(I)], provide for a payment stream allowing the creditor to receive the present value of its secured claim (as interpreted by Till) [§1325(a)(5)(B)(ii)], and the payments must be in an equal payments sufficient to provide adequate protection to the creditor [§1325(a)(5)(B)(iii)]. Only the last section was added by BAPCPA. Congress could have, and did not provide similar language for 910–claims as it did for mortgages secured solely by real estate constituting the debtor’s homestead.

The creditors argued that since §506 did not apply, their lien for the full interest rate could not be avoided. Absent avoiding of the liens, according to the creditors, they would be entitled to enforce their right to post–petition contract interest post–discharge. The court disagreed. Modification of the interest rate is permitted by §1322(b)(2) so long as the modified treatment conforms with §1325(a)(5). Any claim for interest which is unmatured as of the filing date is disallowed under §502(b) if objected to. The court also noted that if no objection is made to a claim including post–petition contract interest, the creditor may be entitled to receive such interest.

¶23.614 Personal vs. Business Use

Illinois

Debtor who used 910 vehicle to look for trucks to purchase in his over the road trucking business did not satisfy burden of proof that vehicle was purchased for business use. In re Powell, 2009 WL 910407 (Bankr. CD Ill. 2009). The vehicle did not generate any income, and debtor did not purchase any of the vehicles. Also, no business deduction was claimed for the vehicle the year it was purchased, though a deduction was claimed in a later year.

Louisiana:

If the acquisition of the car enabled the debtor to make a significant contribution to the gross income of the family unit, the vehicle was not ‘acquired for the personal use of the debtor’. In re Hill, 352 B.R. 69 (Bankr. W.D.La. 2006) (J. Schiff). Debtor was required to have a vehicle to get to and from work, but was not required to have a vehicle at work. The vehicle was also used for personal perposes. The Court relied on its previous decision in In re Johnson, 350 B.R. 712 (Bankr. W.D. La. 2006) (subsequently reversed Toyota Motor Credit Corp. v. Johnson, 2007 WL 2702193 (W.D. La. 2007)); and based on the reversal of Johnson case is probably no longer good law.

Massachusetts:

Failure of debtor to adequately prove business use requires denial of motion, burden of proof is on Debtor to prove case. In re Bethoney, 2008 WL 179509 (Bankr. D.Mass. 2008). Court determined that personal use includes any use of the vehicle that benefits the Debtor, such as recreation, shopping, medical treatment, and travel to and from work. The court also cited In re Solis, 356 B.R. 398 (Bankr. S.D. Tex 2006) for the proposition that use does not require the debtor to drive the vehicle, but rather is for whose benefit the vehicle is intended to be used. Since the debtor’s counsel failed to request an evidentiary hearing to prove non-personal use at the confirmation hearing, and the court had no evidence to support such proposition, the motion was denied.

Montana:

Car purchased for use in cleaning business, for which Debtors included business mileage deduction on tax returns, drived 8975 miles for business, 514 miles for commuting, and 5,511 miles for other use, and where debtor owned a separate vehicle for personal needs determined to have been acquired for business use excluding vehicle from provisions of hanging paragraph. In re Counts, 2007 WL 2669204 (Bankr. D.Mont 2007). Court found three standards set forth in the cases: The most liberal approach was set forth in In re Johnson, 350 B.R. 712 (Bankr. W.D. La. 2006) (subsequently reversed Toyota Motor Credit Corp. v. Johnson, 2007 WL 2702193 (W.D. La. 2007)) that found if the debtor’s use of the vehicle made a significant contribution to the household income, it fell outside the hanging paragraph. (Note that this theory no longer appears good law). The significant and material standard as expouses in In re Solis, 356 B.R. 398 (Bankr. S.D.Tex 2006) provides that if the personal use of the vehicle is significant and material it falls within the hanging paragraph. The Totality of the Circumstances test requires the court to look at the predominate use of the vehicle, where in the debtor’s use of a vehicle for business purposes for 51% of the time would remove it from the hanging paragraph, citing In re Joseph, 2007 WL 950267 (Bankr. W.D.La. 2007). Adopting the latter test the court ruled that the vehicle was subject to valuation.

Pennsylvania:

Automobile purchased for business use of Debtor’s husband falls within exception to hanging paragraph. In re Finnegan, 358 B.R. 644 (Bankr. M.D.Penn. 2006). Debtor purchased vehicle for her husband, who had bad credit due to prior bankruptcy, and who used vehicle almost exclusively in his graphic design business, stored materials from the business in the truck, and claimed the truck and related expenses as a business deduction for his tax returns. Court stated issues as for whose use and for what purpose was the vehicle purchased. Finding it was not purchased for Debtor’s use and that it was purchased for business use valuation was permitted.

Texas:

Occasional personal use of a vehicle will not bring vehicle otherwise purchased for business use back under the hanging paragraph. In re Gonzales, 2007 WL 3217671 (Bankr. N.D.Tex. 2007). Debtor purchased pickup truck for his drywall business, and uses vehicle to carry materials to the job site. However, debtor admitted using the vehicle to take his children to school and for personal doctor appointments. Finding the personal usage was not significant or material the court allowed bifurcation of the claim.

¶23.615 Personal vs. Other person

Georgia:

A car acquired by the debtor for the use of the non – filing spouse, even though titled just in his name, is not subject to the valuation limitations of §1325. In re Jackson, 338 B.R. 923 (Bankr. M.D. Ga. 2006). The section refers to personal use of the debtor. Congress in other sections referred to family or household use, and did not do so here. Therefore the debt was subject to bifurcation.

Ohio

Debtor that testified that vehicle was purchased to provide transportation for his wife to and from army base failed to prove vehicle was not acquired for personal use. In re Cross 376 B.R. 641 (Bankr. S.D.Ohio 2007). Court was incredulous as to debtor’s explanation, though it acknowledged that debtor would not be using the vehicle due to his military deployment; however court determined that that vehicle must have been purchased anticipating signicant and material use by Debtor given that Cadillac was only vehicle owned by Debtor and spouse that was large enough to accommodate entire family.

Vehicle purchased by debtor who cannot drive for son to use, and who occasionally drives debtor to medical appointments and other errands, still determined to have been purchased for Debtor’s personal use. In re Grimme, 371 B.R. 814 (Bankr. S.D. Ohio 2007). The personal use element is satisfied if at the time of acquisition the acquirer intended that a significant, material portion of the use of the vehicle would be (a) for the benefit of the debtor(s)’ in the bankruptcy case, (b) for non-busines purposes, and (c) for satisfaction of the debtor(s) wants, needs, or obigations).

South Carolina:

Vehicle purchased to transport Debtor’s mother to appointments, necessitating vehicle that can carry wheelchair, was not purchased for Debtor’s personal use and therefore excluded from hanging paragraph limitations. In re Matthews, 378 B.R. 481 (Bankr. D.S.C. 2007). Intent at the time of purchase is the touchstone for determining whether a vehicle was purchased for the Debtor’s personal use. Using the totality of the circumstances test, the court considers 1) testimony from the debtor regarding the intended use of the vehicle, 2) the debtor’s actual use of the vehicle, 3) any designation of personal use on the contract. The debtor bears the burden of proof. Significant and material personal use may result in bringing the vehicle within the hanging paragraph, but it need not be acquired solely or primarily for non-personal use (citing in re Adaway, 367 B.R. 571 (Bankr. E.D.Tex 2007)). Since the debtor had another vehicle for her personal use, and evidence supported testimony that the vehicle was purchased due to its size and ability to accommodate a wheelchair, the court ruled that the debt was not subject to the hanging paragraph.

Texas:

Automobile purchased for exclusive use of spouse is excluded from limits in hanging paragraph. In re Smith, 2007 WL 1577668 (Bankr. S.D. Tex 2007). Debtor’s signature on contract showing vehicle purchased for personal, family, or household use is not inconsistent with such determination. While debtor purchased vehicle, spouse chose vehicle, makes payments on vehicle from her separate account, and excludisvely uses the vehicle. Debtor does not have a key to vehicle.

¶23.616 Status as PMSI

Case Law

2^nd Cir.

Courts must look to state law in determining whether the portion of the loan that is attributable to the trade-in’s negative equity constitutes a portion of the purchase money security interest. In re Peaslee, 547 F.3d 177 (2^nd Cir., 2008). Debtors purchased Grand Amr for $23,180 even though the manufacturere’s suggested retail price for the vehicle (per the NADA) was $17,070. Debtor traded in a Blazer valued at $10,925 in the purchase contract for the Grand Am, which was worth $7,375 per the NADA guide. $15,905 was owed on the blazer, and rolled into the Grand Am financing. Debtor then filed a chapter 13 within 910 days of the purchase of the Grand Am. Debtor sought to pay the $10,950 alleged pmsi through the plan, and the holder of the lien (GMAC) objected. The bankruptcy court in New York applied the transformation rule to determine that the entire debt to GMAC was non-pmsi. The 2^nd Cir. examined NY state law, but could find no determinative result, so certified the issue of whether the portion of automobile retail installment sale attributable to a trade-in vehcile’s negative equity a part of the purchase money obligation arising from the purchase of a new car, as defined by New York’s U.C.C.

4^th Cir.

Hanging paragraph applied to entire debt, including financing of negative equity and gap insurance. In re Price, 2009 WL 975796 (4^th Cir. 2009). The North Carolina version of the UCC defines a purchase money obligation to be incurred as all or part of the price of the the collateral or value given to enable the purchase or use of the collateral if the value was in fact so used. Since the financing enabled the debtor’s purchase of the vehicle, and included the gap insurance, the entire debt was precluded from valuation.

Alabama:

The court determined that a debt was not a purchase money security interest, and therefore could be bifurcated despite §1325(a)(hanging paragraph) in In re Horn, 338 B.R. 110 (Bankr. M.D. Ala. 2006). The Debtor had purchased a 1997 Escort and financed $6,792 of it through City Finance on 1 June 2001. Debtor then refinanced the vehicle four times through the same creditor, borrowing an additional $4800 over four years. Upon filing the car was valued at $2,300 which was assumed to be less than the claim of the creditor. The parties were arguing over whether the date of the debt was the original purchase or the last refinancing. However, the court avoided this issue, and ruled that the debt was no longer a purchase money security interest. Under Alabama law, a purchase money security interest is only for monies advanced for the purchase of a vehicle. Since the debt owed to City Financial secures the later advances as well as the original purchase, it does not fall within the anti–bifurcation provision of §1325. Citing Snap–on Tools, Inc. v. Freeman, 956 F.2d 252 (11^th Cir. 1992) holding that a security interest in collateral is purchase money to the extent that the item secures a debt for the money to make the purchase. If the items secures some other debt, it is not purchase–money. Snap–on, 956 F.2d at 254–55.

Georgia:

Disagreeing with the prior decisions in Horn. Robinson, and Johnson Judge Walker in In re Carver, 338 B.R. 521 (Bankr. S.D. Ga. 2006) found that claims secured by collateral are not necessarily secured claim for purposes of distribution in chapter 13. Nothing in the text of the hanging paragraph dealing with so clause dealing with so–called 910 claims suggests that Congress intended them to be dealt with as secured claims. The only generally applicable definition of secured claims comes from §506, which this paragraph explicitly made inapplicable to the 910 claims. This results in elimination of the mechanism by which such claims could be treated as secured in chapter 13 plans. If Congress intended to require full payment of such claims, it could have amended §506 rather than §1325. This in fact was done in a prior 1997 version of the bill. Applying the analysis provided by the Supreme Court in an earlier case, "[t]he fact that Congress considered but rejected legislation" that would have given 910 claim fully secured status supports the conclusion that it did not intend 910 claims to be treated as secured claims under a Chapter 13 plan. Citing Till. The text plainly prevents a 910 claim from being dealt with as secured in a chapter 13 plan.

North Carolina

The first published decision on this section is In re Johnson, 337 B.R. 269 (Bankr. M.D. N.C. 2006). Debtor’s counsel initially argued that since §506 is the only section that determines whether a loan is secured or not, it’s inapplicability under BAPCPA means that all vehicle claims into unsecured claims. Debtor’s counsel suggested that in order to keep the vehicle, these unsecured claims would be treated specially, paying the liquidation or higher value of the collateral to be determined on a case by case basis. The court rejected this argument finding that the statute was clear as simply preventing bifurcation of claims of creditors whose collateral was purchased in 910 days, and did not make such claims unsecured.

Debtor’s second argument was that since the creditor’s claim was secured by insurance and other possible contracts financed by the creditor, and by proceeds of such contracts, §1325(a)(9) does not apply. The court rejected this argument, distinguishing the issue from §1322(b)(2) that requires a debt to be secured only by a mortgage on debtor’s principal residence; under §1325(a)(9) is not limited to debts secured only by vehicles purchased within 910 days.

The creditor, GMAC, argued that the statute was clear, and that the intent was to put more money in the hands of creditors (impliedly secured creditors). Finding that BAPCPA was intended to give creditors "fair treatment in chapter 13" that will "restore the foundation of secured credit" Judge Waldrep found in favor of the creditor’s argument. The court did find that the debtor could still modify the interest rate of the loan.

South Carolina:

Cross-collateralization clause in credit union loan documents for financing of vehicle, including other debts for signature loan, credit card, and other vehicle, did not destroy purchase-money security interest status of loan for purposes of hanging paragraph in absence of evidence that creditor actually extended its security interest in the vehicles to secure the other debts or exercized the cross-collateralization or future advance clauses. In re Matthews, 378 B.R. 481 (Bankr. D.S.C. 2007). Court distinguished situation where the original debt was refinanced. The court also noted another result could be found if creditor had not segregated each of debtor’s accounts and provided a clear method of allocating payments with the creidot uion, applying each payment only to the debt under such agreement. Finally, the court noted that the contract does nto permit the credit union to retain its security interest in a vehicle once the debtor has paid the purchase price for such vehicle, even if other debts remain outstanding. See also ¶23.614 analysis

Tennessee:

Where rebate was applied to negative equity, entire amount financed on vehicle (excluding gap insurance) was 910 type debt. In re Hargrove, 400 BR 616 (Bankr. MD Tenn 2008). Debtor purchased new vehicle with $2,118 negative net equity in trade in. Contract showed $3,000 rebate was applied to negative equity, leaving a down payment of $882. Gap insurance is also insurance is not included in purchase money security interest in that it did not enable the debtors to purchase the vehicle.

West Virginia:

Purchase money security interest does not extend to money advanced to pay off the negative equity in the trade in vehicle. In re Hall, 400 BR 516 (Bankr. S.D.W.Va. 2009). The hallmark of constitutes the sales prioce for a particular item is what the creditor advanced to enable the debtor to acquire rights in or the use of the collateral. Since financing negative equity is not an integral component of the loan agreement to purchase a motor vehicle, but rather is simly a convencience to the debtor, it does not constitute a portion of the purchase money security interest. The Court also adopted the ‘dual status’ rule, which allowed the creditor to retain a purchase money security interest to the extent the amounts advanced actually financed the purchase of the new vehicle rather than were applied to payoff the antecedent debt on the prior vehicle.

¶23.617 Surrender of vehicle

Louisiana

Once Congress made the 910 creditor’s claim and collateral indivisible for plan confirmation purposes, the result applies when a debtor surrenders the vehicle to prevent the creditor from having an allowed unsecured claim when debtor provides for return of a vehicle in full satisfaction of the purchase money secured claim In re Adams, 2009 WL 784503 (Bankr. ED La. 2009).

Michigan:

The hanging paragraph of §1325(a) prevents bifurcation of a secured creditor’s 910-claim upon surrender of the collateral pursuant to §1325(a)(5)(C). In re Evans, 349 B.R. 498 (Bankr. E.D. Mich. 2006). The language of the statute is unambiguous. Further, the legislative history simply shows that the language of Congress essentially mirrors the statutory language. See In re Ezell 398 B.R. 330 (Bankr. E.D. Tenn. 2006).

Missouri:

If a debt qualifies as a 910 claim, then the debtor may surrender the vehicle in full satisfaction of the secured claim. In re Nicely, 349 B.R. 600 (Bankr. W.D.Mo. 2006). The addendum to §1325(a) added by BAPCPA provides that for purposes of paragraph (5) the provisions of §506 do not apply. Accordingly 910-type claims cannot be bifurcated. If §506, which would otherwise limit the amount of the creditor’s secured claim to the value of the collateral, does not apply, a creditor with such a claim has a secure claim for the full amount of the debt. An allowed secured claim may be treated in one of three ways. The debtor may obtain the creditor’s acceptance to the proposed plan treatment, the debtor may pay the full claim, or the debtor may surrender the collateral.

Ohio:

Court ruled that debtors could surrender a 910-vehicle in full satisfaction of secured claim. In re Payne, 347 B.R. 278 (Bankr. S.D.Ohio 2006). The hanging paragraph of §1325(a) does not limit its application to claims treated under §1325(a)(5)(B). Thus, it must apply to claims described in §1325(a)(5)(C) as well. The plain meaning of the statute cannot be overcome by legislative history. From a practical standpoint, the section requires the creditor to forego the opportunity to take advantage of the provisions of §506 should it liquidate the collateral for less than the amount owed, just as I requires the debtor to do so if they decide to retain the vehicle. Such a result cannot be concluded to be absurd.

Tennessee:

Judge Stair in Tennessee ruled that the anti–cramdown provision of §1325 applied not only to payment of a claim through the bankruptcy, but to the creditor’s right to file a deficiency claim upon surrender of the vehicle. For vehicles purchased within 910 days of the filing of the bankruptcy, if the debtor elects to surrender the vehicle, it is not entitled to any deficiency claim. Amicus briefs were filed both by a collection of banks and by the National Association of Consumer Bankruptcy Attorneys. Since §1325(a) eliminates the applicability of §506(a) from the claims allowance process, the claim can no longer be split into secured and unsecured portions whether the collateral is retained or surrendered. Because §506 does not apply, the Court cannot determine what portion of a secured claim should be allowed as secured, and what portion allowed as unsecured. When the creditor holds a secured claim in a post–BAPCPA case where the anti–cramdown provision applies, such claim is fully secured for claim allowance process whether the collateral is retained or surrendered. In the absence of legislative history to the contrary, the court must find that the anti–cramdown provision applies both to §1325(a)(5)(B) and (C). If a creditor subject to this subsection were permitted to file an unsecured claim, such claim would be demonstrably at odds with amended §506(a), requiring the value of the collateral to be set at retail replacement value. In re Ezell, 338 B.R. 330 (Bankr. E.D. Tenn. 2006).

¶23.6171 Insurance proceeds of collateral

Case Law:

Kentucky:

Where vehicle subject to cramdown in confirmed plan was totaled, debtor could seek to use proceeds to purchase another vehicle with lien transferring; or if not so used creditor retains lien on surplus of insurance proceeds over balance of secured claim until discharge if no adequate protection is offered, but surplus proceeds do not go to creditor. In re Kelley, 2012 WL 5457331 (Bankr. E.D. Ky, 2012). The confirmed plan provided for paying in full the claim of Tidewater Finance on a 2008 Equinox reducing the interest rate from the contractual 20.95% to 4.25%. Subsequently the vehicle was totaled in an accident resulting in a cash collateral motion by the Debtors to use the proceeds to purchase another vehicle giving Tidewater a lien on such replacement vehicle. Tidewater alleged that this would be an improper modification of the confirmed plan. The Court rejected that argument finding that motion does not seek to alter the payment terms to Tidewater on the secured claim, but solely that the lien was transferred to the new collateral, ie the insurance proceeds or vehicle purchased with such proceeds. Prior to the hearing on the cash collateral motion, the Debtor withdrew the motion to use cash collateral as a friend gave them a replacement vehicle. Tidewater then filed a motion for turnover of all the insurance proceeds and amended its claim adding additional postpetition charges. The trustee objected to the amended claim and the request for turnover.

Tidewater alleged that the hanging paragraph of §1325(a) applied to the debt, as the vehicle was purchased within 910 days of the filing of the petition, the statute prohibited valuation of its claim, and its claim must be determined under non-bankruptcy law as payment under nonbankruptcy law would occur earlier than discharge in the case. The Court ruled that this argument ignored the preclusive effect of the order confirming plan, which reduced the interest rate on the claim to 4.25%. The Court cited Judge Lundin’s treatise to the effect that the lien retention rights are limited by the power to modify under §1325(a)(5)(B)(i). While the lien on the surplus proceeds continues until the discharge, upon entry of the discharge the lien is eliminated upon compliance with the confirmed plan.

¶23.618 Equitable tolling

Wisconsin:

Debtor who refiled chapter 13 after 910 day period had passed, and sought to value vehicle that was not subject to valuation in initial case would not have case dismissed on bad faith ground, but court tolled 910 day period during time of pendency of prior case. In re Hingiss, 440 B.R. 787 (Bankr. E.D. Wis 2010). Debtors had financed car on 1 June 2007, and filed initial chapter 13 on 18 August 2009. Plan in initial case provided for payment in full of car loan. Debtors defaulted on payments to the trustee, and case was dismissed on 26 February 2010. On May 24, 2010 the creditor obtained a judgment of replevin, resulting in a second chapter 13 filing on 28 May 2010. Second case provided for valuation of vehicle. In granting Debtor’s motion to extend the stay the Court found that the second case was filed in good faith, but reserved ruling on whether the plan was filed in good faith. The court noted that there are separate requirements of good faith for the filing of the case and for the confirmation of the chapter 13 plan. Debtors showed that the husband who was working part time in the intial case was employed full time upon the filing of the second case. The Court accepted the creditors argument to allow equitable tolling of the 910 days, relying on Young v. U.S., 535 U.S. 43, 122 S.Ct. 1636, 152 L.Ed.2d 79 (2002). By allowing equitable tolling during the pendency of the prior case the time period between purchase and filing would be reduced to 900 days, thereby precluding valuation of the vehicle. Court disagreed with contrary decisions in In re Maas, 416 B.R. 767 (Bankr. D.Kan. 2009) and In re Murphy, 375 B.R. 919 (Bankr. M.D. Ga. 2007) finding that the 910 provision is not a statute of limitation subject to equitable tolling.

§1325(a) Except as provided in subsection (b), the court shall confirm a plan if –

(hanging paragraph) For purposes of paragraph (5), section 506 shall not apply to a claim described in that paragraph if the creditor has a purchase money security interest securing the debt that is the subject of the claim, the debt was incurred within the 910–day preceding the date of the filing of the petition, and the collateral for that debt consists of a motor vehicle (as defined in section 30102 of title 49) acquired for the personal use of the debtor, or if collateral for that debt consists of any other thing of value, if the debt was incurred during the 1 year period preceding that filing.

¶23.62 Plan payments to Secured creditors: if plans provide for periodic payments to creditors, such payments must be equal monthly amounts. Further, for claims secured by personal property, such payments must be not less than what would be required for adequate protection. Thus, it would appear that neither lump sum payments (even for balloon debts) nor period payments on some basis other than monthly (ie quarterly) are permitted to secured creditors; though presumably a plan might be permitted to make different payment proposals to priority or unsecured. Query would this provision prohibit paying off the plan early? It would seem that while such a reading could literally apply, it would be to the disadvantage of all parties to put a blanket prohibition on such proposals. §1326(a)(1)(C) would appear to normally require such adequate protection to be post-petition contractual payments directly from the debtor. §1326(a)(4) separately requires proof of insurance. It is not clear what other adequate protection this refers to, except possibly an amortized payoff through the plan with the required retention of lien. Arguably, if the life of the collateral is shorter than the required 3 or 5 year plan, arguably some other manner of adequate protection under §361 would be required. If there was substantial unsecured or priority debt being paid in the plan, it would seem this provision would not prohibit a shorter amortization to such a creditor with the priority or unsecured debt being deferred until that secured is paid.

Case Law:

1^st Cir BAP:

Plan providing for final balloon payment on mortgage at end of 5 year plan violated requirement of equal monthly payments, even though plan permitted trustee to make distribution at such times as the trustee deemed administratively convenient. In re Hamilton, 2009 WL 566323 (1^st Cir. BAP, 2009).

Arkansas:

Requirement of equal monthly payments does not require that such equal payments commence with the first payment by the Debtor after confirmation, noting a split of authority. In re Butler, 2009 WL 674010 (Bankr. W.D.Ark. 2009).

Tennessee:
Where Debtor’s mortgage had a balloon payment due in the 24^th month, the plan could not provide for equal monthly payments until the 24^th month with a balloon payment due on the 24^th month without violating §1325(a)(5)(B)(iii)(I). In re Wagner, 342 B.R. 766 (Bankr. E.D.Tenn. 2006). The court ruled that this section required payments to be equal once they begin, and to continue to be equal until they cease. [Query, does this mean they cannot be adjusted for changes in escrow or interest for adjustable rate mortgages?] The court indicated that a plan could provide for payoff of the entire claim over the life of the plan with equal monthly payments.

Texas:

Judge Kilburg ruled that Debtors could not provide for direct payment of the mortgage through the chapter 13 plan. In re Perez, 339 B.R. 385 (Bankr. S.D. Tex. 2006). While §1326(b) leaves open the possibility of direct payment of secured creditors, the right to do so rests with the discretion of the bankruptcy court. The court noted that when local procedures were changed to require mortgage payments to be made through the trustee, the result was less motions for relief from stay, resulting in fewer fees charged to the debtors and more efficient administration of chapter 13 cases.

Debtors argued that prohibiting direct payments violated §1326(a)(2) which requires the trustee to hold payments until a plan is confirmed. The court rejected this, both because it would only apply to one or two payments given the expedited confirmation provisions, and that it is incorrect in that the preconfirmation payments on the mortgage are not plan payments but rather adequate protection payments. Adequate protection payments in chapter 13 are made under §1303, giving the debtor the rights and powers of a trustee under, inter alia, §363(e). These sections, read together with §361, makes adequate protection payments requirements separate from the plan. Thus §1326(a)(2) is inapplicable to trustee preconfirmation adequate protection payments.

§1322(b)(5) provides an exception to the anti – modification provision of §1322(b)(2). Under this provision, the plan may provide for curing any default within a reasonable time and maintaining payments during the life of the plan.

While §1325(a)(5)(B)(iii) requires equal monthly payments to secured creditors under the plan, it does not require that such payment commence with the first payment under the plan nor continue until the last payment. In re DeSardi, 340 B.R. 790 (Bankr. S.D.Tex. 2006) (J. Isgur). The debtors plan provided for payment in full of the claim secured by a lien on their vehicle with payments commencing in the 6^th month of the plan and terminating in the 53^rd month, at 8.25% interest. Adequate protection payments in the amount of 1.5% of the average of the retail and wholesale NADA value of the vehicle (consistent with local rules) was proposed during the first five months of the plan. The creditor objected to the plan on the basis that counsel’s fees had higher priority than the adequate protection; on the basis that adequate protection was based on the value of the vehicle when the vehicles could not be valued as they were purchased within 910 days of the filing; and that the plan does not provide for equal payments in that there are no plan payments for the first five months of the plan. An objection was also filed that the plan was paying a 910 claim less than the full contract rate.

The court rejected the objection as to adequate protection on the basis that the creditors did not timely oppose the standard court order setting forth the adequate protection terms. The court also noted that the purpose of adequate protection is to insure that the lender’s economic position is not worsened due to bankruptcy case. Since the economic position is based on the value of the collateral rather than the total claim, it is proper to base adequate protection on such value. As to the priority status of the adequate protection payments, the court looked to §503(b)(1)(A) allowing as an administrative expense the actual necessary costs of preserving the assets of the estate. In order to qualify for administrative priority, the adequate protection must relate to the actual use of the vehicle granting a benefit to the estate. Generally, vehicles will be necessary for the debtor’s employment, and will be entitled to this treatment. Both debtor’s attorneys fees and §503(b)(1)(A) administrative claims fall under §507(a)(2) priority status. §507(b) sets these adequate protection claims as a higher priority than other §507(a)92) administrative expenses.

As to equal monthly payments, the court first noted that the section recognizes that property distributed under §1325(a)(5)(B) need not necessarily be in the form of periodic payments. More importantly, §1325(a)(5)(B)(iii)(I) requires payments not less than the amount of adequate protection ‘during the period of the plan.’ No similar language is provided as to §1325(a)(5)(B)(iii)(I). Thus, the requirement is that the payment be equal once they commence until they are completed.

While §506 no longer applies to 910 claims, the court uses non-bankruptcy law to determine what is a secured claim. While these claims cannot be stripped down, nowhere does the new law limit the cramdown rights of the debtor. Till remains good law regarding the interest rate paid to provide present value of secured claims.

Utah:

Judge Thurman ruled that Debtors could provide for direct payment of secured claims so long as they are not changing the terms of the contract. In re Clay, 339 B.R. 784 (Bankr. D. Utah 2006). The trustee had objected to this treatment both under §1325(a)(5)’s requirement of equal monthly payments under the plan and on the grounds that §1326(a)(1) indicates a presumption of payment of secured claims through the trustee. The court rejected the §1325(a)(5) argument on the basis that the court had previously ruled (pre-BAPCPA) that creditors could be paid direct in In re Case, 11 B.R. 843 (Bankr. D.Utah 1981), and that similar procedures applied throughout the country. A creditor is only provided for in the plan, and thereby subject to §1325(a)(5) it it is not being paid according to the terms of its contract. Nothing in BAPCPA changed this analysis. The fact that §1325(a)(5) deals only with secured creditors provided for by the plan indicates that some secured creditors may not be provided for in the chapter 13 plan.

The trustee’s reading of §1326(a)(1) is contradicted by the procedures set forth in §1326(a)(1)(C) providing for direct payment of secured creditors by the debtor. Given the pre-BAPCPA rulings allowing debtors to make direct mortgage payments in reaction to modified §1322(b)(2), Congress could have anticipated allowing direct payment of 910–claims in response to the hanging paragraph of §1325.

§1325(a) Except as provided in subsection (b), the court shall confirm a plan if –

(5) with respect to each allowed secured claim provided for by the plan –

(B) the plan provides that –

(iii) if –

(I) property to be distributed pursuant to this subsection is in the form of periodic payments, such payments shall be in equal monthly amounts; and

(II) the holder of the claim is secured by personal property; the amount of such payments shall not be less than an amount sufficient to provide to the holder of such claim adequate protection during the period of the plan; or

¶23.63 Proof of insurance on pmsi personal property or on leases is required 60 days after the filing of the case in chapter 13s. Literally read, this requires continued proof of insurance after the case is over.

§1326(a)(4) Not later than 60 days after the date of filing of a case under this chapter, a debtor retaining possession of personal property subject to a lease or securing a claim attributable in whole or in part to the purchase price of such property shall provide the lessor or secured creditor reasonable evidence of the maintenance of any required insurance coverage with respect to the use or ownership of such property and continue to do so for so long as the debtor retains possession of such property.

¶23.64 Application of post–petition payments by secured creditors:

The law appears to have made an attempt to deal with misapplication of post–petition payments by mortgage companies and other secured creditors, however the wording of the statute appears to leave a number of problems unresolved. Generally, the section states that willful failure to credit payments in the manner required by the plan after confirmation constitutes a violation of discharge injunction if such failure caused the debtor material injury. However, the section does not apply if the plan is in default or the creditor is not receiving payments required under the plan in the manner so required. Since the usual problem is charging excessive fees or costs for stay litigation, and not disclosing such fees or costs until the plan is over, this language may have little effect. It also arguably would not prevent pre-confirmation hidden charges such as bankruptcy processing or claim filing fees. On the other hand, the section does not appear to prevent drafting of a plan that limits post-petition, pre-confirmation charges in which case such charges would still be subject to the confirmed plan.

Also, as to mortgages secured solely by homesteads, the section does not apply to acts in the ordinary course of business between the creditor and debtor. Hopefully, attorneys fees or inspection charges would not be considered to be in the ordinary course of business, while late fees might. On the other hand, it only requires the acts to be in the ordinary course of business between the debtor and the creditor, not with reference to the industry as a whole. So if there had been a number of defaults with multiple pre-petition instances of charging such fees, this could be called into question.

§524(i) The willful failure of a creditor to credit payments received under a plan confirmed under this title, unless the order confirming the plan is revoked, the plan is in default, or the creditor has not received payments required to be made under the plan in the manner required by the plan (including crediting the amounts required under the plan), shall constitute a violation of an injunction under subsection (a)(2) if the act of the creditor to collect and failure to credit payments in the manner required by the plan caused material injury to the debtor.

¶23.65 Retention of Liens: Plans now must provide that secured creditors retain their liens until the entire debt is paid (secured and unsecured); or until the case is discharged. If the case is dismissed or converted before the plan is completed, the creditors shall retain their lien to the extent allowed by nonbankruptcy law. Query, does this change the situation when the secured claim is paid in full through the chapter 13, the case is converted, then the debtor moves to redeem for $0 or a nominal sum?

§1325(a) Except as provided in subsection (b), the court shall confirm a plan if –

(5) with respect to each allowed secured claim provided for by the plan –

(B)(i) the plan provides that –

(I) The holder of such claim retain the lien securing such claim until the earlier of –

(aa) the payment of the underlying debt determined under nonbankruptcy law; or

(bb) discharge under section 1328; and

(II) if the case under this chapter is dismissed or converted without completion of the plan, such lien shall also be retained by such holder to the extent recognized by applicable nonbankruptcy law; and

¶23.7 Special treatment of creditors

¶23.71 Despite the contrary requirement of §1322(a)(2); a plan may provide for less than full payment on §507(a)(1)(B) claims [DSO’s that are assigned to or owed to the government (excluding those voluntarily assigned for collection)] but only if all disposable income for 5 years is applied to the plan.

§1322(a) The plan shall –

(4) notwithstanding any other provision of this section, a plan may provide for less than full payment of all amounts owed for a claim entitled to priority under section 507(a)(1)(B) only if the plan provides that all of the debtor’s projected disposable income for a 5 – year period beginning on the date that the first payment is due under the plan will be applied to make payments under the plan.

¶23.72 Plans may not change materially alter the repayment terms of a loan to a qualified retirement plan from a current or former employer. Further, amounts repaid to such loans do not constitute disposable income under §1325 (nor, apparently in chapter 7 under repayments to secured debts under §707(b)(2)(A)(iii)?). This could cause an issue if there is a substantial repayment on the retirement loan which ends during the life of the plan. The means test would show this as additional income, either when the plan ends, or if pro-rated with all other secured creditors, even while the payments continue: resulting in the means test showing more income than is actually available.

§1322(f) A plan may not materially alter the terms of a loan described in section 362(b)(19) and any amounts required to repay such loan shall not constitute ‘disposable income’ under section 1325.

¶23.73 Chapter 7 trustee claims for compensation in 707(b) conversion or dismissal cases must be paid. The section is self–contradictory as to the rate of payment, §1326(b)(3)(A) requiring a prorated payment over the life of the plan, and §1326(b)(3)(B) requiring payment at the higher of $25/month or 5% of whatever is paid to unsecured creditors divided by the length of the plan. In neither case should the payments total more than the compensation allowed in the prior case. This is still required to be paid even if discharged in an intervening bankruptcy; though it is not specifically excepted from discharge (a sort of in – rem debt). The payment ratio provision, if subsection (b)(3)(B) is followed, likely will result in the trustee’s compensation being paid earlier in a plan with the unsecured creditors being paid later.

§1326(b) Before or at the time of each payment to creditors under the plan, there shall be paid –

(3) if a chapter 7 trustee has been allowed compensation due to the conversion or dismissal of the debtor’s prior case pursuant to section 707(b), and some portion of that compensation remains unpaid in a case converted to this chapter or in the case dismissed under section 707(b) and refilled under this chapter, the amount of any such unpaid compensation, which shall be paid monthly –

(A) by prorating such amount over the remaining duration of the plan; and

(B) by monthly payments not to exceed the greater of –

(i) $25; or

(ii) the amount payable to unsecured nonpriority creditors, as provided by the plan, multiplied by 5 percent, and the result divided by the number of months in the plan.

§1326(d) Notwithstanding any other provision of this title –

(1) compensation referred to in subsection (b)(3) is payable and may be collected by the trustee under that paragraph, even if such amount has been discharged in a prior case under this title; and

(2) such compensation is payable in a case under this chapter only to the extent permitted by subsection (b)(3).

¶23.8 Dischargeability

¶23.81 The chapter 13 superdischarge has been substantially narrowed, now adding §523(a)(1)(B) [unfiled taxes]; §523(a)(1)(C) [fraudulent return/willful attempt to evade]; §523(a)(2) [false representation/fraud/recent consumer debt]; §523(a)(3) [unscheduled debts]; §523(a)(4) [fiduciary capacity/larceny]; and §507(a)(8)(C) [trust fund taxes] to the prior list of nondischargeable debts. The willful and malicious injury exception is rewritten and added, but only if the damages are awarded in a civil action and only to the extent the injury caused personal injury or death. Under 11 U.S.C. 523(a)(1)(B), which is nondischargeable under §1328(a)(2), taxes that are filed within 2 years of the bankruptcy but after it was due are not dischargeable; but are still priority under §507(a)(8)(A)(ii) if it was assessed within 240 days before filing the bankruptcy. Note property settlements, old taxes (if filed more than 2 years before the bankruptcy), conversions under §523(a)(6) and a number of other minor §523 debts are still subject to the superdischarge. As a practice pointer: be sure that if you want to pay taxes in the bankruptcy, they have been filed and assessed, otherwise they may be both nondischargeable and non-priority under 507(a)(8)(A)(ii), hence paid the same rate as unsecured.

§1328(a) Subject to subsection (d), as soon as practicable after completion by the debtor of all payments under the plan, and in the case of a debtor who is required by a judicial or administrative order, or by statute, to pay a domestic support obligation, after such debtor certifies that all amounts payable under such order or such statute that are due on or before the date of the certification (including amounts due before the petition was filed, but only to the extent provided for by the plan) have been paid, unless the court approves a written waiver of discharge executed by the debtor after the order for relief under this chapter, the court shall grant the debtor a discharge of all debts provided for by the plan or disallowed under section 502 of this title, except any debt –

(1) provided for under section 1322(b)(5);

(2) of the kind specified in section 507(a)(8)(C) or in paragraph (1)(B), (1)(C), (2), (3), (4), (5), (8), or (9) of section 523(a);

(3) for restitution, or a criminal fine, included in a sentence on the debtor’s conviction of a crime; or

(4) for restitution, or damages, awarded in a civil action against the debtor as a result of willful or malicious injury by the debtor that caused personal injury to an individual or death of an individual.

¶23.82 A plan may now provide for interest on nondischargeable claims, if there is money left over after paying other claims in full.

§1322(b) Subject to subsections (a) and (c) of this section, the plan may –

(10) provide for payment of interest accruing after the date of the filing of the petition on unsecured claims that are nondischargeable under section 1328(a), except that such interest may be paid only to the extent that the debtor has disposable income available to pay such interest after making provision for full payment of all allowed claims;

¶23.83 The time for filing a Dischargeability complaint in chapter 13 has been matched to that of chapter 7, ie it must be filed within 60 days after the date first set for the meeting of creditors. The court shall enter an order setting the deadline to file a complaint for Dischargeability of willful and malicious injury claims (which are discharged in §1328(a) cases) in a hardship discharge case, giving all creditors at least 30 days notice of such deadline.

Rule 4007. Determination of Dischargeability of a Debt

(c) TIME FOR FILING COMPLAINT UNDER §523(c) IN A CHAPTER 7 LIQUIDATION, CHAPTER 11 REORGANIZATION, CHAPTER 12 FAMILY FARMER’S DEBT ADJUSTMENT CASE, OR CHAPTER 13 INDIVIDUAL’S DEBT ADJUSTMENT CASE; NOTICE OF TIME FIXED.

Except as provided in subsection (d), a complaint to determine the Dischargeability of a debt under §523(c) shall be filed no later than 60 days after the first date set for the meeting of creditors under §341(a). The court shall give all creditors no less than 30 days notice of the time so fixed in the manner provided in Rule 2002. On motion of a party in interest, after hearing on notice, the court may for cause extend the time fixed under this subdivision. The motion shall be filed before the time has expired.

(d) TIME FOR FILING COMPLAINT UNDER §523(a)(6) IN CHAPTER 13 INDIVIDUAL’S DEBT ADJUSTMENT CASE: NOTICE OF TIME FIXED. On motion by a debtor for a discharge under §1328(b), the court shall enter an order fixing the time to file a complaint to determine the Dischargeability of any debt under §523(a)(6) and shall give no less than 30 days notice of the time fixed to all creditors in the manner provided in Rule 2002. On motion of any party in interest after hearing on notice the court may for cause extend the time fixed under this subdivision. The motion shall be filed before the time has expired.

¶23.90 Good faith in filing the petition has been added as a confirmation requirement. This, apparently as a distinct good faith test from §1325(a)(3) requiring the plan to be proposed in good faith. This could pull in case law from §707(b)(3)(A), or possible bad faith filing case law from §707(a).

§1325(a) Except as provided in subsection (b), the court shall confirm a plan if –

(7) the action of the debtor in filing the petition was in good faith;

¶23.92 An additional basis to modify plans post–confirmation has been added, allowing reduction of payments under the plan by the amount expended to purchase health insurance for debtor and debtor’s dependents, to the extent reasonable and necessary; and if replacing a prior policy the cost or coverage (either one, not both) is about the same, and if the debtor did not previously have insurance the policy is the type that a debtor in similar circumstances would have purchase. Note while the change in insurance post – petition may be considered by the court, the definition of disposable income and expenses elsewhere do not appear to require or even arguable permit consideration of other changes in income or expenses.

§1329(a) At any time after confirmation of the plan but before the completion of payments under such plan, the plan may be modified, upon request of the debtor, the trustee, or the holder of an allowed unsecured claim, to –

(4) reduce amounts to be paid under the plan by the actual amount expended by the debtor to purchase health insurance for the debtor (and for any dependent of the debtor if such dependent does not otherwise have health insurance coverage) if the debtor documents the cost of such insurance and demonstrates that –

(A) such expenses are reasonable and necessary;

(B)(i) if the debtor previously paid for health insurance, the amount is not materially larger than the cost the debtor previously paid or the cost necessary to maintain the lapsed policy; or

(ii) if the debtor did not have health insurance, the amount is not materially larger than the reasonable cost that would be incurred by a debtor who purchases health insurance, who has similar income, expenses, age and health status, and who lives in the same geographical location with the same number of dependents who do not otherwise have health insurance coverage; and

(C) the amount is not otherwise allowed for purposes of determining disposable income under section 1325(b) of this title;

And upon request of any party in interest, files proof that a health insurance policy was purchased.

¶23.94 Prior to discharge the debtor is required to attend a personal financial management course. §1328(g). Bankruptcy Rule 1007(b)(7). This must be filed within 45 days of the first date for a 341 and before the last payment by the debtor in chapter 13. Rule 1007(c).

¶23.96 The requirement of a hearing within 10 days of the entry of the discharge finding that there is no reason to believe §522(q)(1) applies is required in chapter 13 as well as in chapter 7. §1328(h).

¶24 Conversion of cases

¶24.1 Conversion of case from chapter 13

Valuations only apply if converted to chapter 11 or 12, and do not apply if converted to 7; conversions to 11 and 12 valuations reduced to the extent paid in chapter 13. Even if the secured claim was paid in full in the chapter 13, the creditor retains its lien on conversion and may insist on payment in full of the balance of the obligation prior to delivering title. If prepetition arrearages have not been paid in full through the 13, the creditor may consider the matter to remain in default. Query, if prepetition arrearages on a mortgage were fully cured, but the creditor is alleging post-petition fees or costs which were not included in the claim or any amended claim, what rights do the parties have?

§348(f)(1)(B) [V]aluations of property and of allowed secured claims in the chapter case shall apply only in a case converted to a case under chapter 11 or 12, but not in a case converted to a case under chapter 7, with allowed secured claims in the cases under chapters 11 and 12 reduced to the extent they have been paid in accordance with the chapter 13 plan; and

(C) with respect to cases converted from chapter 13–

(i) the claim of any creditor holding security as of the date of the petition shall continue to be secured by that security unless the full amount of such claim determined under applicable nonbankruptcy law has been paid in full as of the date of conversion, notwithstanding any valuation or determination of the amount of an allowed secured claim made for the purposes of the case under chapter 13; and

(ii) unless a prebankruptcy default has been fully cured under the plan at the time of conversion, in any proceeding under this title or otherwise, the default shall have the effect given under applicable nonbankruptcy law.

¶24.11 Redemption

Ohio:

Post-BAPCPA valuation in chapter 13 does not apply to redemptions in converted chapter 7. Chapter 13 must have paid full claim of creditor as determined by nonbankruptcy law, and the debtor cannot redeem for the balance of the secured claim not paid in the chapter 13. In re Maynard, 2016 WL 3135069 (Bankr. N.D. Ohio, 2016).

¶24.12 Nonexempt valuations to chapter 7 trustee

Florida

Where debtor had $15,500 equity in vehicle when chapter 13 was filed, and converted case to chapter 7 four years later after paying more than the equity to unsecured creditors, debtor does not get credit for payments during 13 under post-BAPCPA §348(f) and debtgor must turnover nonexempt property subject to trustee paying amount of exemption back to debtor from proceeds of sale. In re Loycono, 2015 WL 9526634 (Bankr. S.D. Fla. 2015).

Even though property vested in debtors upon confirmation of chapter 13 plan, it returned to property of the estate upon conversion to chapter 7; nor do they get credit toward chapter 7 liquidation for payments made to unsecured creditors in chapter 13. Value is determined as of conversion since that is all the trustee could getr upon liquidation. In re John, 352 B.R. 895, 20 Fla. L. Weekly Fed. B 20 (Bankr. N.D. Fla. 2006).

Section 348f acts to pull property which had vested in debtors back into property of the estate when the case is converted to chapter 7, subject to administration by the chapter 7 trustee. In re Curtis, 2015 WL 4065260, 73 Collier Bankr.Cas.2d 1673 (Bankr. M.D. Fla. 2015) (J. Jennemann).

¶25 Dismissal and denial of discharge

¶25.1 §707 motions to dismiss

¶25.11 §707(b)(1) was slightly modified to remove the presumption in favor of allowing the case to go forward under chapter 7, and to clarify that the trustee may file a §707(b) motion. The standard was also changed from substantial abuse to abuse. In making this determination, the court shall consider whether the case was filed in bad faith or whether the totality of the circumstances demonstrate abuse. Factors noted in the statute for the totality of circumstances test include whether the debtor is seeking to reject a personal services contract. Whether or not the debtor is ‘close’ on the means test is not stated as a factor, and one would presume should not be a factor.

Cases:

8^th Cir.

§707(b)(1) permits reconversion to chapter 13 after Debtor fails to rebut presumption of abuse in chapter 7 converted from case originally filed under chapter 13. Advanced Control Solutions, Inc. v. Justice, 639 F.2d 838 (8^th Cir. 2011). After creditor objected to the chapter plan, Debtor converted to chapter 7. In chapter 7 debtor failed to rebut the means test presumption of abuse, and court granted reconversion to chapter 13 over objection by creditor. Creditor appealed arguing that §706(a) revents debtor from reconverting in case originally converted from 13 to 7. District court affirmed, and 8^th Circuit agreed that reconversion was permissible.

The Creditor argued that §707(b)(1) does not control because the section does not provide the mechanism or means for conversion, arguing instead for application of §707(a). §707(a) limits the right to reconvert to when the case has not been previously converted. However, the plain language of the statute permits reconversion, and §707(b)(1) applies with equal force to a bankruptcy proceeding that was commenced under chapter 7 as with a case converted from chapter 13. The distinction in application of the two sections is that §707(a) gives the debtor limited permission to convert, which §707(b)(1) grants the court authority to dismiss, or with the debtor’s consent, convert the case, when abuse is shown.

Georgia

Debtor with $120,000/year income but with $4,800/month house payment and two Hummers not dismissed under trustee’s §707(b)(1) and (b)(3) motion. In re McKay, 463 B.R. 915 (Bankr. S.D.Ga. 2010). Court looks to bad faith and totality of the circumstances to determine if a case should be dismissed under §707(b)(1). Debtor moved to Georgia for a new job, expecting to be able to sell their former home in Little Rock, Arkansas.

While the ability to repay is the most important factor in the totality of the circumstances test, it is not the only factor. To so rule would be to invent a new means test, different from the uniform standard created by Congress. If, as the trustee requests, Debtors surrendered the home and vehicles, they would exceed the unsecured debt limit for chapter and the Court finds that the administrative cost in a chapter 11 case would be impracticable. The alternative is for the debtor to retain the house and cars, and make only a minimal payment to unsecured creditors in a chapter 13 case.

The court recognized that the expenses in the debtor’s budget were minimal. If debtors desire to sacrifice in some areas in order to keep their house, such tradeoffs are allowable in bankruptcy. Congress clearly intended that a debtor might spend more tha the IRS allowance in one category and less for another so long as the ned result did not leave substantial disposable income. Citing 5 COLLIER ON BANKRUPTCY ¶707.04[3][b], p. 707-44 (Resnick & Somme reds., 15^th ed). The US Trustee has cherry picked the Debtor’s high income, tax refund, and high housing expense as proof of the Debtor’s ability to pay, while not meeting its burden to show the Debtor’s actual current expenses.

When the trustee raises a dismissal request under §707(b)(3)(A) for bad faith, the burden shifts to the Debtors to establish good faith. Given the minimal divend possible in a chapter 13 plan, and the other factors noted above, there are no indicia of bad faith present in this case.

§707(b)(1) After notice and a hearing, the court, on its own motion or on a motion by the United States trustee, trustee (or bankruptcy administrator, if any), or any party in interest, may dismiss a case filed by an individual debtor under this chapter whose debts are primarily consumer debts, or with the debtor’s consent, convert such a case to a case under chapter 11 or 13 of this title, if it finds that the granting of relief would be an abuse of the provisions of this chapter. In making a determination whether to dismiss a case under this section, the court may not take into consideration whether a debtor has made, or continues to make, charitable contributions (that meet the definition of ‘charitable contribution’ under section 548(d)(3)) to any qualified religious or charitable entity or organization (as that term is defined in section 548(d)(4)).

§707(b)(3) In considering under paragraph (1) whether the granting of relief would be an abuse of the provisions of this chapter in a case in which the presumption in subparagraph (A)(i) of such paragraph [sic, intended to mean §707(a)(2)(A)(i)] does not arise or is rebutted, the court shall consider –

(A) whether the debtor filed the petition in bad faith; or

(B) the totality of the circumstances (including whether the debtor seeks to reject a personal services contract and the financial need for such rejection as sought by the debtor) of the debtor’s financial situation demonstrates abuse.

¶25.12 Only the Judge or US Trustee may seek to dismiss a case under §707(b) if the debtor’s median income is less than the state average. If the case is filed by the debtor alone, only the debtor’s income is compared to the median income, not that of the spouse. Note the requirements for dismissal under §707(b)(2), as contained in §707(b)(7) are slightly different. Also, it is possible for the motion to dismiss to be proper under §707(b)(7) (dealing specifically with motions to dismiss under §707(b)(2)) and still be improper under this section, since the debtor’s spouses’ income is not counted unless it is a joint case.

§707(b)(6) Only the judge or United States trustee (or bankruptcy administrator, if any) may file a motion under section 707(b), if the current monthly income of the debtor, or in a joint case, the debtor and the debtor’s spouse, as of the date of the order for relief, when multiplied by 12, is equal to or less than –

(A) in the case of a debtor in a household of 1 person, the median family income of the applicable State for 1 earner;

(B) in the case of a debtor in a household of 2, 3, or 4 individuals, the highest median family income of the applicable State for a family of the same number of fewer individuals; or

(C) in the case of a debtor in a household exceeding 4 individuals, the highest median family income of the applicable State for a family of 4 or fewer individuals, ;plus $525 per month for each individual in excess of 4.

¶25.13 The motion to dismiss must be filed within 60 days after the first date set for the meeting of creditors, unless extended for cause by motion filed before the 60 days expires. The motion must state all specifically the circumstances constituting the abuse, and state all matters to be considered at the hearing. This would seem to be designed to prevent motions leading to fishing expeditions seeking to dismiss the case. Query whether facts asserted in an amended motion can be considered.

Rule 1017. Dismissal or Conversion of Case; Suspension

(e) DISMISSAL OF AN INDIVIDUAL DEBTOR’S CHAPTER 7 CASE OR CONVERSION TO A CASE UNDER CHAPTER 11 or 13 FOR ABUSE.

The court may dismiss or, with the debtor’s consent, convert an individual debtor’s case for abuse under §707(b) only on motion and after a hearing on notice to the debtor, the trustee, the United States trustee, and any other entities as the court directs.

(1) Except as otherwise provided in §704(b)(2), a motion to dismiss a case for abuse under §707(b) or (c) may be filed only within 60 days after the first date set for the meeting of creditors under §341(a), unless, on request filed before the time has expired, the court for cause extends the time for filing the motion to dismiss. The party filing the motion shall set forth in the motion all matters to be considered at the hearing. A motion to dismiss under §707(b)(1) and (3) shall state with particularity the circumstances alleged to constitute abuse.

¶25.14 If the case was initially filed under chapter 7, then converted to chapter 11, 12, or 13, then reconverted to chapter 7; the time to file a §707(b) or (c) motion shall not renew if it had expired in the original chapter 7. Presumably if it had been continued, then it can be reinstated.

Rule 1019. Conversion of Chapter 11 Reorganization Case, Chapter 12 Family Farmer’s Debt Adjustment Case, or Chapter 13 Individual’s Debt Adjustment Case to a Chapter 7 Liquidation Case

(2) NEW FILING PERIODS. A new period for filing a motion under §707(b) or (c), a claim, a complaint objecting to discharge, or a complaint to obtain a determination of Dischargeability of any debt shall commence under Rules 1017, 3002, 4004, or 4007, provided that a new time period shall not commence if a chapter 7 had been converted to a chapter 11, 12, or 13 case and thereafter reconverted to a chapter 7 case and the time for filing a motion under §707(b) or (c), a claim, a complaint objecting to discharge, or a complaint to obtain a determination of the Dischargeability of any debt, or any extension thereof, expired in the original chapter 7 case.

¶25.15 If case initially filed under chapter 13 then converted to chapter 7.

Judge Williamson has rejected the majority ‘common sense rule’ and determined that based on the ‘plain language rule’ that §707(b) only applies to cases initially filed under chapter 7, and not to cases filed under chapter 13 and converted to chapter 7. In re Layton, 2012 WL 5193242 (Bankr. M.D. Fla. Oct 19, 2012). Ms. Layton confirmed a 100% chapter 13 plan but converted to chapter 7 upon losing her job. Subsequent to conversion Ms. Layton was reemployed at a figure in excess of the amount allowed in the means test. The majority position based on the argument that the limiting term ‘filed’ under §707(b) to apply only to the word ‘debtor’ rather than ‘chapter 7.’ However, that interpretation assumes the drafters took great care in drafting §707(b) but simultaneously but included superfluous ‘under this chapter’ language, as chapter 7 already only applies to cases under chapter 7. Courts disfavor interpretations that render statutory language superfluous. Alternatively, some courts interprent ‘filed’ as solely meaning entered on the public record, and that the conversion constitutes filing under chapter 7. However, this interpretation leaves the word ‘filed’ as superfluous. Further, the term ‘filed’ elsewhere in the code refers to the initial filing of the bankruptcy petition.

The ‘common sense’ approach finds that allowing debtors to file chapter 13 and convert to chapter 7 would make a mockery of the system and lead to absurd results. Further, these cases cite to Rule 1019(b) allowing an extension of time to file a §707(b) motion when a case is converted. Judge Williamson noted that there are other avenues for dealing with this result, including §707(a) which is not limited to cases filed under chapter 7, or §105(a) allowing the court to take any action necessary to prevent an abuse of process. The ‘common sense’ rule also creates an anomalty with §342(d) requiring the clerk to give notice to creditors within ten days of the filing of the petition that a presumption of abuse has arisen under §707(b). Further, as a practical matter use of the majory rule would require examination of income in the means test from 6 months prior to the filing of the original bankruptcy, which is likely to be grossly out of date as of the date of a conversion.

The Court recognized that its interpretation leaves Rule 1019(2) as largely superfluous. But given that the statute enabling the adoption of rules provides that no rule may abridge, modify, or enlarge any substantive right. Thus, the rule is not conclusive regarding the application of a bankruptcy statute.

¶25.2 In chapter 13, the case may be dismissed or converted to chapter 7 upon request of a party in interest if the debtor falls behind on post-petition domestic support obligations. See §101(14A). This will likely require a certification by the Debtor prior to discharge (and prior to confirmation) in order to obtain discharge (or confirmation) in the case.

§1307(c) Except as provided in subsection (e) of this section, on request of a party in interest or the United States trustee and after notice and a hearing, the court may convert a case under this chapter to a case under chapter 7 of this title, or may dismiss a case under this chapter, whichever is in the best interests of creditors and the estate, for cause, including –

(11) failure of the debtor to pay any domestic support obligation that first becomes payable after the date of the filing of the petition.

¶25.3 The discharge may be revoked on motion of the trustee, a creditor, or the US Trustee if the debtor fails to satisfactorily explain either a material misstatement in an US trustee sponsored audit, or a failure to make available for inspection all necessary records for the audit.

§727(d) On request of the trustee, a creditor, or the United States trustee, and after notice and a hearing, the court shall revoke a discharge granted under subsection (a) of this subsection if –

(4) the debtor has failed to explain satisfactorily –

(A) a material misstatement in an audit referred to in section 586(f) of title 28; or

(B) a failure to make available for inspection all necessary accounts, papers, documents, financial records, files, and all other papers, things, or property belonging to the debtor that are requested for an audit referred to in section 586(f) of title 28.

28 U.S.C. 586(f)(1) The United States trustee for each district is authorized to contract with auditors to perform audits in cases designated b the United States trustee, in accordance with the procedures established under section 603(a) of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.

(2)(A) The report of each audit referred to in paragraph (1) shall be filed with the court and transmitted to the United States trustee. Each report shall clearly and conspicuously specify any material misstatement of income or expenditures or of assets identified b the person performing the audit. In any case in which a material misstatement of income or expenditures or of assets has been reported, the clerk of the district court (or the clerk of the bankruptcy court if one is certified under section 156(b) of this title) shall give notice of the misstatement to the creditors in the case.

(B) If a material misstatement of income or expenditures or of assets is reported, the United States trustee shall –

(i) report the material misstatement, if appropriate, to the United States Attorney pursuant to section 3057 of title 18; and

(ii) if advisable, take appropriate action, including but not limited to commencing an adversary proceeding to revoke the debtor’s discharge pursuant to section 707(d) of title 11.

¶25.4 A victim of a crime of violence or a drug trafficking crime may seek dismissal of case when it is the in the best interest of such victim if the debtor was convicted of such crime. The debtor may defend such dismissal if the debtor establishes by a preponderance of the evidence that the filing of the case is necessary to satisfy a claim for a domestic support obligation.

§707(c)(1) In this subsection –

(A) the term ‘crime of violence’ has the meaning given such term in section 16 of title 18, and

(B) the term ‘drug trafficking crime’ has the meaning given such term in section 924(c)(2) of title 18.

(2) Except as provided in paragraph (3), after notice and hearing, the court, on a motion by the victim of a crime of violence or a drug trafficking crime, may when it is in the best interest of the victim dismiss a voluntary case filed under this chapter by a debtor who is an individual if such individual was convicted of such crime.

(3) The court may not dismiss a case under paragraph (2) if the debtor establishes by a preponderance of the evidence that the filing of a case under this chapter is necessary to satisfy a claim for a domestic support obligation.

Sec. 16. Crime of violence defined

    The term ``crime of violence'' means--

        (a) an offense that has as an element the use, attempted use, or

    threatened use of physical force against the person or property of

    another, or

        (b) any other offense that is a felony and that, by its nature,

    involves a substantial risk that physical force against the person

    or property of another may be used in the course of committing the

    offense.

¶25.5 The court shall not grant a discharge if the debtor has not filed a statement of completion of the personal financial management course required by Rule 1007(b)(7).

Rule 4004. Grant or Denial of Discharge.

(c) GRANT OF DISCHARGE

(1) In a chapter 7 case, on expiration of the time fixed for filing a complaint objecting to discharge and the time fixed for filing a motion to dismiss the case under Rule 1017(e), the court shall forthwith grant the discharge unless:

(H) the debtor has not filed with the court a statement regarding completion of a course in personal financial management as required by Rule 1007(b)(7);

¶25.6 The presumption of undue hardship on a reaffirmation agreement under §524(m) also delays entry of the discharge. Presumably, once the determination is made either way, the discharge may be entered.

Rule 4004. Grant or Denial of Discharge.

(c) GRANT OF DISCHARGE

(J) a presumption that a reaffirmation agreement is an undue hardship has arisen under §524(m).

¶25.7 If §522(q)(1) is applicable to a debtor (debtor elects to exempt over $125k in equity in homestead) and if the debtor committed a felony or owing a debt arising from certain criminal, fraudulent, or reckless conduct) and the court finds that there is a pending proceeding in which the debtor may be found guilty of a felony described in §522(q)(1)(A) or liable for a debtor described in §522(q)(1)(B) then the court may deny the chapter 7 discharge. Note also it appears to apply only to pending proceedings, not a proceeding already completed; thus the hearing would be dealing with hypothetical results of pending litigation in another forum. The same requirement applies in chapter 13. If the debtor does not have a homestead with more than $125k equity, or cannot exempt over that amount, or if the ‘election’ language in interpreted as in McNabb and the debtor is required to use state exemptions, then the section would not apply.

§727(a) The court shall grant the debtor a discharge, unless –

(12) the court after notice and a hearing held not more than 10 days before the date of the entry of the order granting the discharge finds that there is reasonable cause to believe that –

(A) section 522(q)(1) may be applicable to the debtor; and

(B) there is pending any proceeding in which the debtor may be found guilty of a felony of the kind described in section 522(q)(1)(A) or liable for a debt of the kind described in section 522(q)(1)(B).

§1328(h) The court may not grant a discharge under this chapter unless the court after notice and a hearing held not more than 10 days before the date of the entry of the order granting the discharge finds that there is no reasonable cause to believe that –

(1) section 522(q)(1) may be applicable to the debtor; and

(2) there is pending any proceeding in which the debtor may be found guilty of a felony described in section 522(q)(1)(B).

Rule 4004. Grant or Denial of Discharge.

(c) GRANT OF DISCHARGE

(I) a motion to delay or postpone discharge under §727(a)(12) is pending; or

¶25.8 If a case is closed without the entry of a discharge, the clerk shall give notice that there was no discharge to all parties.

Rule 4006. Notice of No Discharge

If an order is entered denying or revoking a discharge, or if a waiver of discharge is filed, the clerk, after the order becomes final or the waiver is filed, or, in the case of an individual, if the case is closed without the entry of an order of discharge, shall promptly give notice thereof to all parties in interest in the manner provided in Rule 2002.

¶26 Sanctions regarding motions to dismiss and attorney certifications

¶26.1 The court on its own or on motion of any party in interest may require debtor’s counsel to reimburse the trustee for its attorney’s fees under the standards of 9011 if the trustee files to dismiss or convert under §707, the Court grants the motion, and counsel violated Rule 9011. Additional sanctions for such violation could include assessment of a civil penalty. Rule 9011 is codified to make counsel’s signature on a petition, pleading, or written motion that counsel performed a reasonable investigation into the circumstances of such document, and the document is well grounded in fact and is warranted by existing law or good faith argument for change in existing law, and does not constitute an abuse under §707(b)(1). Also included is that the signature on the petition constitutes a certification that counsel has no knowledge after inquiry the information on the schedules filed with the petition is correct. The standard for the schedules thus not to require an investigation, but rather simply actual knowledge after inquiry. The courts will be left to determine what constitutes a reasonable investigation for the information on the petition itself, pleadings and written motions. The inquiry required by Rule 9011 and the investigation required by §707(b)(4)(C) may well be the same thing when one examines the definition of the inquiry/investigation required under 9011 as defined in Moore’s Federal Practice.

Note the section requires that the procedures of 9011 be met, these procedures include a requirement under 9011(c) of 21 day prior service an opportunity to withdraw the document. This section does not explicitly modify such procedures, so query whether such prior service may still be required, and possible modification made by counsel during such 21 day period.

§707(b)(4)(A) The court, on its own initiative or on the motion of a party in interest, in accordance with the procedures described in rule 9011 of the Federal Rules of Bankruptcy Procedure, may order the attorney for the debtor to reimburse the trustee for all reasonable costs in prosecuting a motion filed under 707(b), including reasonable attorneys’; fees, if –

(i) a trustee files a motion for dismissal or conversion under this subsection; and

(ii) the court –

(I) grants such motion; and

(II) finds that the action of the attorney for the debtor in filing a case under this chapter violated rule 9011 of the Federal Rules of Bankruptcy Procedure.

(B) If the court finds that the attorney for the debtor violated rule 9011 of the Federal Rules of Bankruptcy Procedure, the court, on its own initiative or on the motion of a party in interest, in accordance with such procedures, may order –

(i) the assessment of an appropriate civil penalty against the attorney for the debtor; and

(ii) the payment of such civil penalty to the trustee, the Untied States trustee (or the bankruptcy administrator, if any).

(C) The signature of an attorney on a petition, pleading, or written motion shall constitute a certification that the attorney has –

(i) performed a reasonable investigation into the circumstances that gave rise to the petition, pleading, or written motion; and

(ii) determined that the petition, pleading, or written motion –

(I) is well grounded in fact; and

(II) is warranted by existing law or a good faith argument for the extension, modification, or reversal of existing law and does not constitute an abuse under paragraph (1).

(D) The signature of an attorney on the petition shall constitute a certification that the attorney has no knowledge after an inquiry that the information in the schedules filed with such petition is incorrect.

¶26.2 If someone other than the trustee, or the US Trustee files a motion to dismiss a case under §707(b), the debtor may be awarded sanctions if the motion is denied and if the filer of the motion violated rule 9011 and if the motion was filed solely to coerce the debtor into waiving a right under this title. Small businesses with claims under $1,000 shall not be subject to sanctions under this section. Query, does this section modify Rule 9011, or could a party still file a 9011 motion regardless of motive for the creditor’s filing of a 707(b) motion. Thus, couldn’t a 9011 motion be filed against the trustee or US Trustee if the requirements of 9011 are met. Does this section do away with the 21 day prior service requirement of 9011(c) if the requirements of §707(5) are met?

§707(b)(5)(A) Except as provided in subparagraph (B) and subject to paragraph (6), the court, on its own initiative or on the motion of a party in interest, in accordance with the procedures described in rule 9011 of the Federal Rules of Bankruptcy Procedure, may award a debtor all reasonable costs (including reasonable attorneys fees) in contesting a motion filed by a party in interest (other than a trustee or United States trustee (or bankruptcy administrator, if any)) under this subsection if –

(i) the court does not grant the motion; and

(ii) the court finds that –

(I) the position of the party that filed the motion violated rule 9011 of the Federal Rules of Bankruptcy Procedure; or

(II) the attorney (if any) who filed the motion did not comply with the requirements of clauses (i) and (ii) of paragraph (4)(C), and the motion was made solely for the purpose of coercing a debtor into waiving a right guaranteed to the debtor under this title.

(B) A small business that has a claim of an aggregate amount less than $1,000 shall not be subject to subparagraph (A)(ii)(I).

(C) For the purposes of this paragraph –

(i) the term ‘small business’ means an unincorporated business, partnership, corporation, association, or organization that –

(I) has fewer than 25 full-time employees as determined on the date on which the motion is filed; and

(II) is engaged in commercial or business activity; and

(ii) the number of employees of a wholly owned subsidiary of a corporation includes the employees of –

(I) a parent corporation; and

(II) any other subsidiary corporation of the parent corporation.

§507(a)(8)(hanging paragraph)

§522(b)(3)(hanging paragraph)

§523(a)(hanging paragraph)

§1325(a)(hanging paragraph)

§1326(a)(1-3)

Bankruptcy Rules:

Table of Cases:

In re Adams, 2009 WL 784503 (Bankr. ED La. 2009).

Advanced Control Solutions, Inc. v. Justice, 639 F.2d 838 (8^th Cir. 2011).

In re Alexander, 344 B.R. 742 (Bankr. E.D.N.C. 2006) & ¶23.312.

In re Ames, 447 B.R. 680 (Bankr. D.Mass. 2011).

In re Anderson, 444 B.R. 505 (Bankr. W.D.N.Y. 2011).

In re Arnoux, 442 B.R. 769 (Bankr. E.D. Wash 2010).

In re Anderson, 341 B.R. 365 (Bankr. Colo. 2006).

In re Attorneys at Law and Debt Relief Agencies, 332 B.R. 66 (Bankr. S.D. Ga. 2005).

In re Babson, 2011 WL 5902664 (Bankr. E.D. N.C. 2011).

In re Baker, 400 BR 136 (D. Del 2009).

In re Marian Leah Baker, No 17-32061-KLP; 2017 WL 5197120 (Bankr. E.D. Va. Nov 8, 2017).

In re Baldassaro, 338 BR 178 (Bankr. D.N.H. 2006).

In re Ball, 336 B.R. 269 (Bankr. M.D. N.C. 2006).

In re Barazza, 345 B.R. 724 (Bankr. N.D.Tex. 2006). & ¶6.45, ¶6.46

In re Barr, 341 B.R. 181 (Bankr. M.D.N.C. 2006).

In re Barron, 441 B.R. 131 (Bankr. D.Ariz. 2010).

In re Batzkiel, 349 B.R. 581 (Bankr. N.D.Iowa 2006).

Baud v Carroll, 2011 WL 338001 (6^th Cir., 2011).

In re Beasley, 339 B.R. 472 (Bankr. E.D. Ark. 2006).

In re Beasley, 342 B.R. 280 (Bankr. C.D.Ill. 2006) (J. Gorman).

In re Beaver, 337 B.R. 281 (Bankr. E.D. N.C. 2006).

In re Beckwith, 448 B.R. 757 (Bankr. S.D. Ohio 2011).

In re Bentley, 400 BR 848 (Bankr. MD Fla. 2008) (J Funk).

In re Bermann, 399 B.R. 213 (Bankr. E.D. Wis., 2009).

In re Berry, 340 B.R. 636 (Bankr. M.D. Ala. 2006).

In re Bethoney, 2008 WL 179509 (Bankr. D.Mass. 2008) ¶23.612. ¶23.614.

In re Blair, 334 B.R. 374 (Bankr. N.D. Tex. 2005).

Blausey v US Trustee, 552 F.3d 1124 (9^th Cir., 2009).

In re Bradshaw, 349 B.R. 511 (Bankr. E.D.Tenn. 2006).

In re Briggs, 440 B.R. 490 (Bankr. S.D.Ohio 2010).

In re Brown, 339 B.R. 818 (Bankr. S.D. Ga. 2006).

In re Buck, 443 B.R. 463 (Bankr. N.D.Ga. 2010).

In re Burbank, 401 BR 67 (Bankr. D.R.I. 2009).

In re Burgueno, 451 B.R. 1 (Bankr. D.Ariz. 2011).

In re Burrell, 339 B.R. 664 (Bankr. W.D.Mich. 2006).

In re Butler, 2009 WL 674010 (Bankr. W.D.Ark. 2009).

Camp v. Ingalls, 631 F.3d 757 (5^th Cir. 2011).

In re Carpenter, 614 F.3d 930 (8^th Cir. 2010).

In re Carver, 338 B.R. 521 (Bankr. S.D. Ga. 2006).

In re Champalanne (Bankr. S.D. Fla. 2010) (J. Hyman).

In re Charles, 332 B.R. 538 (Bankr. S.D. Tex. 2005).

In re Charles, 334 B.R. 207 (Bankr. S.D. Tex. 2005).

In re Childs, 335 B.R. 623 (Bankr. D. Md. 2005).

In re Clark, 2009 WL 523099 (Bankr. D.Conn. 2009).

In re Clark, 441 B.R. 752 (Bankr. M.D.N.C. 2011).

In re Clay, 339 B.R. 784 (Bankr. D. Utah 2006).

In re Cleaver, 333 BR 430 (Bankr., S.D. Ohio 2005).

In re Clingman, 400 BR 555 (Bankr. SDTex 2009).

In re Collins, 334 BR 655 (Bankr. D. Minn. 2005).

In re Collins, 335 B.R. 646 (Bankr. S.D. Tex. 2005).

In re Cordova, 439 B.R.756 (Bankr. D.Colo 2010).

In re Cotto, 425 B.R. 72 (Bankr. E.D.N.Y. 2010).

In re Counts, 2007 WL 2669204 (Bankr. D.Mont 2007).

In re Cross 376 B.R. 641 (Bankr. S.D.Ohio 2007).

In re Curry, 537 B.R. 884 (Bankr. C.D. Ill, 2015).

In re Curtis, 2015 WL 4065260, 73 Collier Bankr.Cas.2d 1673 (Bankr. M.D. Fla. 2015)

In re Cushman, 350 B.R. 207 (Bankr. D.S.C. 2006).

In re Dansby, 340 B.R. 565 (Bankr. S.C. 2006).

In re Davenport, 335 BR 218 (Bankr. M.D..Fla. 2005).

In re Dean, 2008 WL 5683493 (Bankr. D. Idaho).

In re De Anda-Ramirez, 359 B.R. 794 (10^th Cir. BAP, 2007).

In re DeSardi, 340 B.R. 790 (Bankr. S.D.Tex. 2006) (J. Isgur).

In re Diagostino, 347 B.R. 116 (Bankr. N.D.N.Y. 2006).

In re Dionne, 2009 WL 1024094 (Bankr. WD Wis 2009).

In re DiPinto, 336 B.R. 693 (Bankr. E.D. Pa. 2006).

In re Dixon, 338 B.R. 383 (8^th Cir. BAP, 2006).

In re Drury, No. 2:15-BK-17125, 2016 WL 4437555 (B.A.P. 9th Cir. Aug. 23, 2016).

In re Duffus, 339 B.R. 746 (Bankr. D.Or. 2006).

In re Ellis, 339 B.R. 136 (Bankr. E.D. Pa. 2006).

In re Evans, 349 B.R. 498 (Bankr. E.D. Mich. 2006).

In re Ezell, 338 B.R. 330 (Bankr. E.D. Tenn. 2006).

In re Fawson, 338 B.R. 505 (Bankr. D.Utah 2006).

In re Feagan, No. 15-40823-PWB, 2016 WL 1456166 (Bankr. N.D. Ga. Apr. 11, 2016).

In re Fields, 337 B.R. 173 (Bankr. E.D. Tenn. 2005).

In re Filion, 452 B.R. 329 (Bankr. D.Mass. 2011).

In re Finnegan, 358 B.R. 644 (Bankr. M.D.Penn. 2006).

In re Fleming, 339 B.R. 716 (Bankr. E.D. Mo. 2006).

In re Fleming, 349 B.R. 444 (Bankr. D.S.C. 2006).

In re Fowler, 349 B.R. 414 (Bankr. D.Del. 2006).

In re Frazier, 339 B.R. 516 (Bankr. N.D. Fla. 2006).

In re Frye, 440 B.R. 685 (Bankr. W.D.Va. 2010).

In re Fuller, 2005 WL 3454699 (Bankr. W.D. Pa. 2005).

In re Galanis, 334 B.R. 685 (Bankr. D. Utah 2005).

In re Gee, 332 BR 602 (Bankr. W.D. Mo. 2005).

In re Girodes, 350 B.R. 31 (Bankr. M.D. N.C. 2006).

In re Gonzales, 2007 WL 3217671 (Bankr. N.D.Tex. 2007).

In re Gonzalez, 2013 WL 5308020 (S.D. Fla., Sept 20, 2013).

In re Graham, 336 BR 292 (Bankr. W.D. Ky. 2005).

In re Granda, 2005 WL 3348878 (Bankr. W.D. Pa. 2005).

In re Grant, 423 B.R. 420 (Bankr. S.D. Cal 2010).

In re Grimme, 371 B.R. 814 (Bankr. S.D. Ohio 2007).

In re Haisley, 350 B.R. 48 (Bankr. E.D.La. 2006).

In re Hall, 442 B.R. 754 (Bankr. D.Idaho 2010).

In re Hall, 400 BR 516 (Bankr. S.D.W.Va. 2009).

In re: Peggy A. Hall, No. 16-20057, 2016 WL 5794728 (Bankr. S.D. Tex. Oct. 4, 2016).

In re Haman, 366 B.R. 307 (Bankr. D.Del. 2007)

In re Hamilton, 2009 WL 566323 (1^st Cir. BAP, 2009).

Hamilton v. Lanning, 560 U.S. ___, 130 S.Ct. 2464, 177 L.Ed.2d 23 (2010).

In re Hardacre, 338 B.R. 718 (Bankr. N.D. Tex. 2006) & ¶6.41 ¶6.44 ¶6.45

In re Hargrove, 400 BR 616 (Bankr. MD Tenn 2008).

In re Harmon, 446 B.R. 721 (Bankr. E.D.Pa 2011).

In re Harris, 342 B.R. 274 (Bankr. N.D.Ohio 2006) (J. Shea–Stonum).

In re Hart, 2009 WL 605739 (Bankr. D.Del. 2009).

In re Hawkins, 340 B.R. 642 (Bankr. D.Dist.Col. 2006).

In re Havner, 336 BR 98 (Bankr. M.D. N.C. 2006).

In re Hedquist, 342 B.R. 295 (8^th Cir. BAP (Minn), 2006).

In re Henderson, 339 B.R. 34 (Bankr. E.D. N.Y. 2006).

In re Herbert, 405 B.R. 165 (Bankr. W.D.N.C. 2008).

In re Hernandez, 2012 WL 5457403 (Bankr. D. Neb. 2012).

In re Hickman, 2008 WL 2595182 (Bankr. W.D. Wash. 2008).

In re Hill, 352 B.R. 69 (Bankr. W.D.La. 2006).

In re Hingiss, 440 B.R. 787 (Bankr. E.D. Wis 2010).

In re Holmes, 496 B.R. 765 (Bankr. M.D. Pa. 2013).

In re Horn, 338 B.R. 110 (Bankr. M.D. Ala. 2006).

In re Hubbard, 332 B.R. 285 (Bankr. S.D. Tex. 2005).

In re Hubbard, 333 BR 373 (Bankr. S.D. Tex. 2005).

In re Hubbard, 333 B.R. 377 (Bankr. S.D. Tex. 2005).

In re Hudson, 352 B.R. 391 (Bankr. D.Md. 2006).

In re Humphries, 453 B.R. 261 (E.D. Mich. 2011).

In re Hunt, 400 BR 662 (Bankr. S.D. Ind, 2008).

In re Jackson, 338 B.R. 923 (Bankr. M.D. Ga. 2006).

In re Jackson, 537 B.R. 238 (Bankr. E.D. N.C., 2015).

In re Jass, 340 B.R. 411 (Bankr. D.Utah 2006).

In re Jewell, 347 B.R. 121 (Bankr. W.D.N.Y. 2006).

In re Jewell, 365 B.R. 796 (Bankr. S.D.Ohio, 2007).

In re Joest, 450 B.R. 381 (Bankr. N.D.N.Y. 2011).

In re John, 352 B.R. 895, 20 Fla. L. Weekly Fed. B 20 (Bankr. N.D. Fla. 2006).

In re Johnson, 454 B.R. 882 (Bankr. M.D. Fla. 2011) (J. Williamson).

In re Johnson, 337 B.R. 269 (Bankr. M.D. N.C. 2006).

In re Johnson, 335 B.R. 805 (Bankr. W.D. Tenn. 2006).

In re Johnson, 400 BR 639 (Bankr. N.D. Ill. 2009).

In re Johnson, 446 B.R. 921 (Bankr. E.D. Wis 2011).

In re Jones, 591 F.3d 308 (4^th Cir. 2010).

In re Jones, 339 B.R. 360 (Bankr. E.D.N.C. 2006).

In re Kane, 336 B.R. 4747 (Bankr. D.Nev. 2006).

In re Kaplan, 331 B.R. 483 (Bankr S.D. Fla. 2005).

In re Katz, 451 B.R. 512 (Bankr. C.D. Cal. 2011).

In re Kelley, 2012 WL 5457331 (Bankr. E.D. Ky, 2012).

In re Kidwell, 2007 WL 2934866 (Bankr. E.D. Tenn. 2007).

In re Killian 422 B.R. 903 (Bankr. N.D.Ill. 2009).

In re Kizzee-Jordan, 628 F.2d 239 (5^th Cir. 2010).

In re Knight, 349 B.R. 681 (Bankr. D.Idaho 2006).

In re Kramer, 2014 WL 818942 (9^th Cir. BAP, 2014).

In re Lacounte, 342 B.R. 809 (Bankr. D.Mont. 2005).

In re Landahl, 338 B.R. 920 (Bankr. M.D. Fla. 2006).

In re Lanning, 545 F.3d 1269 (10^th Cir. 2008).

In re LaPorta, 332 BR. 879 (Bankr. D. Minn. 2005).

In re Lara, 347 B.R. 198 (Bankr. S.D. Tex. 2006) & ¶6.41 ¶6.44

In re Larson, 2006 WL 891532 (Bankr. D.Mass. 2006).

In re Layton, 2012 WL 5193242 (Bankr. M.D. Fla. Oct 19, 2012).

In re Lewis, 339 B.R. 814 (Bankr. S.D. Ga. 2006).

In re Logdon, 2012 WL 376513 (Bankr. W.D. Ky 2012).

In re Looper, 334 BR 596 (Bankr. E.D. Tenn. 2005).

In re Lopatka, 400 BR 433 (Bankr. MD Pa 2009).

In re Lopez, 440 B.R. 447 (Bankr. E.D. Va., 2010).

In re Love, 350 B.R. 611 (Bankr. M.D.Ala. 2006).

In re Loycono, 2015 WL 9526634 (Bankr. S.D. Fla. 2015).

In re Luedtke, 337 B.R. 918 (Bankr. E.D. Wis. 2006).

Lynch v. Lackson, No 16-1358, 2017 WL 59011 (4^th Cir., Jan 4, 2017).

In re Mansfield, 2012 WL 627786 (Bankr. E.D. N.C. 2012).

In re Mark, 336 B.R. 260 (Bankr. D. Md. 2006).

In re Maronde, 332 B.R. 593 (Bankr. D. Minn. 2005).

In re Maas, 416 B.R. 767 (Bankr. D.Kan. 2009).

In re Matthews, 378 B.R. 481 (Bankr. D.S.C. 2007). ¶23.616, ¶23.615

In re Maynard, 2016 WL 3135069 (Bankr. N.D. Ohio, 2016).

In re McCartney, 336 BR 588 (Bankr. M.D.Ga. 2006).

In re McCray, 342 B.R. 669 (Bankr. D.Dist.Col. 2006).

In re McGrahan, 448 B.R. 611 (Bankr. D.N.H. 2011).

In re McKain, 325 B.R. 842, 851 (Bankr. D. Neb. 2005).

In re McKay, 463 B.R. 915 (Bankr. S.D.Ga. 2010).

In re McNabb, 326 BR 785 (Bankr. D. Ariz. 2005).

In re McPherson, 350 B.R. 38 (Bankr. W.D.Va. 2006).

In re Merrill, 340 B.R. 671 (Bankr. D.N.H. 2006).

Milavetz Gallop & Milavetz, PA v United States, __ U.S. ___, 130 S.Ct. 1324, 176 L.Ed.2d 79 (2010).¶2.1

In re Miller, 336 B.R. 232 (Bankr. W.D. Pa. 2006).

In re Miller, 445 B.R. 504 (Bankr. D.S.C. 2011).

In re Mills, 341 B.R. 106 (Bankr. Dist.Col. 2006).

In re Minardi, 399 B.R. 841 (Bankr. N.D.Okla. 2009).

In re Donald E.. Miner Sandra R. Miner Debtors, No. 16-10441, 2017 WL 1011419 (Bankr. W.D. La. Mar. 14, 2017).

In re Mingueta, 338 B.R. 833 (Bankr. C.D. Cal. 2006).

In re Mohr, 425 B.R. 457 (Bankr. S.D.Ohio 2010) (J. Walter).

In re Montoya 342 B.R. 312 (Bankr. S.D.Cal. 2006).

In re Montoya, 333 B.R. 449 (Bankr. D. Utah 2005).

In re Montoya, 341 B.R. 41 (Bankr. D.Utah 2006). (Montoya2)

In re Moon, 339 B.R. 668 (Bankr. N.D. Ohio 2006).

In re Moore, 337 B.R 79 (Bankr. E.D.N.C. 2005).

In re Morrison, 443 B.R. 378 (Bankr. M.D.N.C., 2011).

In re Murphy, 342 B.R. 671 (Bankr. D.Dist.Col. 2006).

In re Murphy, 375 B.R. 919 (Bankr. M.D. Ga. 2007).

In re Murray, 350 B.R. 408 (Bankr. S.D. Ohio, 2006).

In re Nessa, 426 B.R. 312 (8^th Cir. BAP 2010).

In re Nicely, 349 B.R. 600 (Bankr. W.D.Mo. 2006).

In re Nuttall. 334 BR 921 (Bankr. W.D. Mo. 2005).

In re O’Brien, 339 B.R. 529 (Bankr. D.Mass. 2006).

In re O’Neill Miranda, Bankr. D. Puerto Rico 2011).

Olsen v Holder, 402 F.Appx 311 (9^th Cir. 2010).

In re Oliver, 350 B.R. 294 (Bankr. W.D.Tex. 2006).

In re Osejo, 447 B.R. 352 (Bankr. S.D. Fla 2011).

In re Ott, 2006 wl 1152339 (Bankr. D.Colo. 2006).

In re Parker, 336 BR 678 (Bankr. S.D. N.Y. 2006).

In re Parks, 475 B.R. 703 (9^th Cir. BAP, 2012).

In re Paschal, 337 BR 274 (Bankr. E.D.N.C. 2006).

In re Payne, 347 B.R. 278 (Bankr. S.D.Ohio 2006.

In re Pitts, 462 B.R. 844 (Bankr. M.D. Fla. 2012).

In re Peaslee, 547 F.3d 177 (2^nd Cir., 2008).

In re Pederson, 2006 WL 3000104 (Bankr. N.D. Iowa, 2006).

In re Perez, 339 B.R. 385 (Bankr. S.D. Tex. 2006).

In re Petit-Louis, 338 BR 132 (Bankr. S.D. Fla. 2006) (J. Cristol).

In re Phillips, 336 BR 818 (Bankr. E.D. Okla. 2006).

In re Powell, 2009 WL 910407 (Bankr. CD Ill. 2009).

In re Price, 2009 WL 975796 (4^th Cir. 2009).

In re Prigge, 441 B.R. 667 (Bankr. D.Mont 2010).

In re Ralston, 400 BR 854 (Bankr. MD Fla. 2009) ¶6.43 & ¶6.44

In re Randolph, 2005 WL 3408043 (Bankr. M.D. Fla. 2005).

Ransom v. F.I.A. Card Servs. N.A., 131 S.Ct. 716 (US, Jan 11, 2011).

In re Rasmussen, 349 BR 747 (Bankr M.D. Fla. 2006).

In re Ratzlaff, 349 B.R. 443 (Bankr. D.S.C. 2006).

In re Record, 347 B.R. 450 (Bankr. M.D.Fla. 2006).

In re Redmond, 399 B.R. 628 (Bankr. N.D.Ind. 2008).

In re Reed, 05-45739-pp (Bankr. E.D.Wis.. 14 November 2005) (J. Pepper).

In re Reeves, 327 B.R. 436 (Bankr. W.D. Mo. 2005).

In re Reyes, 2009 WL 567185 (Bankr. C.D.Cal 2009).

In re Ring, 341 B.R. 387 (Bankr. D.Me. 2006).

In re Rios, 336 BR 177 (Bankr. S.D. N.Y. 2005).

In re Robinson, 338 BR 70 (Bankr. W.D. Mo. 2006).

In re Robinson, 449 B.R. 473 (Bankr. E.D. Va. 2011).

In re Rodgers, 2005 WL 3454702 (Bankr. W.D. Pa. 2005).

In re Rodriguez, 336 B.R. 462 (Bankr. D. Idaho, 2005).

In re Romero, 349 B.R. 616 (Bankr. N.D.Cal. 2006).

In re Ross, 338 B.R. 134 (Bankr. N.D. Ga. 2006).

In re Ross-Tousey, 549 F.3d 1148 (7^th Cir. 2008).

In re Rotunda, 349 B.R. 324 (Bankr. N.D.N.Y. 2006).

In re Royal, 397 B.R. 88 (Bankr. N.D.Ill 2008).

In re Sadler, 378 B.R. 780 (Bankr. E.D. Tex. 2007).

In re Sanlair, 344 B.R. 669 (Bankr. M.D. Fla. 2006).

In re Salazar, 339 B.R. 622 (Bankr. S.D. Tex. 2006).

In re Sanders, 341 B.R. 47 (Bankr. N.D.Ala. 2006).

In re Scarafiotti, 375 B.R. 618 (Bankr. D. Colo. 2007)

In re Scholz, 447 B.R. 887 (9^th Cir. BAP, 2011).

In re Seafort, 669 F.3d 662 (6^th Cir. 2012).

In re Seaman, 340 B.R. 698 (Bankr. E.D.N.Y. 2006).

In re Skaggs, 349 B.R. 394 (Bankr. E.D.Mo. 2006).

In re Skarbek, 2005 WL 3348879 (Bankr. W.D. Pa. 2005).

In re Slusher, 359 B.R. 290, 310 (Bankr. D. Nev. 2007).

In re Smith, 2007 WL 1577668 (Bankr. S.D.Tex 2007).

In re Sosa, 336 BR 113 (Bankr. W.D. Tex. 2005).

In re Sours, 350 B.R. 261 (Bankr. E.D.Va. 2006).

In re Steinhaus, 349 B.R. 694 (Bankr. D. Idaho 2006).

In re Stewart-Harrel, 2011 WL 322391 (Bankr. N.D. Ga., 2011).

In re Stidham, 2005 WL 3454709 (Bankr. W.D. Pa. 2005).

In re Sukmungsa, 333 B.R. 875 (Bankr. D. Utah 2005).

In re Tabor, 433 B.R. 469 (Bankr. M.D. Pa. 2010)

In re Talib, 335 BR 417 (Bankr. W.D. Mo., 2005).

In re Taylor, 334 BR 660 (Bankr. D. Minn. 2005).

In re Tedford, 2014 WL 3851129 (S.D. Iowa, 2014).

In re Tennyson, 601 F.3d 873 (11^th Cir. 2010).

In re Throgmartin, 462 B.R. 836 (Bankr. M.D. Fla. 2012). (J. Schermer).

In re Tibbs, 2012 WL 380074 (Bankr. S.D. Fla., Sept 4, 2012).

In re Tomasini, 339 BR 773 (Bankr. D.Utah 2006).

In re Tomco, 339 B.R. 145 (Bankr. W.D. Pa. 2006).

In re Toro–Arcila, 334 BR 224 (Bankr. S.D. Tex. 2005).

Tucker v. Oliver, 423 B.R. 378 (W.D. Okla. 2010).

In re Turner, 34 B.R. 437 (Bankr. D.S.C. 2006).

In re Valdez, 335 BR 801 (Bankr. S.D. Fla. 2005).

In re Vandenbosch, 459 B.R. 140 (M.D. Fla. 2011).

In re Vandyke, 340 B.R. 836 (Bankr. C.D. Ill. 2011).

In re Virissimo, 332 B.R. 201 and 322 B.R. 208 (Bankr. D. Nev. 2005).

In re Wallace, 338 B.R. 399 (Bankr. E.D. Ark. 2006).

In re Wallert, 332 BR 884 (Bankr. D. Minn., 2005).

In re Waring, 2009 WL 499501 (Bankr. N.D. Ohio, 2009).

In re Warneck, 336 BR 181 (Bankr. S.D. N.Y. 2006).

In re Warren, 339 B.R. 475 (Bankr. E.D. Ark. 2006).

In re Washington, 443 B.R. 389 (Bankr. D.S.C. 2011).

In re Watson, 332 B.R. 740 (Bankr. E.D. Va. 2005).

In re Wayrynen, 332 B.R. 479 (Bankr. S.D. Fla. 2005).

In re Welton, 448 B.R. 76 (Bankr. M.D.Fla. 2011) (J. Glenn).

In re West, 352 B.R. 482 (Bankr. E.D.Ark. 2006).

In re Whitaker, 341 B.R. 376 (Bankr. S.D.Ga. 2006) (J. Dalis).

White v. Waage, 440 B.R. 563 (M.D. Fla. 2010) (J. Kovachevich).

In re Williams, 339 B.R. 794 (Bankr. M.D. Fla. 2006).

In re Williams, 424 B.R. 207 (Bankr. W.D.Va. 2010).

In re Wilson, 336 B.R. 338 (Bankr. E.D. Tenn. 2005).

In re Womer, 427 B.R. 334 (Bankr. M.D. Pa., 2010).

In re Wright, 338 B.R. 917 (Bankr. M.D. Ala. 2006).

In re Wright, 339 B.R. 474 (Bankr. E.D. Ark. 2006).

In re Ziolkowski, 338 B.R. 543 (Bankr. D.Conn. 2006).

Other sources
Many of the ideas in the consumer analysis came from:

1. Henry J. Sommer, Supervising Attorney, Bankruptcy Assistance Project, Philadelphia, PA from his article Trying to Make Sense Out of Nonsense: Representing Consumers Under the ‘Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, 79 AM. BANKR. L.J. 191 (2005) (Issue 2).

2. Eugene R. Wedoff, US Bankruptcy Judge, ND Ill., Means Testing in the New §707(b), 79 AM. BANKR. L.J. 231 (2005) (Issue 2).

3. Jean Braucher, Roger Henderson Professor of Law, University of Arizona, James E. Rogers College of Law, RASH and RideThrough Redux: The Terms for Holding on to Cars, Homes, and other Collateral under the 2005 Act, Vol 13, No. 2, AM. BANKR. INST. L. REV. 457 (Winter 2005).

Recent Updates:

ABI members may copy to computer. No republication permitted without consent of copyright holder. Except as modified herein, all rights reserved. Please advise author of any corrections or modifications.