- 1 Compact Library Guide to the

“Bankruptcy Abuse Prevention and Consumer Protection Act of 2005”

PLEASE READ: Our goal is to provide a simple, step by step, guide that you can use to prepare and file petitions under the Bankruptcy Reform Act. Everything is included that you need to start practicing under the Act. Advance one step at a time, read the actual code, and you will become a competent practitioner in a matter of days. Our LawStepstm guide covers all major consumer, but not all consumer or business debtor, changes under the Bankruptcy Act. Use it as a working introduction and handy reference to the Bankruptcy Reform Act, not an authoritative treatise.

You can view and search the book in Acrobat Ver 5 and higher, however it is useful to print the manual on 8x10 paper (about 153 pages). First, open and print the PDF instruction sheet “readme.pdf”. Follow the instructions carefully.

Copies of the Revised Title 11 and Interim Rules (http://www.uscourts.gov/rules/interim.html) are included. Read the Interim Rules carefully, they include deadlines not discussed in this Guide. Check your local Court’s website for adoption of the Interim Rules and Local Rules.

Some general information:

We use “Spotlightingtm”, where we first mark through paragraphs that have been substantially changed and then underline the entire paragraph as it reads under the new act.

(18) under subsection (a) of the creation or perfection of a statutory lien for an ad valorem property tax imposed by the District of Columbia, or a political subdivision of a State, if such tax comes due after the filing of the petition; `(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;'

-- If you have not already done so, please see the last page for information on where to send payment.

-- IT IS POSSIBLE THAT THERE ARE ERRORS AND/OR OMISSIONS IN THE TEXT

Please report any corrections and additions that need to be made to: editor@www.ws5.com and visit www.bankruptcyupdate.com for a current list of known

corrections and additions.

Information on which a summary paragraph is based may be compiled from multiple Code Sections, that may or may not be specifically referenced.

REMEMBER – new cases are interpreting and changing the meaning of the Act . Always read and research the actual code and reach your own legal conclusions.

Copyright, 2005, 2006, Compact Library Publishers, Inc., All Rights Reserved (no copyright claim is made for statutory text in the public domain) V.3.1.06

Use of this disk and file acknowledges that you have read and agree to be bound by the Compact Library Publishers Inc. Terms of Service (TOS) included with this guide.

Questions or comments: help@ws5.com

- 2 INTRODUCTION

The “Bankruptcy Abuse Prevention and Consumer Protection Act of 2005”, which we will refer to as the Bankruptcy Reform Act, or just the “Act”, is the first major revision of the bankruptcy laws since 1978. The Supreme Court summarized the intent of modern bankruptcy law, including our current laws, when it said that they are intended to give debtors a “fresh start”, “a new opportunity in life, unhampered by the pressure and discouragement of pre-existing debt.” It is fair to say that in recent times bankruptcy laws favored debtors. In 1997 the National Bankruptcy Review Commission submitted suggested changes to Congress that were intended to prevent what was perceived by many in the business community to be abuses of the bankruptcy process. Indeed, both Debtors and Creditors often used loopholes in the old law to take “unfair” advantage of each other, and most experts agreed that the playing field needed to be leveled. Over the next eight years the Chamber of Commerce and other business lobbies fought hard, without success, for passage of legislation that went far beyond the recommendations and clearly favored creditors. In 2005 the political tide had turned and the Bankruptcy Reform Act passed by a very comfortable margin. Perhaps the most significant change is not found in specific provisions of the Act, but rather in the dramatic change in attitude toward those who are in debt. In the past consumers who filed bankruptcy were viewed as being in need of relief from the burden of debt, and were usually treated with empathy. The entire bankruptcy process reflected the attitude that Debtors need help, essentially viewing them as victims of unfortunate circumstances and giving them the benefit of the doubt. The Bankruptcy Reform Act attempts to turn that view upside down. The overall tenor of the new law is confrontational, with debtors being, at best, viewed as responsible to varying degrees for their plight due to mismanagement and greed, and at worst, being opportunists who criminally abuse the system for financial gain. Harvard Law Professor Elizabeth Warren testified before Congress that “virtually every consumer provision aims in the same direction. The bill increases the cost of bankruptcy protection for every family, regardless of income or the cause of financial crisis, and it decreases the protection of bankruptcy for every family, regardless of income or the cause of financial crisis.” While it remains to be seen what effect these changes will have on Bankruptcy Judges and Appeals Courts, and consequently on Debtors, it is fair to say that the pendulum has swung dramatically toward favoring creditors. The Act is poorly written, most provisions are subject to many different interpretations. Some experts believe that courts will narrowly construe the Act so as not to place excessive burdens on debtors. Other experts believe that courts will be guided by the underlying goal of creditors and Congress to drastically reduce the number of bankruptcies by making it much more expensive to file and by greatly reducing the relief available to debtors. While we will not know the true effect for several years, it appears that the Bankruptcy Reform Act has missed the mark and will make it significantly more difficult to obtain a “fresh start” in what may become a relatively hostile environment. The Act is so poorly written that it is filled with both traps and opportunities that we can’t even begin to explore in this book. If you are going to file consumer bankruptcy petitions you need to join and participate in the National Association of Consumer Bankruptcy Attorneys [www.nacba.org]. You also need a copy of the NCLC Consumer Bankruptcy [www.nclc.org] book and supplement, and some type of access to a treatise like Collier on Bankruptcy. Also, the American Bankruptcy Institute [www.abiworld.org], Legal Information Institute [www.law.cornell.edu], and Bankruptcy News [www.bankruptcyreformnews.com] have useful internet sites. For more information please visit our Bankruptcy Update www.bankruptcyupdate.com site.

- 3 CONTENTS

1. Debt Relief Agencies – Debtor’s Counsel 4 2. Debt Relief Agencies – Prohibitions 5 3. Debt Relief Agencies – Disclosures 6 4. Debt Relief Agencies – Client Contract 8 5. Debt Relief Agencies – Advertising 9 6. Debt Relief Agencies – Penalties 10 7. Credit Counseling Agencies – Pre-Petition Certification 12 8. Credit Counseling Agencies – Post-Petition Education 17 9. Bankruptcy Petition Preparers 20 9. Debtor’s Counsel – Duties & Penalties 24 10. Can the Client be a Debtor – Multiple Filings & the Automatic Stay 27 11. Landlords and Writs of Possession 32 12. Involuntary Petitions 35 13. The Automatic Stay 36 14. Notice to Creditors 39 15. Median Income & Means Tests 41 16. Median & Means Test Results – Who Can Move to Dismiss 51 17. Schedules I & J 57 18. Document to be Filed 58 20. Tax Returns 62 21. Domicile for State Exemptions 66 22. Limits on Homestead Exemption 67 23. Lien Avoidance for Household Goods 69 24. Contributions to Retirement & 401k Plans 70 25. Contributions to Employee Plans 71 26. Transfers to Asset Protection Trusts 72 27. Student Loans 73 28. Taxes 75 29. Luxury Goods & Cash Advances 77 30. Preferences – Ordinary Course of Business 78 31. Fraudulent Transfers 79 32. Reaffirmation Agreements 80 33. Valuation of Security & Redemptions 86 34. Reaffirm, Redeem, or Ride-Through 87 Chapter 13 Cases 35. Disposable Income in Chapter 13 90 36. Chapter 13 Plan Length 94 37. Adequate Protection 96 38. Lien Retention & the Effect of Conversion 98 39. Confirmation Hearing 100 40. Domestic Support Obligations – Dischargeability 101 41. Domestic Support Obligations – First Priority 103 42. Priority Claims for Wages, Salaries, & Commissions 104 43. Administrative Expenses 105 44. Retirement, Pension, & Profit Sharing Plans 107 45. Property Settlements 109 46. Chapter 13 Discharges 110 47. Discharge Hearing in Ch 13 Cases 112 48. Willful Failure to Credit Payments 113 49. Annual Reports 114 50. Trustee Fees & Duties 115 51. Motor Vehicles & PMSI’s – 910 days & 1 Year Rules 116 52. Interest & Penalties on Non-Dischargeable Debt 118 53. Proof of Insurance 119 54. Summary of Changes to Dischargeability 120 55. Miscellaneous Provisions 124 56. Small Business Debtor – Ch 11 126 57. Audits & Appeals 132 Appendix 133

- 4 Step 1 – Getting Ready to Practice Under the Act Attorneys who represent typical consumer Debtors for pay are “Debt Relief Agencies” who provide “bankruptcy assistance to assisted persons”. Any person who provides “bankruptcy assistance to assisted persons” for a fee is a Debt Relief Agency. Assisted persons are debtors who have primarily consumer debts and have under $150,000 in non-exempt property. Bankruptcy assistance is defined as the providing to an assisted person of any goods or services that provide any information, advice, counsel, document preparation, or filing with respect to a case or proceeding. While some bankruptcy courts are attempting to exclude attorneys from the definition of a Debt Relief Agency, unless it is absolutely certain that you are not a Debt Relief Agency in your district (i.e. – your Circuit Court of Appeals has so ruled), you must follow the rules for Debt Relief Agencies.

ALERT – IF YOU ARE NOT ABSOLUTELY CERTAIN THAT YOU ARE NOT A DEBT RELIEF AGENCY, YOU SHOULD COMPLY WITH ALL REQUIREMENTS

IMPOSED ON DEBT RELIEF AGENCIES BEFORE GIVING ANY ADVICE. Some believe that the plain meaning of these sections results in debtor attorney’s being “Debt Relief Agencies” with respect to some clients but not other clients. For example, if an attorney files a pro bono case is he or she a “Debt Relief Agency” with respect to that particular client? Another interpretation is that attorneys who file even one consumer bankruptcy petition for pay for an assisted person are “Debt Relief Agencies” without regard to any other client’s situation. Because the penalties are significant, and the requirements for a Debt Relief Agency relatively simple to meet, we believe that if you may file a consumer petition in the future you should comply with the Debt Relief Agency provisions. All attorneys should be aware that the definition is broad enough to cover attorneys in general practice who do not file bankruptcy petitions, but who advise as to the option of bankruptcy, as well as creditors attorneys, etc. 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.'

`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 assisted 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 or 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.' (3) The term `assisted person' means any person whose debts consist primarily of consumer debts and the value of whose nonexempt property is less than $150,000.'

- 5 Debt Relief Agencies are prohibited from misleading clients as to services, failing to perform services, making or allowing false statements, misleading clients about bankruptcy, or advising clients to incur additional debt. Debt Relief Agency’s, in other words - you as a consumer debtor’s counsel, cannot fail to perform any service you promise to perform, or mislead a client (who is an assisted person) as to what services you will perform and what you will not. You cannot make or advise someone to make a statement that is untrue and misleading, or that upon the exercise of reasonable care, you should have known was untrue or misleading. You cannot mislead a client as to the benefits and risks of filing bankruptcy. You cannot advise a client to incur additional debt.

NOTE – FULLY DISCLOSE BENEFITS & RISKS OF BANKRUPTCY IN WRITING. Most of these provisions, like the prohibition against false statements, are common sense items that attorneys already know are prohibited [notice sloppy drafting – “untrue and misleading” followed by “untrue or misleading”]. However the prohibition against misleading a client as to the benefits and risks of filing may be significant. Credit counseling and required written disclosures will protect debtor’s counsel in many cases, nonetheless if you have a dissatisfied client they may use this provision to try to get back the money they paid to you. Since there are clients who regret having filed bankruptcy and who “blame” their attorney, this section may add a significant risk to your practice. Some suggest video or audio taping of consultations with clients, if you do so be aware that you are preserving both correct advice and any errors you make. The materials you give to your clients should recite that the client understands that they should rely on the written information, and not on oral advice.

The prohibition against advising an assisted person or prospective assisted person to incur more debt in contemplation of such person filing bankruptcy would, on its face, seem to be unconstitutional. It prevents counsel from, for example, telling an individual to sell their high mileage luxury cars, pay off those car loans, and use the proceeds for a down payment on a reasonable family car to be paid 100% under the new Ch 13 - 910 day provisions. This section places an intolerable burden on any counselor trying to help a family “downsize” their debt.

A poorly worded provision should be read to prohibit advising a client to incur debt to pay an attorney a fee or charge for filing bankruptcy? However, since such a reading is redundant and does not add meaning to the sentence, it can be read to prohibit advising a client to pay an attorney or bankruptcy petition preparer a fee or charge for filing bankruptcy. That curious reading would make sense for a Credit Counseling Agency, but not an attorney. You should monitor early cases, they should strictly limit or eliminate these two provisions. 526 `(a) A debt relief agency shall not-- [selected text from section] `(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; `(2) make any statement, or counsel or advise any assisted person or prospective assisted person to make a 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; `(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 `(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.

- 6 Debt Relief Agencies (debtor’s counsel) must give assisted persons required disclosures no later than three (3) days after they first offer to provide any bankruptcy assistance services. You are required to provide the statement in the sample client materials in the Appendix to assisted persons within three days after you first offer (not first provide) services to them. As soon as a prospective client visits or calls your office you need to give or mail the notice to them. The best practice is to mail the disclosure at the time that the first appointment is made, and have the client bring signed copies to the initial conference. WARNING – THE NOTICE MUST BE PROVIDED ON A SEPARATE SHEET WITHIN 3 DAYS AFTER YOU FIRST OFFER TO PROVIDE BANKRUPTCY SERVICES.

DO NOT GIVE ANY ADVICE BEFORE THE NOTICE IS SIGNED. You MUST consult the UST website [http://www.usdoj.gov/ust] for the current Bankruptcy Information Sheet (as of March 2006 the official form had not been revised); review the final bankruptcy forms from [http://www.uscourts.gov/bkforms/] for the revised Notice to Individual Consumer Debtors [local rules will determine how this form is delivered]; and monitor national and local rules for any additional requirements and changes to the forms and procedures.

ALERT - IT IS GENERALLY AGREED THAT YOU MUST NOT GIVE ADVICE OVER THE PHONE OR OTHERWISE UNTIL ALL DISCLOSURE REQUIREMENTS ARE SATISFIED.

___________________________________________________________________ The Act is not clear about the notice requirements For example, the Act requires that the Clerk give a notice to a filer before commencement of a case without saying how that might be accomplished. Most courts will probably continue to provide notices the same way they did before the Act. Nonetheless, most experts agree that it would be very dangerous for an attorney not to provide disclosures immediately before giving initial advice of any kind, even trivial, to a potential client. Since you must provide the new form, we strongly suggest you also provide a combined 342(b)(1) Notice to Individual Consumer Debtors and modified Bankruptcy Information Sheet, with duplicates that the clients sign and return (see Appendix).

The new disclosure about bankruptcy assistance services MUST be a single document separate from other documents or notices provided to the assisted person. Presumably this means that it cannot be stapled or attached to other papers. You are required to keep a copy of the notices for 2 years after the date you give them to your clients. The copies MUST be signed and dated by the clients to prove receipt.

Samples of all suggested notices are included. The samples include more than is absolutely required, however we strongly suggest that you not edit them unless you carefully consider all of the possible consequences. `Sec. 527. Disclosures [selected text from section] `(a) A debt relief agency providing bankruptcy assistance to an assisted person shall provide-- `(1) the written notice required under section 342(b)(1); and `(2) to the extent not covered in the written notice described in paragraph (1), and not later than 3 business days after the first date on which a debt relief agency first offers to provide any bankruptcy assistance services to an assisted person, a clear and conspicuous written notice advising assisted persons that— `(A) all information that the assisted person is required to provide with a petition and thereafter during a case under this title is required to be complete, accurate, and truthful; `(B) all assets and all liabilities are required to be completely and

- 7 accurately disclosed in the documents filed to commence the case, and the replacement value of each asset as defined in section 506 must be stated in those documents where requested after reasonable inquiry to establish such value; `(C) current monthly income, the amounts specified in section 707(b)(2), and, in a case under chapter 13 of this title, disposable income (determined in accordance with section 707(b)(2)), are required to be stated after reasonable inquiry; and `(D) information that an assisted person provides during their case may be audited pursuant to this title, and that failure to provide such information may result in dismissal of the case under this title or other sanction, including a criminal sanction. `(b) A debt relief agency providing bankruptcy assistance to an assisted person shall provide each assisted person at the same time as the notices required under subsection (a)(1) the following statement, to the extent applicable, or one substantially similar. The statement shall be clear and conspicuous and shall be in a single document separate from other documents or notices provided to the assisted person: [TEXT OF REQUIRED NOTICE IS SHOWN ON SAMPLE FORM AND NOT REPEATED HERE] `(d) A debt relief agency shall maintain a copy of the notices required under subsection (a) of this section for 2 years after the date on which the notice is given the assisted person.'. Sec. 342. Notice ……[selected text from section] `(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) chapters 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.'.

- 8 Debt Relief Agencies (debtor’s counsel) must execute a written contract no later than five (5) days after they first provide any bankruptcy assistance services to assisted persons and before a case is filed. You are required to execute a written contract with your client no later than five (5) days after you first provide (not first offer) any bankruptcy assistance services to assisted persons and before a case is filed. The contract must clearly explain the services that will be provided, the fees or charges for such services, and the terms of payment. The client must be provided with a copy of the fully executed and completed contract. You must have the client acknowledge receipt by signing and dating a copy that you retain along with the other required documents.

WARNING – CONTRACT MUST BE EXECUTED WITHIN FIVE (5) DAYS AFTER YOU FIRST PROVIDE BANKRUPTCY SERVICES, BEFORE THE CASE IS FILED.

Again, the language is unclear. It has been suggested that this section applies to providing services for a fee, and that the five days start to run after the first paid services. If so, a free initial consultation would not trigger the five days. We read the statute to start the clock when any bankruptcy assistance is given, paid or free. This is another area where the safest practice is to just go ahead and provide an engagement contract that discloses fees and provides for the contractual relationship if the prospective client hires you. `Sec. 528. Requirements for debt relief agencies [selected text from section] `(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; … …

- 9 Debt Relief Agencies (debtor’s counsel) must state in any advertisement that they are a debt relief agency and that they help people file for bankruptcy relief under the Bankruptcy Code. Basically, any communication with the general public that has the potential of generating bankruptcy work is considered to be an “advertisement”, and requires the statement. Any advertisement of bankruptcy assistance or of the benefits of bankruptcy directed to the general public (general media, seminars, mailings, telephonic messages, etc.), including any advertisement that includes descriptions of bankruptcy assistance in connection with a chapter 13 plan; statements that could lead a reasonable consumer to believe that debt counseling was being offered when in fact bankruptcy services are offered; or 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, MUST clearly and conspicuously disclose that the services, benefits, or assistance may involve bankruptcy, and include a statement like `We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.' A lot of thought has already gone into how to avoid this provision. If you practice in a firm where you are the only attorney who does bankruptcies, most experts believe you must include the language in a yellow pages ad in the “bankruptcy attorney” section, but not in an ad the firm might have under a personal injury law heading. Some attorneys are adding the language to letterheads and business cards, most are not. You certainly can find arguments that limit the application of this section, the real question is should you risk the consequences of being wrong? You should use common sense and conspicuously “disclose that services or benefits are with respect to bankruptcy” (does this require more disclosure than provided by the statutory language?) AND add the required `We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.' language to any audio-visual materials [including phone answering systems, TV & radio ads, seminar presentations, etc.] that may advertise your practice. If in doubt it is better to simply go ahead and include the language. Be sure NOT to let annual advertisements automatically renew without the new language. `Sec. 528. Requirements for debt relief agencies [selected text from section] `(a) A debt relief agency shall-- `(3) clearly and conspicuously disclose in any advertisement of bankruptcy assistance services or of the benefits of bankruptcy directed to the general public (whether in general media, seminars or specific mailings, telephonic or electronic messages, or otherwise) that the services or benefits are with respect to bankruptcy relief under this title; and `(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. `(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.'.

- 10 If you violate any of the requirements for Debt Relief Agencies you may be required to return fees to clients and you may be severely sanctioned.

ALERT – VIOLATING THE REQUIREMENTS CAN RESULT IN LOSS OF FEES AND SEVERE SANCTIONS, INCLUDING BEING BARRED FROM PRACTICE.

You will be required to refund fees and charges, to pay actual damages, and pay reasonable attorneys' fees and costs if, after notice and hearing, you are found to have (A) intentionally or negligently failed to comply with sections 526, 527, or 528 (the Debt Relief Agency requirements we just discussed); (B) provided bankruptcy assistance in a case that was dismissed or converted because of your intentional or negligent failure to file documents including those specified in section 521 (Debtor provided documents); or (C) intentionally or negligently disregarded the material requirements of the Bankruptcy Code or Federal Rules of Bankruptcy Procedure applicable to your agency. 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 may bring an action to enjoin violations; recover actual damages; and recover the costs and reasonable attorneys' fees. Federal District courts have concurrent jurisdiction. Plus, 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 enjoin the violation of such section or impose an appropriate civil penalty. ___________________________________________________________________ The penalties for violating restrictions on Debt Relief Agencies / Debtor’s Counsel are significant, and the fact that they can be imposed at the request of the UST, state authorities, or debtors, demonstrates how important it is not to violate the provisions. It is relatively easy to avoid penalties under these sections if you focus on doing so. If you continue to practice as you always have, you are unnecessarily exposing yourself to sanctions and financial disaster. 526 `(b) Any waiver by any assisted person of any protection or right provided [selected text] 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. `(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. `(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 attorneys' 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.

- 11 `(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 law, 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 then 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.'.

- 12 Step 2 – Pre & Post Filing Credit Counseling & Education The U.S. Trustee approves non-profit credit counseling agencies who provide pre-petition counseling and post-petition financial management courses. As Credit Counseling Agencies are approved they are added to the list can be found on the UST’s website: http://www.usdoj.gov/ust/eo/bapcpa/ccde/cc_approved.htm They will be periodically evaluated and may be removed from the list. Pre-Petition Counseling - An individual cannot be a Debtor (i.e. – they cannot file a Ch 7, 13, or 11 petition) unless within 180 days preceding the filing they have received an individual or group “briefing” that outlines the opportunities for credit counseling AND assists them in performing a budget analysis. The Act requires that an Approved Agency provide the counseling without charge in appropriate circumstances. A Debtor must file with the Court a certificate from a U.S. Trustee (UST) approved nonprofit credit counseling agency describing the services provided to the debtor along with a copy of the debt repayment plan (DMP), if any. [Note that having to meet this requirement to be a Debtor may effectively protect individuals from involuntary petitions being filed by creditors since they would not have a certificate?] If your client has not completed the pre-petition course they cannot be a “debtor” under the Act, they must complete the course before filing. With 24/7 phone counseling available emergency petitions are still available to debtors.

WARNING - YOU ARE REQUIRED TO FILE A COPY OF THE UST’S CERTIFICATE OF COMPLETION ON THE FILING DATE, OR, BY LOCAL RULE, SHORTLY AFTER.

HOWEVER, THE COURSE MUST BE COMPLETED BEFORE THE DATE OF FILING. _________________________________________________________________________________________________

Credit Counseling Agencies must provide adequate counseling that includes analysis of the client's current financial condition, factors that caused such financial condition, and how the client can develop a plan to respond to the problems. While the Act is not specific about what an approved Agency is expected to do, it is clear that Credit Counseling in the Act is modeled after the National Foundation for Credit Counseling (members often use the name - Consumer Credit Counseling Service). Here are some excerpts from their website (www.nfcc.org) :

“Founded in 1951, the NFCC, through its Member agencies, sets the national standard for quality credit counseling, debt reduction services and education for financial wellness. NFCC is the nation’s largest and longest serving national nonprofit credit counseling network. With more than 1,000 community-based agency offices across the country, NFCC Members help over 1.5 million households annually.

Comprehensive Budget Counseling — Counseling provides a unique one-on-one opportunity for an impartial analysis of the customer's financial situation and a forum in which to ask questions and resolve debt issues. Agency budget counseling programs return rehabilitated customers to creditors. Everyone who comes to a member agency gets free or low-cost help. Help includes a comprehensive budget review -- income and debt, assets and liabilities a discussion of options and a plan of action. Our member agencies only give Debt Management Programs (DMPs) to customers who really need them.

What is a Debt Management Plan (DMP)?

Our Debt Management Plan (DMP) consolidates various debts into a single, manageable monthly bill. Our clients make one payment to our member agencies, who then distribute the money to creditors. DMPs serve the dual role of helping customers repay their debts and helping creditors receive the money owed to them.”

A very interesting and detailed analysis of NFCC services is found on the NFCC site: http://www.nfcc.org/mo/commark/news/counseling_study032102.pdf

- 13 NFCC Credit Counseling Agencies work with most national creditors to develop a repayment plan that reduces principal, and reduces or eliminates interest. Most creditors voluntarily agree to participate in the Debt Management Plans because they usually recover a higher percentage of the debt owed to them than they would receive from a bankruptcy Trustee. The Bankruptcy Reform Act encourages Creditors to participate in voluntary repayment plans by providing a penalty if an individual files bankruptcy after a creditor refuses to agree to a plan, proposed at least 60 days before bankruptcy by an approved agency, that provided for payment of at least 60 percent of the debt over a period not longer than the original loan (or a reasonable extension). Due to the refusal, the Bankruptcy Court, on the motion of the debtor and after a hearing, may reduce by not more than 20 percent an unsecured, dischargeable, consumer debt claim filed by the same creditor against the debtor. The debtor has the burden of proving, by clear and convincing evidence, that the creditor unreasonably refused to consider the debtor's proposal. Because of the difficulty in proving unreasonable refusal, it seems doubtful that many claims will be reduced under this section. Nonetheless, it provides Credit Counselor’s with a selling tool for DMP’s. 502 Allowance of Claims … …[selected text from section] `(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).'. Credit Counseling Agencies can solve financial problems and help individuals avoid bankruptcy. However in a great number of situations they do not offer enough help. NFCC members receive about 70% of their funding from Creditor fair share contributions, essentially a 7% to 15% commission on the payments made through voluntary repayment plans. Only about 30% of individuals who are counseled by NFCC members enter these repayment plans. So the survival of the member agencies depends in part on screening Debtors so that those who are most likely to repay their debts participate in a plan. In general, NFCC members are both ethical and dedicated, however that fact does not alleviate the financial pressures they work under. Close ties to the creditors who fund NFCC create a subtle incentive to keep clients from filing bankruptcy (in the past NFCC members recommended bankruptcy to only about 7% of the people they counseled), and the need for income makes NFCC members reluctant to turn away individuals with high debt loads (and thus potentially large commissions).

You will need to establish a working relationship with one or more approved counseling agencies. After the client signs the required initial contact notices, if they do not already have a certificate, you should help them contact an agency from your office. The agency can then provide the pre-filing counseling by phone or internet (usually takes 90 to 120 minutes), and the client can decide if they want to file bankruptcy before they leave your office (or, if they prefer, they can go to a local branch of the counseling service where available). The client can

- 14 call from home and return to your office, the only disadvantage being that it is more difficult for you to answer questions and clear up misconceptions that may arise. If the client chooses to file, the agency can immediately provide the required certificate to your office. Most approved agencies, like the very large MMI (877 833-1743), say that they expect that only 5% to 10% of clients will choose not to file bankruptcy and choose a Debt Management Plan (DMP) instead (early experience confirms the estimates). To date, many local counselors have seemed to be less willing to recommend bankruptcy, even when it is in a client’s best interest.

Since the Act requires a certificate from an approved credit counseling agency, debtor’s attorneys may have to accept the inevitable loss of some client’s to DMP’s. There are pre-bankruptcy counseling services that do not provide DMP’s. However, many who would choose a DMP instead of bankruptcy will be people you would have advised not to file anyway. For that reason you should consider recommending large counseling organizations (like MMI and GreenPath), that can provide effective DMP’s where appropriate. If you think a counseling service will recommend a DMP to a potential client, and that filing bankruptcy would be in their best interest, have them complete the course in your office so you can properly advise them about the DMP.

Note that the Act requires that Approved Agencies provide pre and post petition counseling without charge in appropriate circumstances. Each agency will have different criteria for determining if counseling fees will be waived. If one agency will not waive the fee, suggest that the client shop for one that will.

The Act also provides for waiver of the filing fee by the Court. This is useful in pro bono cases, however it is not clear that if a Court waives the filing fee it would allow an attorney fee. Chapter 13 filing fees are increasing in 2006 to match the Chapter 7 fees.

It remains to be seen what effect mandatory counseling will have on bankruptcy filings. Certainly the Credit industry would like to see most people diverted from bankruptcy into voluntary repayment plans. It is fair to say that monthly payments under a Chapter 13 plan, even under the Reform Act, will almost always be lower than payments under a voluntary NFCC Debt Management Plan. Even so, NFCC members (we assume that those agencies who are not members of the NFCC or a similar ethical organization will not be approved by the U.S. Trustee) will have the first opportunity to counsel debtors and will become increasingly adept at structuring voluntary plans that keep debtors out of bankruptcy, even if they would be well served by a “fresh start”.

The real effect of the Reform Act may be an economic one, essentially making DMP’s that are “free” to the client more attractive than bankruptcy petitions which will now cost substantially more in up-front fees and costs. Attorneys need to keep this cost advantage in mind when determining their charges for bankruptcy, and will need to become more cost-efficient service providers if they want to continue representing debtors. We suggest selecting and working with those agencies that demonstrate a willingness to provide a balanced and neutral presentation of the options of bankruptcy, DMP’s, and self-help lifestyle changes.

An individual may be allowed to file bankruptcy without a briefing by a credit counselor if there are exigent circumstances that merit a waiver of the requirements. To obtain a waiver the individual must submit a certification to the Court describing the exigent circumstances, and stating that they requested credit counseling services from an approved credit counseling agency, but were unable to obtain the services within 5-days. If a waiver is granted the Debtor must attend a briefing within 30 days (plus 15 more if granted by the Court) after the petition is filed. Most courts that have addressed this issue have required debtors to provide proof a reasonable effort to obtain pre-filing counseling, and have dismissed the case where proof was not available. Since national services provide 24/7 telephone counseling a petition should NOT be filed until the counseling is completed. If a client needs to file an emergency petition, you can call MMI and obtain a certificate within two hours. If for some reason a petition is filed without obtaining a certificate, or a waiver, you should act immediately. Since the client cannot

- 15 be a Debtor if they do not have a certificate, the case should be stricken, NOT dismissed (several cases support this argument). This avoids potential consequences under the Act for dismissal and refiling. Some courts are incorrectly interpreting the language “180-day period preceding the date of filing” to mean that counseling must be completed at least one day before filing, and cannot be completed on the date of filing. This is clearly wrong, any attempt by the UST to interpret the Act in this manner should be resisted. A Court can, after notice and hearing, waive the requirement for credit counseling and/or attending a financial management course if the Court finds that the individual is unable to complete those requirements because of incapacity, disability, or active military duty in a military combat zone. These tests are discussed in the next section, and will be very, very, hard to meet. `109 Who May Be a Debtor … …[selected text from section] (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) describes 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

- 16 briefing required under paragraph (1).' 521 Debtor’s Duties … …[selected text from section] `(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).'.

- 17 Post-Petition Education - In addition to pre-bankruptcy counseling, all Ch. 7 & Ch. 13 Debtors must complete a Financial Management Course before they receive a Discharge of Debts. The Financial Management Course is intended to help Debtors identify and correct the financial mistakes that led to bankruptcy. Many Ch 13 Trustees already offer some form of financial education which will probably be approved by the UST. The goal is to evaluate different programs and then develop uniform materials that will maximize the chance for Debtors to obtain financial stability. The U.S. Trustee’s office is required to develop a financial management training curriculum to be tested in 6 judicial districts beginning no later than 270 days after enactment of the act and to continue for 18 months. This experimental program does not delay implementation of the general requirement to attend a financial management course from an approved agency before a discharge is granted.

WARNING - YOU ARE REQUIRED TO FILE A COPY OF THE UST’S CERTIFICATE OF COMPLETION OF FINANCIAL EDUCATION COURSE BEFORE THE CH 7 DISCHARGE

DATE OR IN CHAPTER 13 CASES BEFORE THE LAST PLAN PAYMENT IS MADE. IF YOU DO NOT DO SO THE CASE WILL BE CLOSED WITHOUT A DISCHARGE.

___________________________________________________________________ A Court can, after notice and hearing, waive the requirement for credit counseling and/or attending a financial management course if the Court finds that the individual is unable to complete those requirements because of incapacity, disability, or active military duty in a military combat zone. These tests will be very, very, hard to meet. “Incapacity” is defined to mean that the debtor is so impaired by mental illness or deficiency that they are incapable of realizing and making rational decisions with respect to financial responsibilities, and “disability” means that the debtor is so physically impaired as to be unable, after reasonable effort, to participate in a briefing in person, by telephone, or on the internet.

We suggest considering a discount package of pre and post petition counseling from the same Credit Counseling Agency. Large providers like MMI (877 833-1743) are offering $50 pre-petition counseling by phone or internet (individual or joint counseled in one session) packaged with a $50 post-petition financial education course, with the fees waived in limited circumstances. On the other hand, as of March 2006 MMI’s post-filing education was offered by conference call at specific times only, while Hummingbird’s (www.hbcce.org) is available for $20 (24/7) over the internet. So for many clients it may be easier to obtain pre-filing counseling from MMI, and post-filing education from Hummingbird.

You need to monitor EOUST (Executive Office of the US Trustee) activity to see if they are objecting to various counseling options, like by phone from the attorney’s office. That is another good reason to join NACBA [www.NACBA.org]. 1328 Discharge [selected text from section] `(g) (1) The court shall not grant a discharge under this section to a debtor unless after filing a petition 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.'.

Credit counseling and/or attending a financial management course may also be “waived” if the U.S. Trustee (or bankruptcy administrator) determines that the approved agencies and

- 18 courses for a particular district are not able to provide adequate services to additional individuals who would be required to take the courses [i.e.- they are overcrowded]. Again, this seems unlikely given the availability of phone counseling. `109 Who May Be a Debtor … …[selected text from section] (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) describes 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).' 727 Discharge [selected text from section] (a)(11) after filing the petition, the debtor failed to complete an instructional course concerning 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 United 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.); … …

- 19 A rare situation - if a debtor has a case under Ch 7, 11, or 13 that is dismissed due to creation of a debt repayment plan (DMP), any subsequent case under such chapter shall NOT be “presumed to be filed not in good faith”. If you have a debtor who is in a Chapter 7 or 11 case that is going to be dismissed, or who is unable to continue in a Chapter 13 plan, you should consider if obtaining a DMP is appropriate before the dismissal so that a future case will not be subject to the provisions regarding cases “filed not in good faith”. 362 Automatic Stay … … [selected text from section] `(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 any such chapter shall not be presumed to be filed not in good faith.

- 20 Bankruptcy Petition Preparers - The Act provides what a petition preparer can and cannot do, and the penalties for violating those rules, including loss of fees and being barred from further filings. ____________________________________________________________________Before preparing any document the preparer must provide an official form informing the debtor that they are not an attorney and may not give legal advice. The form may contain general legal advice regarding bankruptcies, including whether under various conditions it is better to file a Ch 7, 11, 12, or 13 case; what debts will be discharged; whether the debtor will be able to keep a home, car, or other property; addressing tax issues; information about reaffirmation agreements (and presumably redemptions); how to characterize property and debts; and information on bankruptcy procedures and rights. The official Notice must be signed by the debtor and, under penalty of perjury, the preparer; and filed with the Court. In general, the Act makes assisting debtors more difficult for independent preparers, and will probably reduce the number of preparers (unless the higher cost of attorney prepared petitions results in consumer interest in lower cost alternatives). Sec. 110. Penalty for persons who negligently or fraudulently prepare bankruptcy petitions [selected text from section] (a) In this section – (1) ''bankruptcy petition preparer'' means a person, other than an attorney, `for the debtor or an employee of such attorney under the direct supervision of such attorney' who prepares for compensation a document for filing; and (2) ''document for filing'' means a petition or any other document prepared for filing by a debtor in a United States bankruptcy court or a United States district court in connection with a case under this title. (b) (1) A bankruptcy petition preparer who prepares a document for filing shall sign the document and print on the document the preparer's name and address.`If a bankruptcy petition preparer is not an individual, then an officer, principal, responsible person, or partner of the bankruptcy petition preparer shall be required to— `(A) sign the document for filing; and `(B) print on the document the name and address of that officer, principal, responsible person, or partner.'. `(2) (A) Before preparing any document for filing or accepting any fees from a debtor, the bankruptcy petition preparer shall provide to the debtor a written notice which shall be on an official form prescribed by the Judicial Conference of the United States in accordance with rule 9009 of the Federal Rules of Bankruptcy Procedure. `(B) The notice under subparagraph (A)— `(i) shall inform the debtor in simple language that a bankruptcy petition preparer is not an attorney and may not practice law or give legal advice; `(ii) may contain a description of examples of legal advice that a bankruptcy petition preparer is not authorized to give, in addition to any advice that the preparer may not give by reason of subsection (e)(2); and `(iii) shall-- `(I) be signed by the debtor and, under penalty of perjury, by the bankruptcy petition preparer; and `(II) be filed with any document for filing.' (c) (1) A bankruptcy petition preparer who prepares a document for filing shall place on the document, after the preparer's signature, an identifying number that identifies individuals who prepared the document. (2) (A) Subject to subparagraph (B), for purposes' of this section, the identifying number of a bankruptcy petition preparer shall be the Social Security account number of each individual who prepared the document or assisted in its preparation.

- 21 `(B) If a bankruptcy petition preparer is not an individual, the identifying number of the bankruptcy petition preparer shall be the Social Security account number of the officer, principal, responsible person, or partner of the bankruptcy petition preparer.' (d)(1) A bankruptcy petition preparer shall, not later than the time at which a document for filing is presented for the debtor's signature, furnish to the debtor a copy of the document. (e) (1) A bankruptcy petition preparer shall not execute any document on behalf of a debtor. `(2) (A) A bankruptcy petition preparer may not offer a potential bankruptcy debtor any legal advice, including any legal advice described in subparagraph (B). `(B) The legal advice referred to in subparagraph (A) includes advising the debtor-- `(i) whether-- `(I) to file a petition under this title; or `(II) commencing a case under chapter 7, 11, 12, or 13 is appropriate; `(ii) whether the debtor's debts will be discharged in a case under this title; `(iii) whether the debtor will be able to retain the debtor's home, car, or other property after commencing a case under this title; `(iv) concerning-- `(I) the tax consequences of a case brought under this title; or `(II) the dischargeability of tax claims; `(v) whether the debtor may or should promise to repay debts to a creditor or enter into a reaffirmation agreement with a creditor to reaffirm a debt; `(vi) concerning how to characterize the nature of the debtor's interests in property or the debtor's debts; or `(vii) concerning bankruptcy procedures and rights.' (f)(1) A bankruptcy petition preparer shall not use the word ''legal'' or any similar term in any advertisements, or advertise under any category that includes the word ''legal'' or any similar term. (g)(1) A bankruptcy petition preparer shall not collect or receive any payment from the debtor or on behalf of the debtor for the court fees in connection with filing the petition. (h) ‘(1) The Supreme Court may promulgate rules under section 2075 of title 28, or the Judicial Conference of the United States may prescribe guidelines, for setting a maximum allowable fee chargeable by a bankruptcy petition preparer. A bankruptcy petition preparer shall notify the debtor of any such maximum amount before preparing any document for filing for a debtor or accepting any fee from the debtor.' (2) Within 10 days after the date of the filing of a petition, a bankruptcy petition preparer shall file a A declaration under penalty of perjury `by the bankruptcy petition preparer shall be filed together with the petition,' disclosing any fee received from or on behalf of the debtor within 12 months immediately prior to the filing of the case, and any unpaid fee charged to the debtor. `If rules or guidelines setting a maximum fee for services have been promulgated or prescribed under paragraph (1), the declaration under this paragraph shall include a certification that the bankruptcy petition preparer complied with the notification requirement under paragraph (1).' `(3)(A) The court shall disallow and order the immediate turnover to the bankruptcy trustee any fee referred to in paragraph (2) found to be in excess of the value of any services— `(i) rendered by the bankruptcy petition preparer during the 12-month period immediately preceding the date of the filing of the petition; or `(ii) found to be in violation of any rule or guideline promulgated or prescribed under paragraph (1). `(B) All fees charged by a bankruptcy petition preparer may be forfeited in any case in which the bankruptcy petition preparer fails to comply with this subsection or subsection (b), (c), (d), (e), (f), or (g). `(C) An individual may exempt any funds recovered under this paragraph under section 522(b).'

- 22 (4) The debtor, the trustee, a creditor, or the United States trustee `the United States trustee (or the bankruptcy administrator, if any) or the court, on the initiative of the court,' may file a motion for an order under paragraph (2). (5) A bankruptcy petition preparer shall be fined not more than $500 for each failure to comply with a court order to turn over funds within 30 days of service of such order. `(i)(1) If a bankruptcy petition preparer violates this section or commits any act that the court finds to be fraudulent, unfair, or deceptive, on the motion of the debtor, trustee, United States trustee (or the bankruptcy administrator, if any), and after notice and a hearing, the court shall order the bankruptcy petition preparer to pay to the debtor--' (A) the debtor's actual damages; (B) the greater of – (i) $2,000; or (ii) twice the amount paid by the debtor to the bankruptcy petition preparer for the preparer's services; and (C) reasonable attorneys' fees and costs in moving for damages under this subsection. (2) If the trustee or creditor moves for damages on behalf of the debtor under this subsection, the bankruptcy petition preparer shall be ordered to pay the movant the additional amount of $1,000 plus reasonable attorneys' fees and costs incurred. (j) (1) A debtor for whom a bankruptcy petition preparer has prepared a document for filing, the trustee, a creditor, or the United States trustee in the district in which the bankruptcy petition preparer resides, has conducted business, or the United States trustee in any other district in which the debtor resides may bring a civil action to enjoin a bankruptcy petition preparer from engaging in any conduct in violation of this section or from further acting as a bankruptcy petition preparer. (2) (A) In an action under paragraph (1), if the court finds that (i) a bankruptcy petition preparer has - (I) engaged in conduct in violation of this section or of any provision of this title; (II) misrepresented the preparer's experience or education as a bankruptcy petition preparer; or (III) engaged in any other fraudulent, unfair, or deceptive conduct; and (ii) injunctive relief is appropriate to prevent the recurrence of such conduct, the court may enjoin the bankruptcy petition preparer from engaging in such conduct. (B) If the court finds that a bankruptcy petition preparer has continually engaged in conduct described in subclause (I), (II), or (III) of clause (i) and that an injunction prohibiting such conduct would not be sufficient to prevent such person's interference with the proper administration of this title imposed under this section, `or failed to disgorge all fees ordered by the court' the court may enjoin the person from acting as a bankruptcy petition preparer. `(3) The court, as part of its contempt power, may enjoin a bankruptcy petition preparer that has failed to comply with a previous order issued under this section. The injunction under this paragraph may be issued on the motion of the court, the trustee, or the United States trustee (or the bankruptcy administrator, if any).' (4) The court shall award to a debtor, trustee, or creditor that brings a successful action under this subsection reasonable attorneys fees and costs of the action, to be paid by the bankruptcy petition preparer. (k) Nothing in this section shall be construed to permit activities that are otherwise prohibited by law, including rules and laws that prohibit the unauthorized practice of law. `(l) (1) A bankruptcy petition preparer who fails to comply with any provision of subsection (b), (c), (d), (e), (f), (g), or (h) may be fined not more than

- 23 $500 for each such failure. ` (2) The court shall triple the amount of a fine assessed under paragraph (1) in any case in which the court finds that a bankruptcy petition preparer— `(A) advised the debtor to exclude assets or income that should have been included on applicable schedules; `(B) advised the debtor to use a false Social Security account number; `(C) failed to inform the debtor that the debtor was filing for relief under this title; or `(D) prepared a document for filing in a manner that failed to disclose the identity of the bankruptcy petition preparer. `(3) A debtor, trustee, creditor, or United States trustee (or the bankruptcy administrator, if any) may file a motion for an order imposing a fine on the bankruptcy petition preparer for any violation of this section. `(4)(A) Fines imposed under this subsection in judicial districts served by United States trustees shall be paid to the United States trustee, who shall deposit an amount equal to such fines in a special account of the United States Trustee System Fund referred to in section 586(e)(2) of title 28. Amounts deposited under this subparagraph shall be available to fund the enforcement of this section on a national basis. `(B) Fines imposed under this subsection in judicial districts served by bankruptcy administrators shall be deposited as offsetting receipts to the fund established under section 1931 of title 28, and shall remain available until expended to reimburse any appropriation for the amount paid out of such appropriation for expenses of the operation and maintenance of the courts of the United States.'

- 24 Step 3 - Being a Debtor’s Counsel – there are new duties and penalties imposed on attorneys who represent Debtors. If a §707(b) motion for dismissal or conversion that is filed by a trustee is granted, AND the Court finds that the attorney for the debtor violated rule FRBP 9011 by filing the petition, then the Court may order the attorney to reimburse the trustee for all reasonable costs and attorney fees in prosecuting the motion. If the court finds that the attorney for the debtor violated FRBP 9011, the Court (on its own initiative or on the motion of a party in interest), may assess an appropriate civil penalty against the attorney (payable to the U.S. Trustee). The signature of an attorney on a petition, pleading, or written motion constitutes a certification that the attorney has performed a reasonable investigation into the circumstances that gave rise to the petition, pleading, or written motion and determined that the petition, pleading, or written motion is well grounded in fact and 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 §707(b)(1). [no specific penalty is stated for failure to investigate or verify that an argument is sound – however a sense of Congress statement in the Act urges amendment to incorporate this language into Federal Rule 9011] The signature of an attorney on the petition constitutes a certification that the attorney has no knowledge after an inquiry that the information in the schedules filed with such petition is incorrect. [no specific penalty is stated if in fact the information is incorrect] ___________________________________________________________________ The costs and attorney fees provisions are contained in §707(b), pertain only to successful 707(b) motions in Chapter 7 cases, are not mandatory, must follow FRBP 9011 procedures, require that the attorney violated FRBP 9011 by filing the petition, and must be sought by motion of the Trustee (not UST). The civil penalty provision requires that the Attorney violated FRBP 9011.

The provisions regarding attorney certification by the signing of a petition (atty. does not sign the schedules or statements), pleading, or written motion basically restate the tenets of FRBP 9011, except that “reasonable investigation” is substituted for “reasonable inquiry”. The terms are probably interchangeable and presumably will not add to the requirements under 9011. The attorney certifies that they have determined the petition is not an abuse under §707(b)(1), which most likely will evolve into a good faith determination after reasonable inquiry test.

Finally the attorney certifies that they have no knowledge, after inquiry, that the schedules are incorrect – which would affect only those attorney’s who knowingly sign false schedules.

What will constitute a “reasonable investigation“ and “an inquiry” is an open question. It would seem that at a minimum the attorney should carefully review all required documents, and probably obtain credit reports, consider property valuation information from taxing authorities, analyze bank statements, and perhaps perform simple title searches. If there is reason to believe that information is incorrect (debtor has been unemployed for years but is current on all obligations) then it would appear that the attorney should carefully document a diligent effort to determine the true financial condition of the clients.

The practical effect of these changes will depend on how they are implemented, and can be expected to vary widely among districts. The requirements under the Act are essentially the same as under the current Rule 11, and for all practical purposes do not add significant new provisions. Penalties are the same (who receives monetary penalties is changed) and the court must follow FRBP 9011 procedures in imposing them.

It is likely that the overall tenor of the Act will have far more impact on attorney discipline than any specific provision of the Act. We believe that some courts will use the stated purpose of the Act to hold attorneys to a higher standard with regard to verifying client provided information and the contents of petitions and schedules. The safest practice is to assume that,

- 25 whether or not the statutory language supports doing so, you will be held to a somewhat higher standard of inquiry under the Act. For that reason you should exercise a higher level of due diligence in obtaining and verifying client documents and client information, and in preparing petitions. This is especially true in light of the new auditing procedures discussed later. The new provisions do not add much to the burden of competent counsel, but they will provide additional support for the UST to “go after” marginal practitioners.

The court may award the debtor costs and attorney fees if a creditor files a motion under 707(b) and the court finds that, the position of the movant violated FRBP 9011 or movant’s attorney failed to perform reasonable investigation, the motion was not well grounded, and the motion was made solely for the purpose of coercing a debtor into waiving a bankruptcy right. This section is so difficult to prove that it will probably be of little practical benefit to debtors. However it may be somewhat useful in situations where Creditor’s attorneys file routine motions to lift stay where no grounds exist in a specific case, etc.

When ruling on allowable fees the Court is to consider whether the attorney is board certified or otherwise has skill and experience in the bankruptcy field. The American Board of Certification [www.abcworld.org] program is the leading certification program for bankruptcy attorneys. Sec 707 Dismissal of a case or conversion to a case under chapter 11 or 13 [selected text] `(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 section 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 United 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. `(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

- 26 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.… Sec. 330. Compensation of officers … … [selected text from section] `(E) with respect to a professional person, whether the person is board certified or otherwise has demonstrated skill and experience in the bankruptcy field; and'

- 27 Step 4 – Can the Client be a Debtor, & if so, What Relief do They Get? The length of time between multiple filings determines what, if any, relief can be obtained. If your client has been in any kind of bankruptcy in the last 8 years use this list to find the possible consequences: 8 years – A client cannot receive a discharge in a Chapter 7 case if they received a discharge in a Chapter 7 case filed within 8 years (as measured from the filing date). §727(a)(8) 6 years – A client cannot receive a discharge in a Chapter 7 case if they received a discharge in a Chapter 12 or 13 case filed within 6 years (as measured from the filing date) UNLESS: 100 percent of the allowed unsecured claims were paid, OR 70 percent of the allowed unsecured claims were paid, AND the plan was proposed in good faith AND was the debtor’s best effort. §727(a)(9) 4 years - A Debtor cannot receive a discharge in a Chapter 13 case if they received a discharge in a case that was filed under chapters 7, 11, or 12 during the 4-year period preceding the date of filing in the current Chapter 13 case (as measured from the filing date). §1328(f) 2 years - A Debtor cannot receive a discharge in a Chapter 13 case if they received a discharge in a case that was filed under chapter 13 during the 2-year period preceding the date of filing in the current Chapter 13 case (as measured from the filing dates). §1328(f) A “Chapter 20” filing (a Ch 7 case to eliminate unsecured debt followed immediately by a Ch 13 case to allow mortgage arrearages to be cured, etc.) should still be available because the point of the follow-up Ch 13 case is usually to pay an arrearage, secured debt, etc., and not to get a discharge from the debts.

2 years - Automatic Stay and Real Property If the court finds that a Debtor filed a petition to delay, hinder, and defraud creditors through a scheme to transfer real property without the consent of a secured creditor or court approval, or through filing multiple bankruptcy cases affecting the same real property, then the Court may Order that the Relief from Stay remain binding in any case filed by the Debtor over the next 2 years. If such an Order is in effect, and properly recorded under state law as a notice regarding real estate, there is no stay in the subsequent case to prevent enforcement of any lien against, or security interest in, the real property. A debtor may, within 30 days of filing a subsequent case, move for relief from such order based upon changed circumstances or for good cause shown. Debtor’s Attorney MUST be alert as to any existing Order under this section and whether there is a need to immediately request a stay to stop a foreclosure sale. §362(d)(4) 1 year – a single prior case was dismissed The Act provides that if a Ch 7, 11, or 13 case is filed within 1 year of the dismissal of a single prior case (other than a Ch 7 case refiled after dismissal under 707(b) – the median income bankruptcy “abuse” section) then the stay will be automatically

- 28 lifted on the 30th day after the filing date. On the motion of a party in interest, the court may extend the stay as to any or all creditors, subject to conditions or limitations, if the party demonstrates that the current filing is in good faith as to the specific creditors to be stayed. This section will probably not have a significant impact on Chapter 7 cases where the stay would simply be terminated earlier than usual, and may not adversely affect Ch 11 and Ch 13 cases where confirmed plans effectively act as a continuing stay. In Ch 11 and Ch 13 cases it would be advisable to file a motion to extend the stay at the time of filing of the petition. Debtor’s Attorney MUST be alert to any need to request extensions of the stay. §362(c)(3) 1 year – 2 or more Ch 7, 11, or 13 cases had been pending The Act provides that if 2 or more Ch 7, 11, or 13 cases had been pending within 1 year of the filing date of the current case (other than a Ch 7 case refiled after dismissal under 707(b) – the median income bankruptcy “abuse” section) the automatic stay does not go into effect when the current case is filed. Within 30 days after filing the court may order the stay to take effect as to any or all creditors, subject to conditions or limitations, if the party demonstrates that the current filing is in good faith as to the specific creditors to be stayed. Again, Debtor’s Attorney will have the added duty to be alert to the need to immediately request imposition of a stay. §362(c)(4) 180 days – The Act provides that there is no stay to prevent enforcement of any lien against, or security interest in, real property where the person filing a petition is ineligible to be a Debtor because within 180 days a previous case was dismissed by the court for willful failure to abide by orders of the court or to appear, OR within 180 days the debtor requested and obtained the voluntary dismissal of the case following the filing of a motion for relief from stay, OR the subsequent case was filed in violation of an order prohibiting the petitioner from being a debtor in the case. §362(b)(21)

WARNING - IF YOU HAVE A CLIENT WHO IS SUBJECT TO ANY OF THE LIMITATIONS ON THE AUTOMATIC STAY, AND WHO WANTS TO STOP A

FORECLOSURE, YOU MUST BE SURE YOU ADVISE THEM THAT THERE IS NO STAY, YOU MAY NOT BE ALLOWED TO REQUEST A STAY, AND THAT EVEN IF

YOU CAN, THE COURT MAY REFUSE TO STOP THE FORECLOSURE. _________________________________________________________________________

Unless there is clear and convincing evidence to the contrary, for the purposes of paragraphs (B) in §362(c)(3) & §362(c)(4) the current case is presumptively not filed in good faith as to all creditors if the Debtor had 2 or more pending cases in the preceding year;

OR a case was dismissed during that year for failure to file or amend without substantial excuse - not including inadvertence, or negligence except by debtor's attorney; failure to provide adequate protection; failure to perform under a confirmed Ch 13 plan;

OR where there has not been a substantial change in the financial or personal affairs of the debtor or any other reason to conclude that the current case will be successfully concluded;

OR, as to a specific creditor, the creditor in the previous case had a motion for relief pending or granted on the date of dismissal of the prior case.

You need to be especially aware of the §727(a)(9) prohibition of obtaining a Chapter 7 discharge within 6 years of obtaining a Ch 13 or Ch 12 discharge. Since you may need to receive a Ch 13 discharge to cram down a claim, §727(a)(9) probably prevents conversion to obtain a Ch 7 discharge after the Ch 13 discharge (discussed later)?

_________________________________________________________________________

You need to study these convoluted sections carefully, for example, it can make a difference if one of the dismissed cases was a Ch 12. These provisions make it difficult for an individual to

- 29 refile within a year after dismissal and obtain the benefit of a stay, even if a §109(g) 180 day restriction is not in effect. WARNING - IF POSSIBLE ALL CASES SHOULD BE COMPLETED AND NOT DISMISSED. It is important for debtors to time their initial filing so as to maximize the chance that it will be successfully concluded (i.e.- don’t file until required documents are collected, circumstances favor funding of a Ch 13 plan, etc.) If you practice in a community property state review §524(b). Our BAPCPA Date Calculator, included with this Guide, helps identify many significant dates. Sec. 727. Discharge [selected text from section] (a) The court shall grant the debtor a discharge, unless (8) the debtor has been granted a discharge under this section, under section 1141 of this title, or under section 14, 371, or 476 of the Bankruptcy Act, in a case commenced within six 8 years before the date of the filing of the petition; (9) the debtor has been granted a discharge under section 1228 or 1328 of this title, or under section 660 or 661 of the Bankruptcy Act, in a case commenced within six years before the date of the filing of the petition, unless payments under the plan in such case totaled at least – (A) 100 percent of the allowed unsecured claims in such case; or (B) (i) 70 percent of such claims; and (ii) the plan was proposed by the debtor in good faith, and was the debtor's best effort; or …. Sec. 1328. Discharge [selected text from section] `(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.'.. Sec. 362. Automatic stay [selected text from section] (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 [ed.–prob.“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 30th 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 of 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)--

- 30 `(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 case, that action was still pending or had been resolved by terminating, conditioning, or limiting the stay as to actions of such creditor; and `(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) 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 individual 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

- 31 such creditor.'. (d) On request of a party in interest and after notice and a hearing, the court shall grant relief from the stay provided under subsection (a) of this section, such as by terminating, annulling, modifying, or conditioning such 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 upon changed circumstances or for good cause shown, after notice and a 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.'.

- 32 Landlords – where a tenant is being evicted the Automatic Stay may not go into effect, or may be severely limited. Where a Pre-Petition Judgment of Possession has Been Entered – If under a lease or rental agreement a landlord has obtained a judgment against the debtor for possession of the Debtor’s residence prior to the filing date, the Landlord can, without obtaining relief from stay, continue with the eviction proceeding. Where a Pre-Petition Judgment of Possession has NOT Been Entered – If the landlord has not obtained a writ of possession, they may proceed with an eviction action based on endangerment of the residential property or the illegal use of controlled substances on the premises, if the lessor files and serves on the debtor a certification that an eviction action has been filed, OR that during the 30-day period preceding the date of the filing of the certification the debtor has endangered the property or illegally used or allowed to be used a controlled substance on the premises. The Landlord may after 15 days, without obtaining relief from stay, move forward with an eviction proceeding. Leases - In a Ch 7 case an individual debtor may notify the landlord, or other creditor for non-residential leases, in writing that the debtor desires to assume a lease. The creditor may, at its option, notify the debtor that it is willing to have the lease assumed and may condition such assumption on cure of any outstanding default. If within 30 days the debtor notifies the lessor in writing that the lease is assumed, the liability under the lease will be assumed by the debtor. The stay is not violated by negotiation for cure. In Ch 11 where the Debtor is an individual, or a Ch 13 case if a personal property lease is not assumed in a confirmed plan, the lease is deemed rejected at the conclusion of the confirmation hearing. The stay is automatically terminated when a lease is rejected. §365(p)(3) ________________________________________________________________ A Debtor must disclose on the Petition if a judgment for possession has been obtained and provide the name and address of the lessor so the Bankruptcy Clerk can provide required notices to them.

A judgment for possession may be held in suspension for 30 days if a Debtor files with the Petition and serves on the Landlord a certification that under non-bankruptcy law there are circumstances under which the debtor would be permitted to cure the entire monetary default after the judgment and the debtor (or an adult dependent of the debtor) has deposited with the clerk of the Bankruptcy Court any rent that would become due during the 30-day period after the filing of the bankruptcy petition. If within the 30-day period the debtor (or adult dependent) thereafter files and serves on the lessor a second certification that they have under non-bankrupcty law cured the entire monetary default the eviction is effectively stayed. If the landlord files an objection to any certification, the court shall hold a hearing within 10 days to determine if the certification filed by the debtor is true. If the court upholds the objection the landlord may immediately proceed to recover full possession of the property.

An eviction proceeding may be held in suspension if within the 15 day period a Debtor files with the court and serves on the lessor an objection to the truth or legal sufficiency of the Landlord’s certification of endangerment or illegal activity. The court must hold a hearing within 10 days to determine if the situation giving rise to the lessor's certification existed or has been remedied. If the debtor can demonstrate to the satisfaction of the court that the situation did not exist or has been remedied, the stay remains in effect. If not, then, without obtaining relief from stay, the landlord may immediately proceed to recover full possession of the property.

Sec. 362. Automatic stay [selected text from section] `(22) subject to subsection (l), under subsection (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

- 33 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; `(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;

`(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 serves upon the lessor a certification under penalty of perjury that— `(A) 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 `(B) 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 nonbankrupcty 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) 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. `(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

- 34 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 paragraph (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. `(C) The standard forms (electronic and otherwise) used in a bankruptcy proceeding shall be amended to reflect the requirements of this subsection. `(D) The clerk of the court shall arrange for the prompt transmittal of the rent deposited in accordance with paragraph (1)(B) to the lessor. `(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 by the court under this subsection. `(B) If the 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. `(3) If the debtor fails to file, within 15 days, an objection under paragraph (2)(A)-- `(A) subsection (b)(23) shall apply immediately upon such failure 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 such failure.'.

Sec. 365. Executory contracts and unexpired leases [selected text from section] `(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 section 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.'.

- 35 Involuntary Petitions - It is beyond the scope of this guide to discuss involuntary petitions, and whether they are still available for use by creditors in situations involving individuals. The Act provides for sealing and expungement of records if an involuntary petition is false or contains materially false, fictitious, or fraudulent statements. Please note that in this book we use “date of the order for relief” interchangeably with “date of filing” because we talking about voluntary petitions only, in the case of involuntary petitions those dates are NOT the same. __________________________________________________________________ Sec. 303. Involuntary cases ……[selected text from section] (b) An involuntary case against a person is commenced by the filing with the bankruptcy court of a petition under chapter 7 or 11 of this title … `(l) (1) If— [ed. – probably should be (k)(1)] `(A) the petition under this section is false or contains any materially false, fictitious, or fraudulent statement; `(B) the debtor is an individual; and `(C) the court dismisses such petition, the court, upon the motion of the debtor, shall seal all the records of the court relating to such petition, and all references to such petition. `(2) If the debtor is an individual and the court dismisses a petition under this section, the court may enter an order prohibiting all consumer reporting agencies (as defined in section 603(f) of the Fair Credit Reporting Act (15 U.S.C. 1681a(f))) from making any consumer report (as defined in section 603(d) of that Act) that contains any information relating to such petition or to the case commenced by the filing of such petition. `(3) Upon the expiration of the statute of limitations described in section 3282 of title 18, for a violation of section 152 or 157 of such title, the court, upon the motion of the debtor and for good cause, may expunge any records relating to a petition filed under this section.'

- 36 Most Debtors still get the protection of an Automatic Stay on the filing date. If a creditor “requests” a lift of stay and no decision has been made by the Court, and it has not been extended by agreement or for by the Court for good cause, the stay automatically terminates 60 days after the request is filed. [The act uses the term “request” to lift stay – perhaps anticipating the use of an informal procedure instead of a motion and hearing?] §362(e)(2) Automatic Stay and Support Obligations – The Act allows continuation of voluntary and involuntary wage and other income deductions for domestic support obligations. Furthermore, the automatic stay does not stay the commencement or continuation of a proceeding to establish paternity; to order or modify domestic support obligations; concerning child custody or visitation; for the dissolution of a marriage, except as to determination of division of property of the estate; regarding domestic violence; to collect a domestic support obligation from property that is not property of the estate; to withhold income, under a non-bankruptcy order or statute, that is property of the estate or the debtor for payment of a domestic support obligation; under the SSA to withhold, suspend, or restrict a driver's, professional (physician, attorney, etc.), occupational, or recreational license; under the SSA to reporting overdue support owed by a parent to a consumer reporting agency; to intercept a tax refund; or to enforce a medical obligation under the SSA. § 362(b)(2) SUMMARY OF CHANGES WHERE THE AUTOMATIC STAY DOES NOT APPLY The filing of a bankruptcy petition does not stay: 1. Proceedings regarding child custody, visitation, domestic violence, and divorce, except regarding the division of property of the estate. 2. Commencement or continuation of a proceeding to withhold income from property of the estate or property of the debtor for a domestic support obligation. 3. Proceedings to restrict a driver’s license or other license for the purpose of collecting a domestic support obligation. 4. Tax intercepts to collect support. 5. Reports to credit agencies in regard to collecting a domestic support obligation. 6. Proceedings to enforce medical support obligations. Note that creditor with a domestic support obligation is bound by a confirmed plan as the debtor is making their the plan and current support payments (but may still seek modification of support in state court). __________________________________________________________________ Lifting of the stay after 60 days only slightly shortens the normal time that the stay is in effect in a Ch 7 case. It is important that you file a motion for a hearing when additional time is needed.

Domestic Support Obligations are broadly defined as a debt under nonbankruptcy law that is owed to a spouse, former spouse, or child of the debtor or such child's parent, legal guardian, responsible relative, or governmental unit in the nature of alimony, maintenance, or support without regard to whether such debt is expressly so designated, and not assigned to a nongovernmental entity [not a governmental unit], unless assigned voluntarily for the purpose of collecting the debt.

Domestic Support Obligations include obligations that are established before and after the filing date, and include both prepetition and postpetition interest that accrues on the debt.

- 37 Domestic Support Obligations include obligations that are voluntarily assigned to nongovernmental entities for collection.

These provisions essentially take away the power of a bankruptcy judge to give relief to indigent bankrupts who are subject to inequitable burdens imposed by state or local courts, especially where the Debtor has no funds to appeal those rulings outside the bankruptcy court. Sec. 101. Definitions [selected text from section] `(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 governmental 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.' Sec. 362. Automatic stay [selected text from section] (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 is required for good cause, as described in findings made by the court.' Sec. 362. Automatic stay [selected text from section] (b) The filing of a petition under section 301, 302, or 303 of this title, or of an application under section 5(a)(3) of the Securities Investor Protection Act of 1970, 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;

- 38 `(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;' Sec. 523. Exceptions to discharge [selected text from section] (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; (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; unless -

- 39 Notice to Creditors - There are Limits on Penalties for Stay Violations if a Creditor does not receive effective notice. If within 90 days before the filing date, a creditor supplies the debtor in 2 or more communications with the account number and address at which such creditor requests to receive correspondence [not the payment address], then any required notice (including the notice of filing and of the automatic stay) must be sent to that address along with the account number. If a creditor would have been in violation of non-bankruptcy law by communicating with the debtor during that 90-day period, then any required notice must be sent to the address (with the account number if provided) a creditor supplied to the debtor in the last 2 communications before the 90-day period. (Are notices from collection agencies notices “from a creditor”?) If the notice is to an added creditor, it must show the Debtor’s full social security number.

ALERT – You need to stay current with required addresses provided to the Clerk, including addresses for local, state, and federal taxing authorities.

_______________________________________________________________ This provision seems to be open ended, however one commentator disagrees and reads a 180 day limit into the section? For example, as we interpret it, if under a previous stay a Creditor had not been allowed to contact the Debtor for 60 months – it would still be the Debtor’s duty to find a correspondence address on 61 and 62 month old bills? Even if this interpretation is correct, note that failure to provide effective notice prevents damages for stay violations, but does not affect discharge of the debt (which is still governed by good faith, etc.). Debtor’s counsel MUST stay alert to any attempt by Creditors who do not receive effective notice to extend the protection afforded by the Act.

A creditor may file with the court and serve on the debtor a notice of address to be used in a particular case. Any notice required to be provided to such creditor by the debtor or the court later than 5 days after they receive the notice of address must be provided to that address.

A creditor may file with any bankruptcy court a notice of address to be used by all the bankruptcy courts, or by particular bankruptcy courts, to provide notice in all Ch 7 and Ch 13 cases. 30 days after filing the notice of address, any notice required to be provided by the court to the creditor shall be provided to that address unless the creditor files with the court and serves on a Ch 7 or Ch 13 debtor notice of a different address.

This provision may be of use to the Debtor. It appears that when the BNC (noticing center) sends court notices it may be going to automatically correct addresses to match the addresses provided by creditors. However the process may still not work where the name of the creditor provided by the debtor does not match the name of the creditor on file with the BNC.

If a notice is not sent to the designated address, it is not effective notice until brought to the attention of such creditor. If a creditor designates a person or division to be responsible for receiving bankruptcy notices, and establishes reasonable procedures so that notices are delivered to them, then a notice has been brought to the attention of the creditor when it is received by the designated person or division.

A monetary penalty cannot be imposed for a violation of stay or for failure to turnover property (e.g.- return a car that was repossessed post-petition) until notice has been “brought to the attention” of the creditor OR “effective notice” has been given.

The new provisions allow a creditor to require that notices be sent either to a correspondence address relating to a specific Debtor, provided by the creditor as outlined above, OR, for all Debtors, to a general person or department designated by a creditor to receive notices. It would seem that Creditors might be reluctant to designate a general party responsible for bankruptcy notices, since failure to do so would make it harder to impose monetary damages?

- 40 The clerk must maintain a list of addresses for Federal, State, and local government tax units for service of requests regarding tax liability, however, if an address is not on file with the clerk, requests shall be mailed to the filing address for a tax return or protest.

Sec. 342. Notice [selected text from section]

‘(b)(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 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 title to be sent by the debtor to such creditor shall be sent to such address and shall include such account number.' `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.'. `(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 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. `(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). `(3) A notice filed under paragraph (1) may be withdrawn by such entity. `(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 an organizational subdivision of such creditor to be responsible for receiving notices under this title and establishes reasonable procedures so that such notices receivable 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 subsection) 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 a 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.'.

- 41 Step 5 - Means Test – You cannot file a Ch 7 Case if your Current Monthly Income exceeds the Means Test amount for your family. The Act provides for dismissal, or (with the Debtor’s consent) conversion to Ch 11 or 13, on a finding that granting relief would be an “abuse” [not “substantial abuse”] of the provisions of Chapter 7 by an individual consumer debtor. A finding of abuse may be based on failure of the Mean’s Test OR a determination that the debtor filed the petition in bad faith OR based on the totality of the circumstances of the debtor's financial situation (some experts disagree - see below). There are two objective tests applied to income and expenses to determine if a presumption of abuse exists on which a Motion to Dismiss can be based. Median Income Test - The First test is to see if the Debtor’s Current Monthly Income exceeds the State Median Income for a family of the same size. “Median” income means that there are an equal number of incomes in the state that are higher and an equal number that are lower than the median income. Basically this test looks to see if the Debtor’s family is better off than half of all the other families around them. Congress rather arbitrarily decided that there would be no presumption of abuse for those people who are in the bottom 50% of state incomes. Means Test – If the family income is above Median Income (they fail the Median Income Test) then the Second test checks to see if the Debtor’s Current Monthly Income reduced by allowed expenses exceeds an amount allowed under the Act for a family of the same size. The Means Test is essentially an excess income test that is intended to determine if what is left over out of monthly income after deducting reasonable expenses leaves enough money to be able to give a meaningful dividend to unsecured creditors. If the Debtor’s Current Monthly Income is LESS than the State Median Income, NO presumption of abuse exists on which a dismissal can be based. If the Debtor’s Current Monthly Income is MORE than the State Median Income, but the Debtor’s excess income is LESS than the amount allowed under the Means Test, NO presumption of abuse exists on which a dismissal can be based. If the Debtor’s Current Monthly Income is MORE than the State Median Income, AND the Debtor’s excess income is MORE than the amount allowed under the Means Test, A PRESUMPTION OF ABUSE EXISTS on which a Motion to Dismiss can be based. ______________________________________________________________ It is important to remember that the EOUST takes the position that a motion to dismiss for abuse can be brought by the Court or the U.S. Trustee in cases where the Debtor’s income is LESS than the threshold amounts and there is NO presumption of abuse.

The results of the objective tests not only determine whether or not a presumption of abuse exists, they also authorize who can bring a Motion to Dismiss. We will discuss that issue after we demonstrate how the means test works.

If you are going to file petitions under the Act you MUST use bankruptcy petition preparation software provided by one of the major vendors [Best Case www.bestcase.com; BankruptcyPro www.legal-pro.com; Bankruptcy2005 www.bankruptcysoftware.com; EZ Filer www.ezfiling.com; TopForm bookstore.lexis.com; etc. All of these programs include means test calculators. In the next few pages we will go over what you will be entering into the calculator, and what it will be doing with those numbers. You do not need to remember the process, what you need to do is to understand what the means test is, what it does, and what numbers you need to enter into the software.

- 42 Current Monthly Income - The first, and most important, step in determining if the means test will be met is to calculate the Debtor’s “current monthly income” (CMI) – which is the average monthly taxable and non-taxable income from all sources, including income attributable to a non-filing spouse unless they are separated, except Social Security payments and certain payments to victims of war crimes or terrorism, including amounts paid on a regular basis by other entities for the household expenses of the debtor or the debtor's dependents, that the debtor (or Debtors in a joint case) receives during the 6-month period ending on the last day of the calendar month immediately preceding the date of filing. If the debtor does not file the required schedule of current income then the dates for the 6 month period are determined by the Court. §101(10a)

There is one thing you need to keep in mind, CMI is NOT Current, NOT Monthly, and NOT Income! It is an arbitrary figure calculated by following a set of rules.

Median Income Test - If your client is a disabled veteran (as defined in 38 U.S.C. § 3741(1)) whose indebtedness occurred primarily during a period in which they were on active duty (as defined in 10 U.S.C. § 101(d)(1)) or while they were performing a homeland defense activity (as defined in 32 U.S.C. §901(1)) – then they are exempt and have PASSED the Means Test. §707(b)(2)(D) If your client is married but not filing with their spouse, and under penalty of perjury they state that: "My spouse and I are legally separated under applicable non-bankruptcy law or my spouse and I are living apart other than for the purpose of evading the requirements of §707(b)(2)(A) of the Bankruptcy Code.", then you do not have to include the spouse’s income in a Chapter 7 case.

If your client is married and not separated or living apart you must include the spouse’s income, even if they are not filing jointly, with one possible unusual exception.

Based on the statutory language that CMI “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).” Some experts conclude that if the debtor’s non-filing spouse is NOT a dependent, income received from her that is NOT used for household expenses should NOT be counted in the debtor’s CMI. You should consider this possibility, in situations where the Mean’s Test may be failed, in deciding whether to file a joint case or not.

Now let’s look at the CMI components. Remember that we are going through all this just so you will see what your software is doing, in the future you will not have to perform the calculations, look up the IRS data, etc.

The figures in each category below must be the average monthly income from each category for the six calendar months prior to filing the bankruptcy case, ending on the last day of the month before the filing (you do not include the month of filing). If in any category your client received different amounts of income during these six months, you must total the amounts received during the six months, divide this total by six, and enter the result on the appropriate line. For example, if your client received $500 in rental income in months 1-3, and $1000 in months 4-6, the correct amount to enter on the “Rent and other real property income” line is $750, the average amount of rent received during the 6 month period.

- 43 Wages are calculated the same way. Assume your client wants to file in July and has the following bi-weekly income:

bi-weekly gross wages taxes health insurance

January 800.00 200.00 200.00 800.00 200.00 February 800.00 200.00 200.00 800.00 200.00 March 400.00 100.00 200.00 800.00 200.00 April 400.00 100.00 200.00 400.00 100.00 May 400.00 100.00 200.00 400.00 100.00 June 1000.00 250.00 200.00 1000.00 150.00 8000.00 / 6 = $1,333.00 2000.00/6 = 333.33 1200/6 = 200.00 July income during filing month does not count in CMI

Even though actual gross monthly income in July is $4000, Current Monthly Income is $1,333.

debtor spouse

GROSS wages, salary, tips, bonuses, overtime, commissions _______ ______

Income from the operation of a business, profession, or farm _______ ______ less ordinary and necessary business expenses (not less than zero – i.e. you may not show a loss)

Rent and other real property income _______ ______ less ordinary and necessary business expenses (not less than zero – i.e. you may not show a loss)

Interest, dividends, and royalties _______ ______

Pension and retirement income _______ ______

Regular contributions to the household expenses of the debtor or _______ ______ the debtor's dependents, including child or spousal support

Unemployment compensation _______ ______ There is an argument that unemployment compensation, welfare, SSI, Title 20 block grants, are received under the Social Security Act, and should not be part of CMI – the forms allow you to separate these benefits if you take the position that they are not part of CMI.

Income from all other sources _______ ______

You do NOT include benefits received under the Social Security Act OR payments received as a victim of a war crime, crime against humanity, or a victim of international or domestic terrorism (§2331 of title 18). You do include other forms of disability payments, workers compensation payments, proceeds from law suits, inheritances, etc., whether taxable of not. Contributions to the household income by non-debtors are counted if they are made on a regular basis and are paid toward the household expenses. This raises the question as to whether or not support from relatives is counted when it is sporadic, or it is for things like the grandchildren’s education (not a household expense), presumably this type issue will be rare. In any event they are included here and backed out later. Add all the figures together, i.e. combine debtor and spouse amounts: ________

- 44 Now multiply this monthly CMI figure by 12 to get the yearly figure, and compare it to the State median income for your client’s household size (remember the software is doing this for you) §101(39A). The appropriate median income figures under the statute are available from [www.usdoj.gov/ust] or [http://www.usdoj.gov/ust/bapcpa/meanstesting.htm]

There is a question as to who counts as a family / household member under the act? Some UST’s are saying that a person must be a “dependent” under IRS code to be a household member, however this is not what the statute says. Apparently non-related individuals who are members of the household can be counted, of course their regular contributions paid toward household expenses would have to be added in. Reasonableness and good faith should be considered when deciding to count or not to count a person as a household member, and whether or not regular contributions are being paid toward household expenses. For example, a child who is away in college 6 months of the year, might be counted if they do not have independent income. A possible “timing” opportunity, a filing date might be chosen when an adult child is temporarily living with the debtor?

If the yearly CMI for §707(b)(7) is LESS than the state median income for the household size, then your client has PASSED the means test and can check the “Presumption does not arise” box. It is estimated that 70%-80% of debtors will pass the median income test.

If the yearly CMI for §707(b)(7) is MORE than the state median income for the household size, then your client has FAILED the Median Income Test, and moves on to the Means Test itself.

NOTE: if the Debtor’s Current Monthly Income DOES NOT exceed the State Median

Income – you DO NOT have to apply the rest of the Mean’s Test. The lesson here is that timing may determine if your client passes the Median Income / Means Test or not. For example, if your client has income from a 6 month construction job that puts them over the Median, but will be out of work for the next three months, waiting to file until the 6 month look-back period includes three months of unemployment may make the difference in passing or failing the means test. So wait three months to file if possible. On the other hand, if your client will be receiving a large year end bonus at the end of the current month, file now so that the 6 month period will not include the current month.

This is as good a point as any to discuss the EOUST’s early position on timing and other factors influencing Mean’s Test outcomes. It appears that the UST’s will object to delays in filing for the purpose of passing the Mean’s Test, under the theory that counseling a debtor to wait until the six month averages are favorable constitutes an abuse by reason of bad faith manipulation of the bankruptcy act. Whether or not this type argument will succeed remains to be seen. Common sense would suggest that waiting to eliminate a windfall gambling gain and increase the effect of gambling losses might result in the finding of abuse, while waiting to reflect the loss of a six figure job due to permanent disability would not. WARNING - The Act makes timing a very important consideration in many cases

- you must quickly determine on what date each case should be filed. Means Test – CMI for §707(b)(7) __________ If your client is married but the spouse is not filing, AND did not check the separated or living apart box, less adj for __________ subtract from the total monthly CMI the amount spouse of the spouses monthly CMI that was NOT regularly contributed by the spouse to the household expenses of the debtor or the debtor's dependents (e.g. – monthly average personal expenditures of the spouse for other than household expenses – like a spouse’s payment for an individually owned boat – are backed out here. Proof must be submitted to the Trustee.). This gives you the CMI for §707(b)(2) __________

- 45 Monthly Expenses – Next deduct the Debtor’s IRS allowable monthly expenses by calculating them as follows. §707(b)(2)(A)(i) Like CMI, IRS Monthly Expenses have ABSOLUTELY NOTHING to do with what your client actually spends each month. Note that dependents may be dependents for IRS standards purposes even if they are not living in the household – i.e. a dependent living in a retirement home? [statutory language: “date of the order for relief, for the debtor, the dependents of the debtor,…”] Deduction for household expenses for food, etc: National Standards: Enter "Total" amount from IRS ________ National Standards for Allowable Living Expenses IRS Amt. for the food, clothing, household supplies, personal care, and miscellaneous for the applicable family size and Income level. REMEMBER – this figure has nothing to do with actual expenses! If demonstrated to be reasonable and necessary, the monthly expenses may include an additional allowance for food and clothing of up to 5 percent of the food and clothing categories above – deducted later. [http://www.usdoj.gov/ust/bapcpa/meanstesting.htm] Deduction for utility expenses, e.g. - heating & cooling: Local Standards: Enter the amount of the IRS ________ Housing and Utilities Standards; Utilities/Maintenance IRS Amt. Expense for the applicable county and family size. [http://www.usdoj.gov/ust/bapcpa/meanstesting.htm] Deduction for your rent or mortgage payment: Enter the IRS Housing and Utilities Standards: Mortgage/Rental Expense a. _________ Enter the Average Monthly Payment for any debts secured by your home b. _________ [The Average Monthly Payment is the total of all amounts contractually due to each Secured subtract b from a: ________ Creditor in the 60 months following the filing of not less than zero IRS Amt the bankruptcy case, divided by 60.] Adjusted [http://www.usdoj.gov/ust/bapcpa/meanstesting.htm] This is one of two places where you adjust the IRS standard deduction for actual amounts paid out. If your mortgage payment is less than the IRS allowed amount, you deduct the additional amount allowed by the IRS here, and the actual mortgage payment in the mean’s test section on Future Payments on Secured Claims, discussed later. Thus you get to take a deduction for the full amount you pay on your mortgage OR the IRS allowance, whichever is greater. Deduction for transportation expense, bus fares, gasoline: Local Standards: - Enter an expense allowance ________ for transportation; vehicle operation/public IRS Amt transportation expense in this category regardless of whether your client pays the expenses of operating a vehicle and regardless of whether they use public transportation. Check the number of vehicles for which your client pays the operating expenses or for which the operating expenses are included as a contribution to your clients household expenses. [ ] 0 [ ] 1 [ ] 2 or more. Enter the amount from IRS Transportation Standards, Operating Costs & Public Transportation Costs for

- 46 the applicable number of vehicles in the applicable Metropolitan Statistical Area or Census Region. [http://www.usdoj.gov/ust/bapcpa/meanstesting.htm] Deduction for transportation ownership, car / lease payment: Local Standards: transportation ownership/lease expense; Vehicle 1. Check the number of vehicles for which your client claims an ownership/lease expense [up to 2]. [ ] 1 [ ] 2 Enter the IRS transportation: ownership/lease Expense: Vehicle 1 a. _________ Enter the Average Monthly Payment for any debts secured by Vehicle 1 b. _________ [The Average Monthly Payment is the total of all amounts contractually due to each Secured subtract b from a: ________ Creditor in the 60 months following the filing of not less than zero IRS Amt the bankruptcy case, divided by 60.] Adjusted http://www.usdoj.gov/ust/bapcpa/meanstesting.htm Note that the Act provides for some unusual calculations – if your $600 car payments end in 12 months your deduction on b. is $120 ($7200/60) Deduction for transportation ownership, car / lease payment: Local Standards: transportation ownership/lease expense; Vehicle 2. Check the number of vehicles for which your client claim an ownership/lease expense [up to 2]. [ ] 1 [ ] 2 Enter the IRS transportation: ownership/lease Expense: Vehicle 2 a. _________ Enter the Average Monthly Payment for any debts secured by Vehicle 2 b. _________ [The Average Monthly Payment is the total of all amounts contractually due to each Secured subtract b from a: ________ Creditor in the 60 months following the filing of not less than zero IRS Amt the bankruptcy case, divided by 60.] Adjusted http://www.usdoj.gov/ust/bapcpa/meanstesting.htm

This is the other place where you adjust the IRS standard deduction for actual amounts. If your client’s vehicle payments are less than the IRS allowed amount, you deduct the additional amount allowed by the IRS here and the actual vehicle payment in the mean’s test section on Future Payments on Secured Claims, discussed later. Thus you get to take a deduction for the full amount your client pays to own their vehicles OR the IRS allowance, whichever is greater. For example, if the Debtor has a car and the adjusted monthly cost (car payment to a creditor) is $275 taken as a deduction in Future Payments on Secured Claims section, then the Debtor may only claim $200 of the IRS $475 allowance (for a total deduction of $475 for the car). The goal is not to double-dip on deductions under the Means Test. If the Debtor does not have a car (it was repossessed) but is going to need one, some UST’s say they can deduct the full IRS figure, plus the appropriate operating costs. However other UST’s say they cannot deduct any ownership expense and can only deduct the “Public Transportation” allowance. If a client needs a replacement car and the means test is an issue, they should probably buy a car for cash (remember – you can’t advise a client to incur additional debt) before filing, and trade it later. Enter the total average monthly expense that your ________ client actually incurs for all federal, state, and local

- 47 taxes, other than real estate and sales taxes, such as income taxes, self-employment taxes, social security taxes, and Medicare taxes. Do not include real estate or sales taxes. (enter the tax expenses for the 6 months divided by 6) Enter the total average monthly payroll deductions ________ that are required for your client’s employment, such as mandatory retirement contributions, union dues, and uniform costs. Do not include discretionary amounts, such as non-mandatory 401(k) contributions. Enter average monthly premiums that your client ________ actually pays for term life insurance for himself or herself. Do not include premiums for insurance on your client’s dependents, for whole life or for any other form of insurance. Enter the total monthly amount that your client is required ________ to pay pursuant to court order, such as spousal or child support payments. Do not include payments on past due support obligations deducted elsewhere. Enter the total monthly amount that your client actually expends ________ for education that is a condition of employment and for education that is required for a physically or mentally challenged dependent child for whom no public education providing similar services is available. Enter the average monthly amount that your client ________ actually expends on childcare. Do not include payments made for children's education. Enter the average monthly amount that your client actually ________ expends on health care expenses that are not reimbursed by insurance or paid by a health savings account. Do not include any amount deducted elsewhere. Enter the average monthly expenses that your client actually pays ________ for cell phones, pagers, call waiting, caller identification, special long distance, or internet services necessary for their health and welfare or the their health and welfare of their dependents. Do not include any amount deducted elsewhere. (UST’s are saying that other services are NOT deductible) Add all this together, you now have your client’s Total Expenses ________ IRS Allowed under IRS standards. Next calculate additional expense deductions: average monthly amounts that your client actually expends - Health Insurance ________

Disability Insurance ________

Health Savings Account ________

Enter the actual monthly expenses that your client will ________ continue to pay for the reasonable and necessary care

- 48 and support of an elderly, chronically ill, or disabled member of your client’s household or member of your client’s immediate family who is unable to pay for such expenses. Enter any average monthly expenses that your client ________ actually incurred to maintain the safety of your client’s family under the Family Violence Prevention and Services Act or other applicable federal law. Enter the average monthly amount by which your client’s ________ home energy costs exceed the allowance in the IRS Local Standards for Housing and Utilities. You must provide the case trustee with documentation demonstrating that the additional amount claimed is reasonable and necessary. Enter the average monthly expenses that your client actually ________ incurs, not to exceed $125 per child, in providing elementary and secondary education for their dependent children less than 18 years of age. You must provide the case trustee with documentation demonstrating that the amount claimed is reasonable and necessary and not already accounted for in the IRS Standards. Enter the average monthly amount by which your client’s ________ food and clothing expenses exceed the combined allowances for food and apparel in the IRS National Standards, not to exceed five percent of those combined allowances. You must provide the case trustee with documentation demonstrating that the additional amount claimed is reasonable and necessary. [http://www.usdoj.gov/ust/bapcpa/meanstesting.htm] Enter the amount that your client will continue to contribute ________ in the form of cash or financial instruments to a charitable organization as defined in 26 U.S.C. § 170(c)(1)-(2). Add all these together, you now have your client’s Total ________ EXP Additional Expenses Allowed. Next figure out your client’s future payments on secured claims: ________ For each debt that is secured by an interest in property that your client owns, Enter the Average Monthly Payment. ________ You may not deduct actual current payments on secured debts, you may deduct Average Monthly Payments on secured claims. ________ The Average Monthly Payment is the total of all amounts contractually due to each Secured Creditor in the 60 months ________ following the filing of the bankruptcy case, divided by 60. Do not include items you have deducted elsewhere, ________ like taxes and insurance. The goal is to use the IRS allowance plus the secured debt allowance, without double counting. You may deduct payments to secured creditors necessary for the debtor to maintain possession of the debtor's primary residence, motor vehicle, or other property necessary for the support of the debtor and dependents, divided by 60. For example, if the Debtor owes ten more $600 car payments, they would enter $100 here ($600 x 10 / 60). Now factor in arrearages: If any of the secured debts are in default, and the ________

- 49 property securing the debt is necessary for your client’s support or the support of their dependents, ________ you may include in the deductions 1/60th of the amount that your client must pay the creditor as a result of the ________ default (the "cure amount") in order to maintain possession of the property. ________ Note the difference in criteria for the last two deductions. Add these together, you have the deductions for secured claims: ________ SEC Enter the total amount of all priority claims (including priority ________ PRI Child support and alimony claims), divided by 60. Note that non-priority non-dischargeable debts may only be deducted under the special circumstances provisions, see below. If additional deductions are needed to pass the mean’s test you may want to advise clients to claim priority status for property settlement debts, taxes, etc., since they are no longer dischargeable in Chapter 7 (and, in the case of property settlement debts, since your client has not chosen to attempt to discharge them in Ch 13). Finally calculate (actually let the software calculate) the most difficult figure: If your client is eligible to file a Chapter 13 case, Enter the projected average a. _________ monthly Chapter 13 plan payment. Multiply this figure by the current multiplier b. _________ for your district [http://www.usdoj.gov/ust/bapcpa/meanstesting.htm] This gives you the average monthly administrative a x b: ________ ADM expense of a Chapter 13 case. This is difficult because to be completely accurate, the average monthly Ch 13 payment can only be calculated after the disposable income is determined, which requires the average monthly 13 payment, resulting in recursive math requiring algebra. The software will do the math. Add the lines IRS, EXP, SEC, PRI, and ADM together, this gives you the total deductions allowed under §707(b)(2) – Total Deductions for §707(b)(2). _________ Subtract the Deductions from CMI CMI for §707(b)(2) _________

Less Total Deductions for §707(b)(2) _________

Equals Monthly Disposable Income under §707(b)(2) _________

Multiply Monthly Disposable Income under §707(b)(2) by 60 to get the 60 month Disposable Income under §707(b)(2) _________ 60 Month

Apply the initial presumption determination: If the 60 Month Disposable Income is LESS than $6000 the Presumption DOES NOT ARISE. (i.e. – there is less than $100 a month in disposable income) And you check “The Presumption Does Not Arise” box – and skip the rest of the test.

If the 60 Month Disposable Income is MORE than $10000 the Presumption DOES ARISE. (i.e. – there is more than $166 a month in disposable income) And you check “The Presumption Arises” box – and skip the rest of the test.

If the 60 Month Disposable Income is LESS THAN OR EQUAL TO $10000 BUT MORE THAN OR EQUAL TO $6000,

you have one final calculation to perform:

- 50 Enter the amount of your client’s total non-priority unsecured debt and multiply by 0.25

non-priority unsecured debt: ________ x 0.25 = __________ the Threshold Debt Amount

[Note that non-priority unsecured debt referred to is probably Schedule F debt, but you might argue that it includes the unsecured portion of secured debt.]

If the 60 Month Disposable Income is LESS than the Threshold Debt Amount the Presumption DOES NOT ARISE And you check “The Presumption Does Not Arise” box.

If the 60 Month Disposable Income is EQUAL TO OR GREATER THAN the Threshold Debt Amount the Presumption DOES ARISE And you check “The Presumption Arises” box.

On the official form you may also list and describe any additional monthly expenses that are required for the health and welfare of you and your family and that you contend should be an additional deduction from your current monthly income under § 707(b)(2)(A)(ii)(I).

The presumption of abuse may be rebutted ONLY by demonstrating special circumstances §707(b)(2)(B)(i), such as a serious medical condition or a call or order to active duty in the Armed Forces, to the extent such special circumstances justify additional expenses or adjustments of current monthly income for which there is no reasonable alternative. To establish special circumstances, the debtor has to itemize each additional expense or adjustment of income and provide documentation and a detailed explanation of the special circumstances that make the changes necessary and reasonable.

Some experts believe that special circumstances will prove invaluable in reducing 60 month disposable income. They argue that if someone with relatively high income is in the financial condition that leads to filing bankruptcy there must necessarily be special circumstances that deplete that income. The real question is what will the various courts allow as special circumstances? Is the cost of methadone for a drug addict a special circumstance? Is maintaining a private airplane a special circumstance in Alaska? It would seem that the intention of the drafters was to limit special circumstances to cases of medical necessity, etc. We will simply have to wait and see what the limits are. In any event, special circumstances only reduce 60 month income, the means test formula applies in cases where there are special circumstances AND where none are present, regardless of the nature of the special circumstances (e.g. -serious medical conditions, etc.) Presumably special circumstances should be brought to the U.S.Trustee’s attention by the Debtor early in the case, and will be brought to the Court’s attention at the 707(b) Motion to Dismiss, resulting in debtor’s counsel having the difficult task of at least partially explaining means test results to the Court.

- 51 Results of the median income and means tests determine who, if anyone, can bring a motion to dismiss under §707. Summary – who may bring a §707(b) motion: CMI equal to or less than Median Income - Court or U.S. Trustee under bad faith or totality of circumstances CMI greater than Median Income - Court, U.S. Trustee, Trustee, any party in interest Less than Mean’s Test under bad faith or totality of circumstances CMI greater than Mean’s Test - Court, U.S. Trustee, Trustee, any party in interest under bad faith or totality of circumstances or under presumption of abuse In a complicated series of sub-paragraphs, the Act provides:

If the Debtor’s Current Monthly Income, combined with the Debtor’s spouses Current Monthly Income (but not in an individual case where the spouses are separated) is EQUAL TO OR LESS THAN the State Median Income, NO presumption of abuse exists, and a Motion to Dismiss for abuse CANNOT be filed by anyone under the presumption of abuse provisions. §707(b)(7) This section seems to partially state the obvious, if NO presumption of abuse exists, under the Median Income Test OR the Means Test, then a Motion to Dismiss for abuse CANNOT be filed by anyone under the presumption of abuse provisions.

If the Debtor’s Current Monthly Income, combined with the Debtor’s spouse’s Current Monthly Income in a joint case (but not combined in an individual case?), is EQUAL TO OR LESS THAN the State Median Income, then there is NO PRESUMPTION OF ABUSE (poor drafting allows other unintended results), and ONLY the Court or the U.S. Trustee [not the Ch 7 panel Trustee] may file a Motion to Dismiss for abuse based on grounds of bad faith or based on the totality of the circumstances of the debtor's financial situation (some experts believe no financial abuse can exist in this situation - see discussion below). §707(b)(6)

If the Debtor’s Current Monthly income is MORE than the State Median Income and the Debtor’s excess income is MORE than the amount allowed under the Means Test, a presumption of abuse exists, and a Motion to Dismiss CAN be brought by the U.S. Trustee, Trustee, Court, or any party in interest under the presumption of abuse provisions. §707(b)(2)

If the Debtor’s Current Monthly Income is MORE than the State Median Income, presumably the U.S. Trustee, Trustee, Court, or any party in interest may file a Motion to Dismiss for abuse on grounds of bad faith or based on the totality of the circumstances of the debtor's financial situation (see below). §707(b)(1)

_________________________________________________________________ The most interesting, and important, question is whether or not §707(b) provides a “brightline” means test so that if the test is passed the actual income and expenses of the Debtor cannot support a §707(b) motion to dismiss as an abuse of the bankruptcy provisions. Henry Sommer, a leading expert on bankruptcy, strongly believes this is the case, and he may be totally correct. However there is room for doubt. It is worth looking at the specific language: §707(b)(3) [selected text from section] 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 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. §707(2)(A)(i) is the means test:

- 52 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. The paragraph 1 referred to says: §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 a substantial abuse an abuse of the provisions of this chapter. There shall be a presumption in favor of granting the relief requested by the debtor. 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)). The argument is that by placing the provision regarding bad faith in §707(b) instead of §707(a) Congress eliminated the possibility of a motion to dismiss based on bad faith or totality of circumstances if debtor is under the median income threshold and the presumption of abuse is not present or is refuted. Given the legislative history this is the preferable interpretation:

“The Act’s second safe harbor only pertains to a motion under section 707(b)(2), that is, a motion to dismiss based on a debtor’s ability to repay. It does not allow a judge, United States trustee, bankruptcy administrator or party in interest to file such motion if the income of the debtor (including a veteran, as that term is defined in 38 U.S.C. §101) and the debtor’s spouse is less than certain monetary thresholds.” H.Rep. 109-31, 51 (2005).

However the language of §707(b)(1) can reasonably be read to give discretion to the Court to dismiss any case where there is abuse of any kind, financial or otherwise. While many do not agree, this reading seems to be supported by the change from “substantial abuse” to “abuse” and the deletion of the presumption in favor of granting relief to the debtor. Most see these changes as insignificant, we think that they provide creditors with a powerful argument that Congress intended to lower the bar for finding abuse, not raise it, or otherwise reduce the ability of courts to address abuse.

It is possible that the presumption of abuse will be relegated to the role of assigning weight to the question of abuse. That general creditor argument is that a finding of abuse may be supported by the rebuttable presumption provided by §707(2)(A)(i), which shifts the burden of producing evidence to refute the presumption to the Debtor. Once the Debtor presents evidence that rebuts the presumption (the Debtor passes the means test) then the ‘rebuttable presumption’ drops from the case and the burden shifts back to the proponent of finding abuse, who may then move forward with other evidence. Whether we like it or not this may be a reasonable argument that will be raised by creditors and the UST.

A final comment on why we think §707(b) abuse cases will be brought in cases where the means test is passed. It will not be difficult for attorneys to advise most clients on perfectly legal and ethical ways to pass the means test. That will leave some clients that pass the test who have large unsecured debt they had been paying monthly payments on, and who will after

- 53 filing have literally thousands in extra income. While needed expenses will soak up most of the income, a few clients will have money left over that can’t be reasonably spent. The UST will see that income and will, whether successfully or not, make the motion to dismiss under §707(b)(1).

If you have a “brightline” case, contact www.NACBA.org before proceeding, they are interested in helping establish a “brightline” precedent in all districts.

----

The clerk will notify all creditors if the presumption of abuse exists (i.e.- the presumption box is checked). §342(d) Furthermore, the U.S. Trustee must review each case and, no later than 10 days after the meeting of creditors, file a statement as to whether the presumption of abuse exists, and if it does, must file a motion to dismiss or an explanation why none is being filed. §704(b)(1)

The court may not dismiss a case under presumption of abuse if a Debtor establishes by a preponderance of the evidence that the case is necessary to satisfy a domestic support obligation. This may be an important section if large domestic support obligations exist. §707(c)(3)

Totality of circumstances includes “whether the debtor seeks to reject a personal services contract and the financial need for such rejection as sought by the debtor”. This language was added to deal with recording contracts rejected by debtors for other than financial reasons. §707(b)(3)

A provision now allows for dismissal of the Ch 7 case of a Debtor convicted of a crime of violence or a drug trafficking on motion of the victim when it is in the best interest of the victim. It is difficult to see how not allowing the discharge of unrelated debts would be in the best interest of a victim? §707(c)(2) Sec 707 Dismissal of a case or conversion to a case under chapter 11 or 13 [selected text] (a) The court may dismiss a case under this chapter only after notice and a hearing and only for cause, including - (1) unreasonable delay by the debtor that is prejudicial to creditors; (2) nonpayment of any fees or charges required under chapter 123 of title 28; and (3) failure of the debtor in a voluntary case to file, within fifteen days or such additional time as the court may allow after the filing of the petition commencing such case, the information required by paragraph (1) of section 521, but only on a motion by the United States trustee. (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 a substantial abuse an abuse of the provisions of this chapter. There shall be a presumption in favor of granting the relief requested by the debtor. 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)). (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

- 54 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 of 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 described in the preceding sentence shall be kept confidential by the court. In addition, if it is demonstrated that it is reasonable and necessary, 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 United States Trustees. `(IV) In addition, the debtor's monthly expenses may include the actual expenses for each dependent child less than 18 years of age, not to exceed $1,500 per year per child, to attend a private or public elementary or secondary school if the debtor provides documentation of such expenses and a detailed explanation of why such expenses are reasonable and necessary, and why such expenses are not already accounted for in the National Standards, Local Standards, or Other Necessary Expenses referred to in subclause (I). `(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) any 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

- 55 priority child support and alimony claims) shall be calculated as the total amount of debts entitled to priority, divided by 60. `(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 adjustment 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 to 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. `(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. `(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). `(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 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. …… `(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 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. `(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

- 56 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 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. `(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 requirement 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.'. `(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 a 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.'.

- 57 Schedules I & J – carefully prepare the income and expense schedules (I & J) so that they contain the real world projected (not necessarily actual) monthly income and expenses of the Debtors. Many Trustees and some attorneys are saying that Schedules I & J should be prepared using the current financial records of the Debtors. Most experts say this is not the case, and we fully agree. Schedules I & J have NEVER represented current income and expenses, they have ALWAYS shown projected income and expenses. It appears that nothing in the Act changes that proposition. Looking ahead a bit we can see why it makes a difference. Under the Act Debtors are told that they must pay their Adjusted Current Monthly Income into a Chapter 13 plan and are also told that they must pay their Projected Disposable Income into a Chapter 13 plan. These two concepts are not compatible, CMI is based on the past 6 months, projected disposable income looks to the future. It is possible that courts will disregard the word “projected” and read disposable income as Adjusted Current Monthly Income (what we later call DMI). If the word “projected” is disregarded, the Ch 13 plan payments will be LOWER for some debtors whose income has INCREASED over the six month CMI period. However, for reasons we discuss later, we believe that the minimum that must be paid into the plan is Adjusted Current Monthly Income OR Projected Disposable Income (the net amount from I&J), WHICHEVER IS GREATER. This interpretation may LOWER the Chapter 13 payments for some debtors whose income has DECREASED.

ALERT - It is important to very carefully prepare and document Schedules I & J so that they show projected income and expenses for the immediate future.

For example, if a Debtor has been living on a diet of beans and has been walking to work to be able to afford to pay credit card payments, Schs I & J should reflect a normal diet and transportation expenses. If the Debtor is a diabetic, food expenses should be increased to allow for the higher cost of dietetic foods. If the Debtor’s car is old and in need of a new transmission, Sch J should be higher than the IRS transportation guidelines to allow for payment of the repair costs over a reasonable time. If the Debtor’s child needs braces for medical, not cosmetic, reasons, add the cost of the unreimbursed dental expenses, spread over a reasonable amount of time, to medical expenses on Sch J (and include an explanatory note). If the debtor is going to be laid-off at work for six of the next twelve months, show the average projected income over the year on Sch I (and note the anticipated change in income). Given the new random audits provided for under the Act, you should carefully document why and where you adjust Schs I & J to fit your client’s individual circumstances. If there is a significant change in circumstances during the applicable commitment period, you should file a motion to modify the plan even if the Trustee does not do so.

ALERT - It is very important to have client’s record all future income and expenses, using a debit card or by keeping receipts, so that if audited you can demonstrate that the I & J projected disposable income was and is reasonable!

In Chapter 7 cases your clients should preserve pre-filing records and carefully record actual income and expenses for at least six months after the filing date. In Chapter 13 cases your clients should preserve pre-filing records and carefully record actual income and expenses for the duration of the plan.

- 58 Step 6 – Filing the Case Debtors / debtor’s Counsel must File and Provide a number of Documents to the Clerk and the Trustee. Debtors must file the following:

1. A list of creditors; (and unless the Court orders otherwise) 2. Schedules of assets and liabilities (Currently A-F with G,H); 3. Schedules of current income and current expenditures (I-J); 4. A statement of the debtor's financial affairs; 5. A certificate of the attorney or petition preparer or pro se debtor regarding the 342(b) notice; 6. Copies of all “payment advices” (e.g.- pay stubs) received within 60 days before the filing date (plus 7 months of payment records for CMI); 7. An itemized statement of monthly net income showing how it was calculated (is this I & J – or something more?); 8. A statement disclosing reasonably anticipated increases in income or expenditures over the 12-month period following the date of filing; and, within the allowed time 9. A statement of intention with regard to secured debt (see below), If a debtor fails to file the required information above within 45 days (plus up to an additional 45 days if granted by the Court) after the filing date of the petition, the case is automatically dismissed on the 46th day. In addition to the above, the Debtor must file: 10. A certificate from the approved credit counseling agency; 11. A copy of the debt repayment plan, if any; 12. A record of any interest that the debtor has in an IRC 529(b)(1) or 530(b)(1) education individual retirement account or qualified State tuition program; § 521(a)(b)&(c) 13. A statement of the debtor’s current monthly income as defined in §101 and the calculations showing whether a §707 presumption of abuse exists. (the new form 22 or something more?) 14. At the request of the Court, UST, or any party in interest, a copy of tax returns (or transcripts) and amendments for the most recent tax year ending before the filing date for which a Federal income tax return was filed (additional returns are required - see section on tax returns below). 15. In Chapter 13 cases, annual statements of income and expenses, and annual copies of tax returns. ________________________________________________________

Failure to meet the requirement to provide the information within 45 days (1-9 above), plus up to an additional 45 days if granted by the Court, results in automatic dismissal. Failure to provide copies of tax returns after timely requests also results in dismissal unless reason for failure is satisfactorily explained. Failure to provide other documents does not necessarily result in dismissal. The Act specifically allows the Court to decline to dismiss a case where the Debtor made a good faith effort to provide “pay

- 59 advices” but was unable to do so. Failure to provide other documents should be waived by the Court when it they are not available. Sec. 521. Debtor's duties [selected text from section] `(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;'; and (3) if a trustee is serving in the case `(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 education 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). `(e) (1) If the debtor in a case under chapter 7 or 13 is an individual and if a creditor files with the court at any time a request to receive a copy of the petition, schedules, and statement of financial affairs filed by the debtor, then the court shall make such petition, such schedules, and such statement available to such creditor. `(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 return or such transcript to such creditor at the time the debtor provides such tax return or such

- 60 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. `(3) If a creditor in a case under chapter 13 files with the court at any time a request to receive a copy of the plan filed by the debtor, then the court shall make available to such creditor a copy of the plan— `(A) at a reasonable cost; and `(B) not later than 5 days after such request is filed. `(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 tax 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. `(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. `(2) The tax returns, amendments, and statement of income and expenditures described in subsections (e)(2)(A) and (f) shall be available to the United States trustee (or the bankruptcy administrator, if any), the trustee, and any party in interest for inspection and copying, subject to the requirements of section 315(c) of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. `(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.'. `(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 46th 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

- 61 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 the filing. `(4) Notwithstanding any 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.'. `(j)(1) Notwithstanding any 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 filing 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 interests of creditors and the estate.'.

- 62 Debtors Must file Copies of Tax Returns with the Court and Trustee. On request the Debtor’s must provide tax returns (and amendments) as they are filed with taxing authorities for the duration of a Ch 7, 11, and 13 case (and the prior three years of pre-petition returns if returns were not filed with the tax authorities on the date of the petition – 4 year transcripts are needed) shall be filed with the Court AND made available to any party in interest for inspection and copying! § 521(f) § 521(g)(1)

WARNING – the Case will be Dismissed if Tax Returns are not timely provided. Most recent year before filing MUST be provided 7 DAYS before 341 Meeting.

___________________________________________________________________ At least 7 days before the meeting of creditors, a Debtor in a Ch 7 case is required to provide the trustee, AND any creditor who requests one, with a copy or a “transcript” of their Federal income tax return for the most recent tax year ending before the filing date for which a Federal income tax return was filed [does this mean that someone who has not filed for 10 or 20 years must produce an 11 or 21 year old return?]. If the Debtor fails to provide the return the court MUST DISMISS the case unless the debtor demonstrates that the failure was due to circumstances beyond their control. §521(e)(1)&(2) A Debtor in a Ch 13 case is required to file at least one day before the scheduled 341 meeting, if not already filed, with the appropriate taxing authority, all federal, state, and local tax returns due for all of the taxable periods ending during the 4 year period ending on the filing date. If the required returns have not been filed by the meeting date the trustee may continue the meeting to allow the debtor to file the returns. The Debtor may then be required to file and provide all three years of the pre-petition returns. If a missing return(s) was past due on the filing date the meeting can be continued for no more than 120 days. If the missing return(s) was not past due, the meeting can be continued for 120 days OR to the date on which the return is due under the last automatic extension for filing the return, whichever is later. If the debtor demonstrates by a preponderance of the evidence that failure to file is due to circumstances beyond their control, the court may extend the filing period for a short additional period. The penalty for failing to provide returns is not specified, presumably the courts will fill in the Act by providing for dismissal or conversion? §1308

If a post-petition return is not timely filed, or filed within 90 days of a request to file, a Tax Authority can move for dismissal or conversion of the case. § 521(i)

Social Security numbers. If an individual's social security number is included, only the last four digits of that number should appear;

Names of minor children. If a minor child(ren) is/are identified by name, only the child(ren)'s initials should appear;

Dates of birth. If an individual's date of birth is included, only the year should appear; and

Financial account numbers. If financial account numbers are provided, only the last four digits of these numbers should appear.

Transcripts of federal returns can be ordered from the IRS by phone, with the transcripts returned by fax. Instructions on how to obtain transcripts can be found on this website: http://www.bankruptcyfinder.com/transcriptguide.html. Commercial providers can provide the transcripts to you for a small fee (www.creditinfonet.com; National Tax Verification 888-477-7878; Tax-Transcripts.com 817-228-0490) When approved, you will be able to get instant transcripts from local electronic tax filers using IRS eservices with IRS Form 8821. The Act provides that the Director of the Administrative Office of the United States Courts shall establish procedures for safeguarding “the confidentiality of any tax information”. It specifically states that a Debtor may not be required to disclose the names of children in a nonpublic record that is maintained by the court.

- 63 _________________________________

Here is the Director's Interim Guidance Regarding Tax Information Under 11 U.S.C. § 521

“I. No tax information filed with the bankruptcy court or otherwise provided by the debtor will be available to the public via the Internet, PACER, or CM/ECF.

In order for tax information to be electronically entered into a court's CM/ECF system, the "tax information" event must be selected from the CM/ECF event list. The "tax information" event limits access to the filed tax information to those users assigned "court" log-ins (i.e., judicial officers and court employees). All other users (including PACER users) will be limited to viewing a docket event on the docket report indicating that tax information has been filed. These other users will not be able to open and view the tax information.

II. Debtors providing tax information under 11 U.S.C. § 521 should redact personal information as set forth in the Judicial Conference's Policy on Privacy and Public Access to Electronic Case Files.

All tax information provided in accordance with section 521 of the Bankruptcy Code is subject to the Judicial Conference of the United States Policy on Privacy and Public Access to Electronic Case Files http://www.privacy.uscourts.gov/Policy.htm ("JCUS policy") (JCUSSEP/OCT 01, pp. 49-50). In accordance with the JCUS policy, the debtor should take the following steps to redact personal identifiers in any tax information filed with the court or provided to the trustee or creditor(s), in either electronic or paper form:

For purposes of the Director's Interim Guidance Regarding Tax Information Under 11 U.S.C. § 521 ("Interim Guidance"), the term "tax information" includes tax returns, transcripts of returns, amendments to returns and any other document containing tax information provided by the debtor under section 521 of title 11, United States Code.

2. Interim Bankruptcy Rule 4002 (b)(5) provides that the debtor's obligation to provide tax information to the trustee or a copy of the information submitted to the trustee provided to a requesting creditor pursuant to 11 U.S.C. § 521(e)(2) is subject to the Interim Guidance. In addition, section 315(c)(1) of the Act authorizes the Director to promulgate guidance to protect the "confidentiality of any tax information required to be provided under this section," which encompasses information provided under section 521(e) and (f) of the Bankruptcy Code. Thus, except where expressly limited to tax information filed with the court, this Interim Guidance applies to any other document containing tax information required to be filed with the court or otherwise provided by the debtor under section 521 of the Bankruptcy Code.

Social Security numbers. If an individual's social security number is included, only the last four digits of that number should appear;

Names of minor children. If a minor child(ren) is/are identified by name, only the child(ren)'s initials should appear;

Dates of birth. If an individual's date of birth is included, only the year should appear; and

Financial account numbers. If financial account numbers are provided, only the last four digits of these numbers should appear.

Court employees are not responsible for redacting any of the personal identifying information. The responsibility for redacting personal identifiers rests solely with the debtor.

The court should make this Interim Guidance, implementing the JCUS policy, available to the public and members of the local bar.

III. Procedure for requesting and obtaining access to tax information filed with the bankruptcy court under 11 U.S.C. § 521(f).

To gain access to a debtor's tax information under 11 U.S.C. § 521(f), the United States trustee (or a bankruptcy administrator, if any), trustee, or party in interest, including a creditor, must follow the procedures set forth below.

A written request that a debtor file copies of tax returns with the court pursuant to

11 U.S.C. § 521(f) shall be filed with the court and served on the debtor and debtor's counsel, if any.

In order to obtain access to debtor's tax information that is filed with the bankruptcy court, the movant must file a motion with the court, which should include:

a description of the movant's status in the case, to allow the court to ascertain whether the movant

- 64 may properly be given access to the requested tax information;

a description of the specific tax information sought;

a statement indicating that the information cannot be obtained by the movant from any other sources; and

a statement showing a demonstrated need for the tax information.

An order granting a motion for access to tax information should include language advising the movant that the tax information obtained is confidential and should condition dissemination of the tax information as appropriate under the circumstances of the particular case. At the discretion of the court, the order may state that sanctions may be imposed for improper use, disclosure, or dissemination of the tax information.

IV. Access to tax information when a motion for access has been granted.

Local courts have authority to determine procedures, the details of which are within the discretion of the court, for transmitting the tax information to the movant when access has been granted.' Possible methods include mailing a hard copy, or developing procedures to view tax information at the clerk's office.

The transmission of the tax information to the movant, by whatever means the court deems appropriate, should be recorded as a docket event in CM/ECF so that the docket will reflect that the court has taken the action necessary to effect the provisions of its order granting access.

Administrative Office staff will explore the feasibility of including modifications in a future release of CM/ECF, which will provide access to a particular user that has been granted access to tax information by the court. Until such modifications can be incorporated into CM/ECF, local courts will need to determine how to provide access.”

Sec. 521. Debtor's duties … … [selected text from section] `(e) (1) If the debtor in a case under chapter 7 or 13 is an individual and if a creditor files with the court at any time a request to receive a copy of the petition, schedules, and statement of financial affairs filed by the debtor, then the court shall make such petition, such schedules, and such statement available to such creditor. `(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 return 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. `(3) If a creditor in a case under chapter 13 files with the court at any time a request to receive a copy of the plan filed by the debtor, then the court shall make available to such creditor a copy of the plan— `(A) at a reasonable cost; and `(B) not later than 5 days after such request is filed. `(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 tax return) with respect to each tax year of the debtor ending while the case is pending under such chapter;

- 65 `(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. `Sec. 1308. Filing of prepetition tax returns [selected text from section] `(a) Not later than the day before the date on which the meeting of the 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 appropriate tax authorities all tax returns for all taxable 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.'.

- 66 Domicile for State Exemptions – to use Exemptions a Debtor must have had their domicile in the State for a prescribed length of time. To qualify for State or Local Exemptions a Debtor must have had their continuous domicile in the State for 730 days [up from 180 days] immediately preceding the date of filing, OR if the debtor's domicile has not been in a single State for the 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. This basically means that a Debtor must wait at least 730 days after moving to a new state to qualify to use that State’s exemptions. § 522(b)(3) Summary: 730 days – lived in state of filing during entire period - use exemptions of state of filing 730 days – lived in more than one state - go on to next step (180 days before the 730) 731 to 910 days – lived in one state - use exemptions of that state 731 to 910 days – lived in more than one state - use exemptions of the state in which debtor lived the longest portion of days 731 to 910 (180 day period) ALERT – In every case you must now determine which state’s exemptions apply. _____________________________________________________________________________________ We now have to inquire where a client has lived over the past 730 days, and decide what exemptions apply. If the debtor has not lived in your state for 730 days you look at the 180 day period immediately before the 730 days (day 731 to day 910). If during that 180 day period they lived in one state you MUST use the exemptions of that state, NOT the state you practice in. If during that 180 day period they lived in more than one state you MUST use the exemptions of the state they lived the longest portion of the 180 days in, NOT the state you practice in. This can lead to difficult results where, for example, during the 730 days a debtor lived for one month in an adjacent state (you may need to look to state law for definition of domicile) – triggering the 180 day rule. Bankruptcy software will have the various exemptions, however you will need to consult reference books to find out how the state exemptions are applied to property – WARNING some states have very difficult rules regarding the application of exemptions

DO NOT attempt to apply exemptions until you fully understand the state statutes. Sec. 522. Exemptions [selected text from section] `(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 the 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';

- 67 Limits on the Homestead Exemption – Among the most publicized features of the Act are the provisions intended to stop Forum Shopping for unlimited Homestead Exemptions. First, any addition to the value of a homestead (e.g. – building an addition onto a home) made during the 10 year period before filing by the Debtor, funded by nonexempt property, and made with the intent to hinder, delay, or defraud creditors, is NOT protected by the state homestead exemption. § 522(o) Second, any interest acquired in (including value added to) a homestead [usually the Debtor’s principal residence] within 1215 days (around 3 years 4 months) before the filing date is NOT protected by a State homestead exemption in an amount over $125,000, except to the extent that it consists of an interest transferred from a debtor's previous principal residence acquired prior to the beginning of such 1215-day period into the debtor's current principal residence in the same state, or the homestead is the principal residence of a family farmer. § 522(p) Third, there is a $125,000 cap on the homestead exemption if after notice and hearing the Court determines that the debtor has been convicted of a felony which demonstrates bankruptcy abuse, OR the debtor owes a debt arising from violation of Federal or State securities laws; any RICO civil remedy; or any criminal act, intentional tort, or willful or reckless misconduct that caused serious physical injury or death to another individual during the last 5 years. The Homestead Limit of $125,000 is a cap only in states that have Homestead Exemptions over $125,000.

WARNING - THE 10 YEAR PROVISION PROHIBITING THE USE OF NONEXEMPT PROPERTY TO ADD VALUE TO A HOMESTEAD, WITH THE INTENT TO HINDER, DELAY, OR DEFRAUD CREDITORS, LIMITS THE HOMESTEAD IN ALL STATES.

One exception, a homestead exemption is allowed over the $125,000 cap to the extent reasonably necessary for the support of the debtor and any dependent. § 522(q) Various provisions delay the granting of a discharge if there is reason to believe that a §522(q) cap on the homestead exemption should be applied. §727(a)(12) §1328(h) §1141(d)(5)(C) ___________________________________________________________________ While it may be difficult to prove intent, §522(o) may be used in any state to reduce the homestead exemption (whether it is $125,000 or $5,000) by an amount equal to the increase in value of the property to which the homestead exemption applies that is attributable to the use of non-exempt assets with the intent to hinder, delay, or defraud creditors. For example, if a debtor had $10,000 in non-exempt savings; used it (anywhere from 10 years to 1 day before filing) to build a deck that raised the value of their house $15,000 knowing that they were going to lose the money if they filed; then filed – if their state had a $25,000 homestead it would be reduced to $10,000. Note that if the addition to the house added value above the amount of the homestead exemption, the debtor should be able to assert that there was no intent to hinder, delay, or defraud simply because the creditor would get the full value of the addition in a Ch 7 or Ch 13 case without adjusting the homestead allowance. None-the-less, §522(o) provides a trap for the unwary. Sec. 522. Exemptions [selected text from section] `(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

- 68 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.'. `(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. `(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.'.

- 69 Lien Avoidance for Household Goods has been limited. The best way to list the limits is to read § 522(f)(4): Sec. 522. Exemptions `(4) (A) Subject to subparagraph (B), for purposes of paragraph (1)(B), 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.'. ___________________________________________________________________ Non-purchase money security interests in household goods may now be avoided only on the household goods listed above, all other items given as security must be redeemed or surrendered, or the loan reaffirmed. In Chapter 13 cases, the creditor would be treated as secured to the extent of the value of items given as security that do not fall in the exemption categories above.

- 70 Contributions to Qualified Educational Accounts are not property of the estate. Contributions are protected (i.e.- are not property of the estate) when made to an education individual retirement account (IRC 530(b)(1)) or a qualified State tuition program (IRC 529(b)(1)(A)) at least 365 days before the date of filing, where the beneficiary is a child (including an adopted or foster child), stepchild, grandchild, or stepgrandchild, but only to the extent that the funds are not security for a loan and are not excess contributions (IRC 4973(e)). Only $5,000 is protected of those funds placed in accounts for the same beneficiary between 720 days and 365 days before the filing date. § 541(b)(5)&(6) ________________________________________________________________ Education individual retirement account and qualified State tuition program contributions, for a child, stepchild, grandchild, or stepgrandchild, that are not security for a loan and are not excess contributions, if:

made within 365 days are not protected under §541(b)

made within 366 days and 720 days are protected up to $5000 per beneficiary

made 721 days or more before the date of filing are protected Sec. 541. Property of the estate [selected text from section] (b) Property of the estate does not include - `(5) funds placed in an education individual retirement account (as defined in section 530(b)(1) of the Internal Revenue Code of 1986) 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 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; `(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 of the filing of the petition in a case under this title by the annual increase or decrease (rounded to the nearest tenth 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;

- 71 Contributions to Employee Plans are not property of the estate. Contributions are protected (i.e.- are not property of the estate) when withheld from wages or received from employees for payment to a qualified employee benefit plan (IRC 414(d)); a deferred compensation plan (IRC 457); or a tax-deferred annuity (IRC 403(b)) (does not constitute 1325(b)(2) disposable income); or to a health insurance plan regulated by State law. § 541(b)(7) _________________________________________________________________ This Section excludes certain contributions to retirement and health insurance plans from being property of the Estate. They are not counted as disposable income in a Chapter 13 case. The official forms and software deduct these amounts when entered on the appropriate lines. Sec. 541. Property of the estate [selected text from section] (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 governmental 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-- `(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 governmental 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;'

- 72 Transfers to Asset Protection Trusts within 10 years of filing may be avoid by a Trustee. A Trustee may avoid any transfer within 10 years of filing by the debtor of an interest of the debtor in property to a self-settled trust or similar device where the debtor is a beneficiary and the debtor made the transfer with actual intent to hinder, delay, or defraud a current or future creditor. [The “actual intent” provision may allow self-settled trusts to continue to be available in limited circumstances.] § 548(e) _______________________________________________________________ Self-settled trusts (i.e.- the debtor sets up a trust where the debtor is the beneficiary) have popular mechanisms for sheltering assets. This Section attempts to limit the use of this type instrument in bankruptcy, which was already falling out of favor for several non-bankruptcy reasons. Sec. 548. Fraudulent transfers and obligations [selected text from section] `(e) (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. 78l and 78o(d)) or under section 6 of the Securities Act of 1933 (15 U.S.C. 77f).'.

- 73 Student Loans are non-dischargeable. Unless the Debtor proves repayment would create an undue hardship on the debtor and the debtor's dependents, which is very difficult to prove absent a severe disability, all student loans are now non-dischargeable, even where the lender is a non-governmental, commercial, entity. § 523(a)(8) ___________________________________________________________________ Qualified Educational Loans from for-profit lenders are now non-dischargeable (absent undue hardship). This is really the only significant change. Sec. 523. Exceptions to discharge [selected text from section] (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;'.

If the debt was not incurred solely to pay qualified higher education expenses (those under 26 USC 221(d)) it is NOT a Qualified Educational Loan: “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).” “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. § 108711, as in effect on the day before the date of the enactment of this Act) at an eligible educational institution.” 20 U.S.C. § 108711 defines the expenses as: “For the purpose of this subchapter and part C of subchapter I of chapter 34 of title 42, the term "cost of attendance" means — (1) tuition and fees normally assessed a student carrying the same academic workload as determined by the institution, and including costs for rental or purchase of any equipment, materials, or supplies required of all students in the same course of study; (2) an allowance for books, supplies, transportation, and miscellaneous personal expenses, including a reasonable allowance for the documented rental or purchase of a personal computer, for a student attending the institution on at least a half-time basis, as determined by the institution;

- 74 (3) an allowance (as determined by the institution) for room and board costs incurred by the student which — (A) shall be an allowance determined by the institution for a student without dependents residing at home with parents; (B) for students without dependents residing in institutionally owned or operated housing, shall be a standard allowance determined by the institution based on the amount normally assessed most of its residents for room and board; and (C) for all other students shall be an allowance based on the expenses reasonably incurred by such students for room and board; (4) for less than half-time students (as determined by the institution) tuition and fees and an allowance for only books, supplies, and transportation (as determined by the institution) and dependent care expenses (in accordance with paragraph (8)); (5) for a student engaged in a program of study by correspondence, only tuition and fees and, if required, books and supplies, travel, and room and board costs incurred specifically in fulfilling a required period of residential training; (6) for incarcerated students only tuition and fees and, if required, books and supplies; (7) for a student enrolled in an academic program in a program of study abroad approved for credit by the student's home institution, reasonable costs associated with such study (as determined by the institution at which such student is enrolled); (8) for a student with one or more dependents, an allowance based on the estimated actual expenses incurred for such dependent care, based on the number and age of such dependents, except that — (A) such allowance shall not exceed the reasonable cost in the community in which such student resides for the kind of care provided; and (B) the period for which dependent care is required includes, but is not limited to, class-time, study-time, field work, internships, and commuting time; (9) for a student with a disability, an allowance (as determined by the institution) for those expenses related to the student's disability, including special services, personal assistance, transportation, equipment, and supplies that are reasonably incurred and not provided for by other assisting agencies; (10) for a student receiving all or part of the student's instruction by means of telecommunications technology, no distinction shall be made with respect to the mode of instruction in determining costs; (11) for a student engaged in a work experience under a cooperative education program, an allowance for reasonable costs associated with such employment (as determined by the institution); and (12) for a student who receives a loan under this or any other Federal law, or, at the option of the institution, a conventional student loan incurred by the student to cover a student's cost of attendance at the institution, an allowance for the actual cost of any loan fee, origination fee, or insurance premium charged to such student or such parent on such loan, or the average cost of any such fee or premium charged by the Secretary, lender, or guaranty agency making or insuring such loan, as the case may be.”

- 75 Taxes – It is beyond the scope of this book to discuss which taxes are and are not dischargeable under the Bankruptcy Reform Act. __________________________________________________________________ Briefly - Under the Act the advantages of Ch 13 are gone, and the dischargeability of taxes in both Chapter 13 and 7 will be treated much as they were under previous law in Ch 7 cases. Also, statutory interest will continue to run on unsecured, non-dischargeable, taxes throughout the life of the plan, subject to payment of interest inside plans only where unsecured claims are being paid in full. The Act adds language that gives a priority to taxes assessed within 240 days before the filing date – calculated by not counting the time which an offer in compromise was pending during the 240 days plus 30 days, and any time during which the collection of the tax debt was stayed during the 240 days plus 90 days. For example, if an offer in compromise had been pending from March 1 to May 31 for a Debtor who filed on July 1, any income tax assessed within 422 (240 + 90 days + 92 days - March to May) days of the filing date would be given the priority under Act. § 507(a)(8) The Act spells out a rule for suspending time periods related to the dischargeability of taxes. The period is suspended for a period during which the governmental unit is prohibited under nonbankruptcy law from collecting a tax due to a hearing AND an appeal (probably does not apply to suspension pursuant to a monthly installment agreement but does apply to a Collection Due Process and a Collection Appeals Program review?) plus 90 days, plus any time during which collection was prevented in a prior bankruptcy case plus 90 days. § 507(a)(8) State and local taxes are addressed in a new section of the Act. The Section creates a separate state and local taxable unit in situations where bankruptcy creates a taxable estate or entity for Federal tax purposes. The trustee shall make income tax returns required under any such State or local law. Whenever the IRC provides that no separate taxable estate is created, no separate estate is created for state and local purposes. § 346 The automatic stay does not apply to a setoff against an income tax refund by a government unit (e.g. – the SSA) under nonbankruptcy law with respect to a tax period and tax liability that ended before the date of filing, unless the setoff of an income tax refund was not permitted because of a pending action, in which case the governmental unit may hold the refund pending the resolution of the action unless the Bankruptcy grants the taxing authority adequate protection. § 362(b)(26) A Debtor cannot discharge a tax, even if a claim was filed, if a return or equivalent report or notice (i.e.-signed by the Debtor, not a service filed return) that was last due during the two years preceding the date of filing was not filed with the appropriate taxing authority. §523(a)(1)

Debts incurred to pay non-dischargeable federal, state, and local taxes are non- dischargeable. Many taxing authorities accept credit card payments, this provision is designed to make non-dischargeable that portion of the credit card debt that is attributable to payment of the non-dischargeable taxes. §523(a)(14) _______________________________________________________________________ See http://www.bankruptcybooks.com/ for more information. Sec. 523. Exceptions to discharge [selected text from section] (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 a customs duty – (A) of the kind and for the periods specified in section 507(a)(2)(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

- 76 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; or (C) with respect to which the debtor made a fraudulent return or willfully attempted in any manner to evade or defeat such tax; `For purposes of this subsection, the term `return' means a return that satisfies 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.

- 77 Luxury Goods & Cash Advances – The Act restricts Cash Advances and the use of credit to purchase “Luxury Goods or Services”. Consumer debts incurred within 90 days before filing, totaling more than $500, and owed to a single creditor for “luxury goods or services” [goods or services NOT reasonably necessary for the support or maintenance of a debtor or dependent] are presumed [rebutable] to be nondischargeable. §523(a)(2)(C) Cash advances from a single creditor totaling more than $750 obtained within 70 days before filing are presumed [rebutable] to be nondischargeable. §523(a)(2)(C) __________________________________________________________________ It appears that the Debtor must file an adversary if they want to attempt to have these debts declared dischargeable. Sec. 523. Exceptions to discharge [selected text from section] (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 – ‘(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.'

- 78 Preferences – A Transfer is Not a Preference in certain circumstances. A transfer is not a preference to the extent it was a payment on a debt that was made in the ordinary course of business or financial affairs OR [changed from “and”] made according to ordinary business terms. § 547(c)(2) In a case filed by a debtor whose debts are NOT primarily consumer debts, a transfer is not a preference if it totals less than $5,000. § 547(c)(9) If the trustee avoids a transfer, made between 90 days and 1 year before the date of filing, from the debtor to an entity that is not an insider for the benefit of a creditor that is an insider, the transfer is avoidable only with respect to the insider. For example, if payment is made between 90 and 365 days to a third-party creditor that favors an insider by reducing the amount owed by the insider on a debt, the transfer is not recoverable from the third-party, but may be recoverable from the insider. § 547(i) [applies to all pending cases – filed before or after 10/17/05] A bona fide payment made on a domestic support obligation is not avoidable. §547(c)(7) The trustee cannot avoid transfers made as part of a repayment schedule created by an approved credit counseling agency. § 547(h) The time allowed for a creditor to perfect a lien is increased from 10 to 30 days. §547(e)(2) ____________________________________________________________ Sec. 547. Preferences [selected text from section] (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;' `(7) to the extent such transfer was a bona fide payment of a debt for a domestic support obligation;' `(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.' (e) (2) For the purposes of this section, except as provided in paragraph (3) of this subsection, a transfer is made – (A) at the time such transfer takes effect between the transferor and the transferee, if such transfer is perfected at, or within 10 (30) days after, such time, except as provided in subsection (c)(3)(B); (B) at the time such transfer is perfected, if such transfer is perfected after such 10 (30) days; or (C) immediately before the date of the filing of the petition, if such transfer is not perfected at the later of - (i) the commencement of the case; or (ii) 10 (30) days after such transfer takes effect between the transferor and the transferee. `(h) The trustee may not avoid a transfer if such transfer was made as a part of an alternative repayment schedule between the debtor and any creditor of the debtor created by an approved nonprofit budget and credit counseling agency.' [ed. - Applicability.— The amendments adding (i) shall apply to any case that is pending or commenced on or after the date of enactment of this Act.] `(i) If the trustee avoids under subsection (b) a transfer made between 90 days and 1 year before the date of the filing of the petition, by the debtor to an entity that is not an insider for the benefit of a creditor that is an insider, such transfer shall be considered to be avoided under this section only with respect to the creditor that is an insider.'

- 79 Fraudulent Transfers– The period in which certain transfers are deemed to be fraudulent is raised from 1 to 2 years. The period in which certain transfers are deemed to be fraudulent and recoverable by the Trustee under the Bankruptcy Code is raised from 1 to 2 years (State fraudulent conveyance laws often allow the trustee to go back even further). The only addition to the types of transfers that may be avoided is a transfer to an insider under an employment contract, discussed above. The 2 year period applies only to cases filed 12 months or more after enactment of the Act. § 548 ___________________________________________________________________ Sec. 548. Fraudulent transfers and obligations [selected text from section] (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 of 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— [ed. Effective Date. — AVOIDANCE PERIOD- The amendment from 1 year to 2 years shall apply only with respect to cases commenced under title 11 of the United States Code more than 1 year after October 17, 2005.] (A) made such transfer or incurred such obligation 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 or such obligation was incurred, indebted; or (B) (i) received less than a reasonably equivalent value in exchange for such transfer or obligation; and (ii)(I) was insolvent on the date that such transfer was made or such obligation was incurred, or became insolvent as a result of such transfer or obligation; (II) was engaged in business or a transaction, or was about to engage in business or a transaction, for which any property remaining with the debtor was an unreasonably small capital; or (III) intended to incur, or believed that the debtor would incur, debts that would be beyond the debtor's ability to pay as such debts matured.; or `(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.' … … (b) The trustee of a partnership debtor may avoid any transfer of an interest of the debtor in property, or any obligation incurred by the debtor, that was made or incurred on or within 2 years [ed. applies to cases commenced more than 1 year after Act.] before the date of the filing of the petition, to a general partner in the debtor, if the debtor was insolvent on the date such transfer was made or such obligation was incurred, or became insolvent as a result of such transfer or obligation.

- 80 Reaffirmation Agreements must contain Detailed Disclosures. Reaffirmations must now have, where appropriate, a disclosure statement; the reaffirmation agreement; a statement of intent to reaffirm; a declaration of the attorney (if any); a Debtor’s statement of support showing income and expenses and amount available to pay reaffirmed debt; and an order. §524(c) _______________________________________________________________ The disclosure must include the “Amount Reaffirmed”, which is the total amount of debt reaffirmed plus fees, and the “Annual Percentage Rate”, using a Truth in Lending Act formula when available. §524(k)(1) If the amount of monthly income available to pay a reaffirmed debt is less than the payments on the reaffirmed debt (as shown on the required statement in support), then there is a presumption that the agreement is an undue hardship on the debtor. §524(m) The presumption lasts for up to 60 days (extension allowed before expiration of 60 days with Court approval) after the reaffirmation agreement is filed with the court. The presumption must be reviewed by the court and may be rebutted by the debtor in a written statement that identifies additional sources of funds to make the payments. If the court is not satisfied with the explanation it may disapprove the agreement after notice and hearing before entry of a discharge. [potential problem – under current rules the motion would not have to be filed before discharge?] There are other changes that will be incorporated into forms and rules. Creditors can receive payments prior to and after the filing of reaffirmation agreements. A Creditor can receive payments under agreements that it believes in good faith to be effective. §524(l) Creditor disclosures satisfy the disclosure requirements as long as they are given in good faith. §524(l)

Some experts are advising against Debtor’s attorneys certifying that a reaffirmation does not create an undue hardship. Other experts believe that the Act does not add significant new liability for those attorneys who sign the certification. We believe that if after careful analysis an attorney reasonably believes that no undue hardship exists, in most jurisdictions, signing the reaffirmation will not create significant additional liability for the attorney.

Credit Unions are exempt from presumptions arising from a reaffirmation disclosure statement. In cases where the creditor is a credit union the reaffirmation must be reviewed by the court only in cases where there are pro se debtors. §524(m)

Sec. 524. Effect of discharge [selected text from section] (c) An agreement between a holder of a claim and the debtor, the consideration for which, in whole or in part, is based on a debt that is dischargeable in a case under this title is enforceable only to any extent enforceable under applicable nonbankruptcy law, whether or not discharge of such debt is waived, only if - (1) such agreement was made before the granting of the discharge under section 727, 1141, 1228, or 1328 of this title; `(2) the debtor received the disclosures described in subsection (k) at or before the time at which the debtor signed the agreement;' (3) such agreement has been filed with the court and, if applicable, accompanied by a declaration or an affidavit of the attorney that represented the debtor during the course of negotiating an agreement under this subsection, which states that-- (A) such agreement represents a fully informed and voluntary agreement by the debtor; (B) such agreement does not impose an undue hardship on the debtor or a dependent of the debtor; and (C) the attorney fully advised the debtor of the legal effect and consequences of – (i) an agreement of the kind specified in this subsection; and (ii) any default under such an agreement; (4) the debtor has not rescinded such agreement at any time prior to discharge or within sixty days after such agreement is

- 81 filed with the court, whichever occurs later, by giving notice of rescission to the holder of such claim; (5) the provisions of subsection (d) of this section have been complied with; and (6) (A) in a case concerning an individual who was not represented by an attorney during the course of negotiating an agreement under this subsection, the court approves such agreement as – (i) not imposing an undue hardship on the debtor or a dependent of the debtor; and (ii) in the best interest of the debtor. (B) Subparagraph (A) shall not apply to the extent that such debt is a consumer debt secured by real property. `(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, data 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 paragraphs (2) through (8), except that the terms `Amount Reaffirmed' 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 total amount. `(D) In conjunction with the disclosure of the `Amount Reaffirmed', the statements— `(i) `The amount of debt you have agreed to reaffirm'; and `(ii) `Your credit agreement may obligate 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

- 82 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 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 such balance included in the amount reaffirmed, or `(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 by 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 extent 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 `may' 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

- 83 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 you 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 property 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

- 84 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 and 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 and 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 of the Reaffirmation Disclosure Statement in Part A and a completed and 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.'.

- 85 `(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 the 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.'.

- 86 Valuation of Security and Redemptions– Redemption requires Payment In Full of the Value at the Time of Redemption. Redemption requires payment in full of the value of the property securing the allowed claim at the time of redemption, which in both Chapter 7 and Chapter 13 cases is the “replacement value” of the property. §722 __________________________________________________________________ Under previous law, in most jurisdictions a Creditor was entitled to receive the value that they would receive if they repossessed and sold the collateral (i.e.- less the costs of sale). Under the Act the value of personal property securing an allowed secured claim is the replacement value as of the date of filing (in a Ch 7 case) without deduction for costs of sale or marketing, codifying Associates Commercial Corporation v. Rash, 117 S.Ct. 1879, 138 L.Ed. 3d 148. If the property is property that was acquired for personal, family, or household purposes, “replacement value” means the price a retail merchant would charge for property of the same kind considering the age and condition of the property at the time value is determined (presumably the date of confirmation in a Ch 13 case). The definition of “replacement value” for personal, family, or household goods seems to be the retail sales price for the items at a consignment or used goods store – similar to what it was under former law. If the personal property was acquired for business or other use replacement value may mean something else and would be determined as of the filing date? § 506(a)(2) Sec. 722. Redemption [selected text from section] An individual debtor may, whether or not the debtor has waived the right to redeem under this section, redeem tangible personal property intended primarily for personal, family, or household use, from a lien securing a dischargeable consumer debt, if such property is exempted under section 522 of this title or has been abandoned under section 554 of this title, by paying the holder of such lien the amount of the allowed secured claim of such holder that is secured by such lien ‘in full at the time of redemption'. Sec. 506. Determination of secured status [selected text from section] (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 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.'

- 87 Reaffirm, Redeem, or Ride-Through – a Debtor may Not keep Secured Property unless they Reaffirm the Debt or Redeem the Property. The Act provides that a debtor may not retain possession of personal property subject to an allowed claim for a purchase money security interest unless the debtor, not later than 45 days after the first meeting of creditors [after the first scheduled date or a continuation date?] reaffirms the debt or redeems the property. If the debtor fails to act the stay is terminated, the property is no longer property of the estate, and the creditor may take action under nonbankruptcy law. [The “nonbankruptcy law” language may prevent the Bankruptcy Court from ordering transfers of property where state remedies have not been exhausted?] § 521(a)(6) The Act also provides that the stay is lifted with respect to personal property of the estate or debtor securing a claim [both purchase money and non-purchase money], or subject to an unexpired lease, and such personal property shall no longer be property of the estate, if the debtor fails within 30 days of the petition filing date to file a statement of intention with respect to such personal property or within 30 days (or as extended by the Court for cause) after the Meeting of Creditors to take the action specified in such statement, unless the debtor's intention is to reaffirm and the creditor refuses to agree to the reaffirmation. §362(h) In normal circumstances the 30 days expire before the 45 days allowed above, rendering the 45 day provision of § 521(a)(6) useless? The stay is not automatically lifted if the debtor states their intention to reaffirm the debt on the original contract terms and the creditor refuses to agree to the reaffirmation on such terms. The Act goes on to provide that if the debtor fails to timely act with respect to leased, rented, or bailed property subject to a non-voidable security interest, nothing in Title 11 prevents or limits a default provision in a related document based on the bankruptcy or insolvency of the debtor. §521

_________________________________________________________________ The trustee may file a motion before the expiration of the 45-day period stating that the property is of consequential value or benefit to the estate, and the court may order adequate protection and delivery of the collateral to the trustee. § 521(a)(6)

The trustee may file a motion before the expiration of the 30+ day period stating that the property is of consequential value or benefit to the estate, and the court may order adequate protection and delivery of the collateral to the trustee. § 362(h)

These provisions may for practical purposes eliminate the possibility, at least when a Creditor objects, for a Debtor who has never been in default under an underlying credit agreement to keep property without redeeming or reaffirming. However, because the language of §521(a)(2) was not substantially changed, there is a strong argument that the Act does not require a debtor to reaffirm, redeem, or surrender. Finally, a Creditor may still elect not to pursue nonbankruptcy remedies when the Debtor continues making payments, and in other cases nonbankruptcy law may still allow retention of the property.

Perhaps the only real effect is to terminate the stay a few weeks earlier than it would otherwise terminate.

If a Creditor violates the stay in the good faith belief that the Debtor failed to timely file a statement of intention or to take the action specified in the statement, recovery shall be limited to actual damages. § 362(k)(2) Sec. 521. Debtor's duties [selected text from section] `(a)' The debtor shall - (2) if an individual debtor's schedule of assets and liabilities includes consumer debts which are secured by property

- 88 of the estate – (A) within thirty days after the date of the filing of a petition under chapter 7 of this title or on or before the date of the meeting of creditors, whichever is earlier, or within such additional time as the court, for cause, within such period fixes, the debtor shall file with the clerk a statement of his intention with respect to the retention or surrender of such property and, if applicable, specifying that such property is claimed as exempt, that the debtor intends to redeem such property, or that the debtor intends to reaffirm debts secured by such property; (B) within forty-five days after the filing of a notice of intent under this section 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 forty-five 30-day period fixes, the debtor shall perform his intention with respect to such property, as specified by subparagraph (A) of this paragraph; and (C) nothing in subparagraphs (A) and (B) of this paragraph shall alter the debtor's or the trustee's rights with regard to such property under this title, except as provided in section 362(h); … … `(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 so 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 on the motion of the trustee filed before the expiration of such 45-day period, and after notice and a hearing, that 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.' Sec. 362. Automatic stay [selected text from section] `(h) (1) In a case in which 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 the 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

- 89 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.'; … … (k) An `(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 an 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.'

- 90 Step 7 – Chapter 13 cases Disposable Income in Ch 13 – A Debtor must pay all of their Disposable Income into the Plan. The best efforts test provides that, on objection of an unsecured creditor or the trustee, the plan must pay all allowed unsecured claims in full with interest, or provide that the Debtor(s) pay all of their disposable income into the plan for the applicable commitment period. Disposable Income is the Means Test Current Monthly Income - Less child support payments, foster care payments, or disability payments for a dependent child reasonably necessary to be expended for such child [since court will probably not allow deduction of “matching” expenses where income is not counted, this may have no practical effect?] Less amounts reasonably necessary to be expended for the maintenance or support of the debtor or a dependent Less amounts reasonably necessary to be expended for a domestic support obligation first payable after the filing date, Less IRS deductible charitable contributions in an amount not to exceed 15 percent of gross income for the year the contributions are actually made. Less - if the debtor has a business, disposable income is reduced by expenditures necessary for the continuation, preservation, and operation of the business. §1325(b) _______________________________________________________________ Remember that Current Monthly Income is NOT Current, NOT Monthly, and NOT Income, so we have the same benefits and problems we had in Ch 7 – and can have some unusual results. We will call the Ch 7 Current Monthly Income calculation CMI-7 and we will call the modified Ch 13 Current Monthly Income calculation CMI-13 for the Median Income Test, and Disposable Monthly Income, or DMI, for the Chapter 13 “Means Test” equivalent. CMI-13 is almost the same as CMI-7 except in the way it treats non-filing spouses. DMI is CMI-13 less reasonably necessary monthly living expenses, which helps determine what the minimum Chapter 13 payment must be.

It is important to note in Chapter 13 cases that due to the language of §1325(b)(4) “the current monthly income of the debtor and the debtor's spouse combined”, many experts believe that a non-filing spouse’s income and expenses are included in CMI-13 and DMI, even if the spouses are separated and living apart. However other experts point to §1325(b)(2) “For purposes of this subsection, the term `disposable income' means current monthly income received by the debtor” in concluding that income of the non-filing spouse is NOT included in CMI-13 or DMI, whether they are living together or are separated. The official forms allow those Debtors who interpret CMI-13 / DMI as NOT including a non-filing spouse’s income to effectively back out all of the non-filing spouse’s income and then add back in contributions of the non-filing spouse to household expenses under the general theory that CMI-7/CMI-13/DMI include all “current monthly income received by the debtor” (treating the non-filing spouse’s contribution the same way that regular contributions to income received from any source are treated).

The Act creates a great deal of confusion and uncertainty. If a portion of the income of a non-filing spouse who lives in the same household is not counted, then should a portion of the non-filing spouse’s expenses be excluded as well? If so, what portion? This is an area where debtor’s attorneys need to exercise a great deal of caution. Common sense and good faith should dictate what income and expenses are attributed to the filing spouse and the non-filing spouse. Full disclosure to the Trustee is needed, with supporting documents and explanation of the treatment of income and expenses.

- 91 If the Debtor’s Current Monthly Income (CMI-13) before adjustments is below the Median Income amount, then reasonably necessary living expenses are presumably determined using Schedules I & J.

If the Debtor’s Current Monthly Income (CMI-13) before adjustments is above the Median Income amount, then the reasonably necessary expenses MUST be determined using the IRS standards under §707(b) subparagraphs (A) & (B).

Subparagraph (B) allows 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), which can now be proposed as an adjustment to a Chapter 13 plan.

Since you must pay secured and priority creditors in the plan, what DMI really does is to determine what the minimum payment to unsecured creditors must be. Virtually all experts agree that unsecured creditors include priority creditors, of course you would want to have enough disposable income to pay priority claims in a plan. Due to the way that CMI-13 and DMI are calculated, the amount paid to unsecured creditors will often be zero dollars. For example, an elderly couple with monthly private pension retirement benefits of $2200 and Social Security retirement benefits of $1800 (putting them above the Median) will have CMI-13 and DMI that is $1800 a month less than their actual income (Social Security benefits are not included in CMI). So even if they actually have the entire $1800 in SS benefits left over after paying reasonably necessary expenses, if after deducting the IRS Standards the DMI is $0, then they must pay $0 to unsecured creditors!

This fact raises the same kind of questions that we saw when considering if the Means Test is a “brightline” test. Henry Sommer, and many other experts, argue that DMI gives you the exact payment that makes a Chapter 13 plan confirmable. That is a very conservative and reasonable reading of §1325(b). However, many Trustees are saying that §1325(b)(1) must be satisfied, and that “projected disposable income” is the surplus shown on Schedules I & J, NOT the DMI amount:

Sec. 1325. Confirmation of plan (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.

While we would like to conclude otherwise, we believe that most trustees and courts will accept some variation of this interpretation. Otherwise there will be situations where DMI might show no ability to fund any plan, even though the Debtors have a real surplus on Schedules I & J that would allow for a confirmable plan. This interpretation is supported by the fact that if you use DMI only, then plan payments for Debtors who are over the median income threshold would never change because they would be determined by the six months prior to filing, resulting in an absurd situation if actual income drastically increased or decreased during the life of the plan. Remember, we may be completely wrong and DMI may be the “brightline” amount to be paid to unsecured creditors by those with DMI over median income. Nonetheless, you should be prepared for rulings from courts that look to I & J for confirmability and plan payments.

- 92 In Summary - We believe that the minimum that must be paid into the plan is:

For Debtor’s under Median Income: Projected Disposable Income (from I&J) For Debtor’s over Median Income: Projected Disposable Income (from I&J) if GREATER THAN DMI DMI if GREATER THAN Projected Disposable Income (from I&J) If DMI is greater than Projected Disposable Income, then the Debtors do not have enough actual income to fund a plan. They will either have to increase income, reduce expenses, or present special circumstances to the Court and Trustee to reduce the DMI so that it is equal to Projected Disposable Income. Some suggest that if a confirmable plan is not possible the Debtor may convert to a Chapter 7 even if they failed the Means Test. This may or may not be allowed.

Our interpretation may LOWER the Chapter 13 payments for some debtors whose income has DECREASED, but will INCREASE the Chapter 13 payments for some debtors whose income has INCREASED.

When preparing Schedules I & J it is very important to use projected average monthly income for each source of income based on a reasonable number of future months, and projected average monthly expenses for each category of expenses based on reasonable foreseeable expenses during that period. The goal is to come up with an accurate figure that represents actual disposable income of the debtors during the plan that they can afford to pay to their creditors.

In reality the net amount from Schedules I & J will almost never be greater than DMI, for the simple reason that if the net from I & J is greater then Debtors would probably not have needed to file bankruptcy.

-----

The charitable contributions exclusion is especially useful where the Debtors tithe. Debtor’s attorneys should advise their clients to make sure proposed contributions are actually made. The business exclusion is also interesting, and, in light of attorney liability for Debtor misrepresentations, should be carefully monitored to make certain that personal expenses are not paid through the business.

The Act provides for modification of a confirmed Ch 13 plan to allow sufficient funds for payment of premiums to maintain health insurance. Premium payments for reasonable and necessary health insurance for the benefit of the debtor and dependents, that are not materially larger than previously paid or than the reasonable cost of insurance for similarly situated individuals, are not counted in determining disposable income. This provision apparently allows for reduction of payments to unsecured creditors to zero if necessary to maintain reasonable and necessary health insurance. So if the debtor(s), or their dependents, do not have adequate health insurance and there is room in the actual budget, they have a very strong incentive to buy insurance. §1329(a)(4) Sec. 1325. Confirmation of plan [selected text from section] (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 – …… `(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

- 93 after the date the petition is filed; and `(ii) for charitable contributions (that meet the definition of `charitable contribution' 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 subparagraph (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 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 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.'; Sec. 1329. Modification of plan after confirmation [selected text from section] (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.'

- 94 Chapter 13 Plan Length – Whether or not a Debtor’s income exceeds Median Income determines if the applicable commitment period for Chapter 13 Plan is 3 years or 5 years.

If the Debtor’s CMI-13 is LESS than the applicable Median Income, the applicable commitment period is 3 years (OR until unsecured claims are paid in full). If the Debtor’s CMI-13 is GREATER THAN OR EQUAL to the applicable Median Income, the applicable commitment period is 5 years (OR until unsecured claims are paid in full). §1325(b) ______________________________________________________________________ Most experts believe that the plan can be completed in a shorter period than the applicable commitment period. A literal reading of the relevant sections would allow the plan to end as soon as secured claims plus the amount required under the Chapter 13 Disposable Monthly Income test, have been paid.

For example, if the Debtor’s income is over the Median the applicable commitment period is 60 months, and the amount to be paid under the plan is calculated as follows. Assume the Disposable Monthly Income from line 58 of Form B23 is $100, multiply that amount by 60 and you get $6,000, what we call projected disposable income (some trustee’s call this the mini-pool). This is what priority and unsecured creditors are required to receive under the plan. Add the amount necessary to pay secured claims, for example, $18,000 (includes interest). You now know the total amount that must be paid into the plan - $24,000 ($18,000 to secured creditors plus $6,000 of §1325(b)(2) projected disposable income). If there are $3,500 in priority claims, then the general unsecured claims will be paid $2,500 (projected disposable income of $6,000 minus priority claims of $3,500 = $2,500).

The monthly payment must be sufficient to pay the proposed equal monthly payments to secured creditors, however the plan payment does not have to be that amount plus DMI. It is generally agreed that you may propose to pay more than DMI (assuming that you actually have enough income to pay more), so you can pay the $6,000 mini-pool over a 36 instead of 60 month period. You can also adjust the secured payments so they will be paid over 36 months. Remember, you are required to make equal monthly payments to secured creditors, however nothing requires you to make 60 equal monthly payments, or for that matter to pay a particular interest rate.

In our example we can choose to pay $300 a month to secured creditors plus $100 a month to unsecured creditors. However most agree that we could also choose to pay $400 a month to secured creditors and $200 a month to unsecured creditors, so that the plan would be completed in 40 months ($600 x 40 = the $24,000 we must pay) – even if unsecured creditors receive less than 100%.

Other questions arise if we propose to pay the $24,000 in 12 months. Many experts believe that a literal reading of the Act allows this type of plan. Some think 36 months, or 100% to unsecured creditors, still defines the minimum plan. Similarly, most believe that a step plan can be proposed that either raises or lowers monthly plan payments over time, or provides for seasonal variations, so long as $24,000 is eventually paid into the plan. Since “good faith” is required to get any plan confirmed, the courts will probably be open to plans so long as they are reasonable and represent the best effort of the debtor.

However note that §1325(b)(4)(B) provides that the applicable commitment period “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.” This might allow a Court to interpret §1325 as requiring 3 or 5 years of payments, or payment in full.

Plan Modifications under §1329 may or may not provide for the length of the plan to be less than the applicable commitment period, depending on the same analysis.

Apparently interest does not have to be, but can be, paid on the unsecured claims if they are paid in full (useful for non-dischargeable unsecured debts).

- 95 If you take the position that the definitions exclude income of a non-filing spouse from CMI-13, you can argue that only the Debtor’s income should apply when determining the applicable commitment period. On the other hand, §1325(b)(4) calculates the applicable commitment period using the “current monthly income of the debtor and the debtor's spouse combined”. Again, poor drafting appears to result in the commitment period being determined by including the non-filing spouse’s income, while DMI is determined by excluding the non-filing spouse’s income.

If the Trustee does not object to a proposed plan length other than the applicable commitment period the plan apparently can be confirmed with that length. Sec. 1325. Confirmation of plan [selected text from section] (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 three-year period `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. … … `(4) For purposes of this subsection, the `applicable commitment period'-- `(A) subject to subparagraph (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 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 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.';

Sec. 1329. Modification of plan after confirmation … … [selected text from section] (c) A plan modified under this section may not provide for payments over a period that expires after `the applicable commitment period under section 1325(b)(1)(B)' after the time that the first payment under the original confirmed plan was due, unless the court, for cause, approves a longer period, but the court may not approve a period that expires after five years after such time.

- 96 Adequate Protection - is required in Ch 13 cases. First, the Act provides that payments on allowed secured claims made through the Plan must be in equal monthly amounts in an amount not less than sufficient to provide “adequate protection” during the term of the plan. §1325(a)(5)(B)(iii) The Act also provides that a Debtor must, unless the Court orders otherwise, make adequate protection payments DIRECTLY to secured creditors for obligations that become due after the order for relief under allowed purchase money claims secured by personal property purchased by the debtor, beginning not later than 30 days after the date of the filing of the plan or the order for relief, whichever is earlier, and ending with confirmation of the plan. The Debtor then reduces pre-confirmation payments to the Trustee by the amount of the direct payments after providing the trustee with proof of payment showing the amount and date. §1326(a)(1) In addition, the Debtor must make adequate protection payments DIRECTLY to secured creditors for lease obligations on personal property that become due after the order for relief, reducing proposed lease payments under the plan by the direct payments, and providing the trustee with proof of payment showing the amount and date. §1326(a)(1) _________________________________________________________________ Basically, these provisions require a Debtor to continue making payments directly to creditors on leases and on installment purchases for cars, etc., (but not on mortgages) pending confirmation of a plan. The court may modify, increase, or reduce the payments required pending confirmation. It is not clear what the standard is for determining the amount of the payments, are they to be in the amount proposed to be paid under the plan, or simply the regular installment payments made prior to filing, or some other amount using adequate protection calculations previously applied in business and consumer cases (usually 1 to 1.5% of the value of the security)?

Local rules and practice will probably determine how these provisions will work. In many jurisdictions arrangements are being made to reduce or eliminate direct payments to creditors. Many Ch 13 Trustees will have the Debtor make the adequate protection payments of 1% to 2% of the principal to the Ch 13 Trustee, who will then pay them over to the Creditors before confirmation. The Trustee’s are willing to act as an agent to simplify accounting for the payments.

It should be noted that regular payments to the Trustee under the proposed Plan (adjusted for direct payments to secured creditors) must begin within the 30 day period, with the Trustee returning those payments if a plan is not confirmed. For voluntary petitions, the period of payments begins as of the filing date, and ends on the confirmation date.

The Act requires that a Chapter 13 plan provide adequate protection for secured creditors. This provision should mean that once a plan is confirmed there is no ground for a post-confirmation motion for adequate protection.

These provisions may have a significant impact on some payments. If Creditors actively seek adequate protection, Debtors will be required to make sufficient pre and post confirmation payments to keep the balance owed to each creditor less than the depreciating value of the security. While this may have been a general requirement in the past, under the Act it is given new emphasis that the Court and Trustee will need to address. It is conceivable that Trustee payments under a plan will have to favor creditors who, for example, have as security vehicles that depreciate more rapidly than the security for other claims.

It is important to note that the requirement of equal monthly payments does NOT mean that the number of payments must be the same for different creditors, or that the interest rate must be the same. For example, if a Debtor owed 2 payments on one car, and 20 on another, the plan could propose to pay the first creditor’s secured claim in 2 months, while proposing to stretch out the second creditor’s secured claim over 40 months, perhaps at a reduced interest rate (the Till rate is used when rates are adjusted, Till v. SCS Credit Corp., 124 S. Ct. 1951

- 97 (2004)). Of course, the creditor and Trustee may object, however a persuasive argument could be made for payment where the first car is old and will not last 40 months.

You will need to calculate the equal payments to each secured creditor separately, and then combine the payments. For example, assume a Car 1 with a secured claim of $6,000 and a Car 2 with a secured claim of $12,000. The payments might look like this:

Car 1 - $ 6,000 at 8% for 12 months = $522 Car 2 - $12,000 at 8.5% for 28 months = $474 $996

The Debtor would propose to pay Chapter 13 plan payments of $996 (plus $x for admin & unsecured claims). After 12 months the secured claim on Car 1 would be paid, but the lien would not be released unless the creditor voluntarily agreed to do so.

Because payments must be in equal monthly amounts, excess payments by Debtors will not necessarily go to secured creditors. In some jurisdictions payment systems may allow for creative payment schedules, where, for example, any amount over the monthly payment of $996 would trickle down to Administrative, Priority, and Unsecured claims. In those jurisdictions it will be possible to pay Administrative, Priority, and Unsecured claims before completing payment of Secured Claims – perhaps allowing for more rapid payment of attorney fees. Sec. 1325. Confirmation of plan [selected text from section] (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— `(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' Sec. 1326. Payments [selected text from section] `(a) (1) Unless the court orders otherwise, the debtor shall commence making payments not later than 30 days after the date of 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 is 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 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.

- 98 Lien Retention and Effect of Conversion – the Lien of a Secured Creditor is Retained until the underlying Debt is Paid in Full. A Ch 13 plan must provide that the lien of a secured Creditor is retained until the underlying debt is paid in full (in the amount that would be paid to the Creditor under nonbankruptcy law) OR the Debtors receive a Ch 13 Discharge. If the case is dismissed or converted the lien is retained by the Creditor to the extent recognized by nonbankruptcy law. §1325(a)(5)(B)(i) ALERT - IN A CASE CONVERTED FROM CH 13 TO CH 7 A SECURED DEBT IS NOT PAID

AND THE LIEN NOT RELEASED UNLESS THE CREDITOR RECEIVED THE SAME AMOUNT THEY WOULD HAVE RECEIVED IF NO BANKRUPTCY HAD BEEN FILED!

__________________________________________________________________ If a case is converted from Ch 13 to Ch 7 any secured claim continues to be secured by the Debtor’s property unless the claim calculated UNDER NONBANKRUPTCY LAW has been paid in full on the date of conversion [i.e.- the debt was paid in the same amount that would have been paid if no bankruptcy had been filed]. Unless a prepetition default has been cured in full under the plan, the default shall have the effect it would have under nonbankruptcy law. This is a major change, these two provisions may force a Debtor to complete a Chapter 13 Plan to get any reduction in principal and interest owed to a secured creditor. It would seem that in most cases the option of conversion to Ch 7 to discharge debts incurred during a Ch 13 case is unavailable under the Act where secured debts have been stripped down.

There is usually a short period of time following completion of a plan, and the entry of discharge and closing of the case. Based on the language: “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” - it has been suggested that strip down may still be possible by converting to Ch 7 during the period following completion of the plan but before the discharge is entered and the case is closed. Given the additional language that the plan must provide for retention until discharge, it may be that the period of conversion would need to be between discharge and closing, which in some jurisdictions occur simultaneously. Furthermore, §727(a)(9) probably prevents conversion to obtain a Ch 7 discharge after the Ch 13 discharge. In any event, if your client has significant post-petition debt they need to discharge in a Chapter 7 case, they may want to convert and surrender, or redeem, secured property where the lien is retained, or try to convert during the small window of opportunity and strip down the claim.

Two other options may remain. A plan modification may be possible after the secured portion of the debt has been paid that allows completion of the plan and release of liens, without further payments to unsecured creditors. The liens may be released if the secured portion of the debt has been paid and a Chapter 13 hardship discharge is granted.

Remember, the Debtor can redeem property after conversion at its current value. §722

Note however that valuations in the Ch 13 case do not carry over to a Ch 7 case, so the Ch 7 trustee is free to determine the asset values as of the date of filing and may assert a claim for payment of non-exempt equity. §348 Sec. 1325. Confirmation of plan [selected text from section] (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 – (A) the holder of such claim has accepted 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

- 99 `(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; '. Sec. 348. Effect of conversion… … [selected text from section] (f) (1) Except as provided in paragraph (2), when a case under chapter 13 of this title is converted to a case under another chapter under this title – (A) property of the estate in the converted case shall consist of property of the estate, as of the date of filing of the petition, that remains in the possession of or is under the control of the debtor on the date of conversion; and (B) valuations of property and of allowed secured claims in the chapter 13 case shall apply in the converted case, with allowed secured claims `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 cases under chapters 11 and 12' reduced to the extent that 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.' (2) If the debtor converts a case under chapter 13 of this title to a case under another chapter under this title in bad faith, the property `of the estate' in the converted case shall consist of the property of the estate as of the date of conversion.

- 100 Confirmation Hearing Time – The Confirmation Hearing is to be held between 20 days and 45 days after the Meeting of Creditors. The confirmation hearing is to be held no earlier than 20 days and no later than 45 days after the date of the meeting of creditors, unless the court determines that it would be in the best interests of creditors and the estate to hold such hearing at an earlier date, and there is no objection. §1324(b) It is assumed that the statute means after the first date set for the Meeting of Creditors? __________________________________________________________________________ Sec. 1324. Confirmation hearing [selected text from section] `(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.'

- 101 Support Obligations, Confirmation, and Discharge – A plan Cannot be Confirmed and a Discharge Cannot be entered if Debtor is delinquent with prepetition or postpetition Domestic Support Obligations. A plan cannot be confirmed if a Debtor is not current with all post-petition domestic support obligations §1325(a), and, for those who pay support, a discharge will not be granted until a certificate is filed that post-petition domestic support obligations and pre-petition domestic support obligations provided for in the plan have been paid [note that the certificate is NOT required for a Ch 13 hardship discharge]. §1328(a) A case may be dismissed or converted if a Debtor is not timely making post-petition domestic support payments. Pre-petition domestic support obligations owed to an individual must be paid in full as a priority claim in a Ch 13 plan, however if the obligations are to be paid to a governmental unit, the plan can provide for less than 100% payment where the Debtor proposes to pay all of their projected disposable income into a five year plan. §1307(c)(11) §1322(a)(4) ________________________________________________________________________ These provisions are straightforward, and may have significant impact in situations where a Debtor is unable to afford to have state support obligations modified, for example, where a distant state set the obligation, and the Debtor has very low income and is unable to hire counsel in that state. It is possible that they will be unable to receive a Chapter 13 discharge. However, if the Debtor stays current with post-petition payments until confirmation, and only falls behind with later post-petition obligations, then so long as the party receiving domestic support obligation payments does not object, the plan may help pay secured debts and a substantial amount of the domestic support obligation payments, even without a discharge being granted. It may be important for Debtor’s counsel to contact the party receiving domestic support obligation payments and inform them why allowing the Debtor to remain in a plan will be in their best interests by maximizing payments (e.g.- plan allows debtor sufficient income to afford transportation to and from work, etc.). Sec. 1328. Discharge [selected text from section] (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-- Sec. 1307. Conversion or dismissal … … [selected text from section] (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.' Sec. 1322. Contents of plan [selected text from section] (a) The plan shall - … … `(4) notwithstanding any other provision of this section, a plan may provide

- 102 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.' Sec. 507. Priorities [selected text from section] (a) The following expenses and claims have priority in the following order: `(1) First:… … `(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.

- 103 Domestic Support Obligations are given First Priority. Allowed unsecured claims for domestic support obligations that on the date of filing 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, or are assigned, or owed directly to or recoverable by, a governmental unit under applicable nonbankruptcy law, are granted a First Priority under the Act. § 507(a)(1) ____________________________________________________________________ Within the First Priority:

1. Administrative Expenses of a Trustee are given the highest priority within the First Priority

2. Domestic Support Obligations that, as of the date of the filing of the petition, 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, whether the claim is filed by such person or is filed by a governmental unit on behalf of such person, are second within the First Priority.

3. 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 voluntarily assigned) or are owed directly to or recoverable by a governmental unit, are third within the First Priority.

The major change is that support obligations owed to governmental units are now priority claims. Sec. 507. Priorities [selected text from section] (a) The following expenses and 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 expenses 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.'

- 104 Priority Claims for Wages, Salaries, and Commissions, and DUI. Priority Claims for wages, salaries, and commissions that are owed, look back 180 days prior to filing and are allowed in an amount up to $10,000 per claim. In business cases, claims for contributions owed to Employee Benefit Plans are given priority up to $10,000 times the number of employees. Allowed claims for death or personal injuries resulting from DUI are given a new Tenth Priority. § 507 _________________________________________________________________ Sec. 507. Priorities [selected text from section] (a) The following expenses and claims have priority in the following order: (4) Fourth, allowed unsecured claims, but only to the extent of $10,000' for each individual or corporation, as the case may be, earned within 180 days before the date of the filing of the petition or the date of the cessation of the debtor's business, whichever occurs first, for – (A) wages, salaries, or commissions, including vacation, severance, and sick leave pay earned by an individual; or (B) sales commissions earned by an individual or by a corporation with only 1 employee, acting as an independent contractor in the sale of goods or services for the debtor in the ordinary course of the debtor's business if, and only if, during the 12 months preceding that date, at least 75 percent of the amount that the individual or corporation earned by acting as an independent contractor in the sale of goods or services was earned from the debtor; (5) Fifth, allowed unsecured claims for contributions to an employee benefit plan – (A) arising from services rendered within 180 days before the date of the filing of the petition or the date of the cessation of the debtor's business, whichever occurs first; but only (B) for each such plan, to the extent of – (i) the number of employees covered by each such plan multiplied by `$10,000'; less (ii) the aggregate amount paid to such employees under paragraph (4) of this subsection, plus the aggregate amount paid by the estate on behalf of such employees to any other employee benefit plan.

- 105 Administrative Expenses have been Expanded. Administrative Expenses have been expanded for preserving the estate, benefits awarded pursuant to a judicial or NLRB proceeding, taxes incurred by the estate, and payments to suppliers. The actual, necessary costs and expenses of preserving the estate now include wages, salaries, and commissions for services rendered after the commencement of the case and wages and benefits awarded pursuant to a judicial or NLRB proceeding as back pay for any post-petition period as a result of a violation of Federal or State law by the debtor, if the court determines that payment will not substantially increase the probability of layoff or termination, or of nonpayment of domestic support obligations. Administrative expenses include any tax incurred by the estate, secured or unsecured, including property taxes. Applicable to an individual Debtor with a business, an administrative expense is allowed for payment to a supplier of the value of any goods received in the ordinary course of business within 20 days of filing. New provisions restrict to some extent payments to insiders that are outside the ordinary course of business. § 503 However, how Administrative Expenses are to be paid in a Chapter 13 case is not clear under the Act. There is no direct provision for paying the Trustee and Debtor’s Attorney through the Plan. It is expected that the courts will provide appropriate mechanisms to fund the significant effort required to practice under the new code. __________________________________________________________________ Sec. 503. Allowance of administrative expenses … [selected text from section] (b) After notice and a hearing, there shall be allowed administrative expenses, other than claims allowed under section 502(f) of this title, including – (1)`(A) the actual, necessary costs and expenses of preserving the estate including— `(i) wages, salaries, and commissions for services rendered after the commencement of the case; and `(ii) wages and benefits awarded pursuant to a judicial proceeding or a proceeding of the National Labor Relations Board as back pay attributable to any period of time occurring after commencement of the case under this title, as a result of a violation of Federal or State law by the debtor, without regard to the time of the occurrence of unlawful conduct on which such award is based or to whether any services were rendered, if the court determines that payment of wages and benefits by reason of the operation of this clause will not substantially increase the probability of layoff or termination of current employees, or of nonpayment of domestic support obligations, during the case under this title;' (B) any tax – (i) incurred by the estate, `whether secured or unsecured, including property taxes for which liability is in rem, in personam, or both, except a tax of a kind specified in section 507(a)(8) of this title; or (ii) attributable to an excessive allowance of a tentative carryback adjustment that the estate received, whether the taxable year to which such adjustment relates ended before or after the commencement of the case; and (C) any fine, penalty, or reduction in credit relating to a tax of a kind specified in subparagraph (B) of this paragraph; `(D) notwithstanding the requirements of subsection (a), a governmental unit shall not be required to file a request for the payment of an expense described in subparagraph (B) or (C), as a condition of its being an allowed administrative expense;' `(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

- 106 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 sums 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);' `(8) the actual, necessary costs and expenses of closing a health care business incurred by a trustee or by a Federal agency (as defined in section 551(1) of title 5) or a department or agency of a State or political subdivision thereof, including any cost or expense incurred— `(A) in disposing of patient records in accordance with section 351; or `(B) in connection with transferring patients from the health care business that is in the process of being closed to another health care business; and' `(9) the value of any goods received by the debtor within 20 days before the date of commencement of a case under this title in which the goods have been sold to the debtor in the ordinary course of such debtor's business.' `(c) Notwithstanding subsection (b), there shall neither be allowed, nor paid— `(1) a transfer made to, or an obligation incurred for the benefit of, an insider of the debtor for the purpose of inducing such person to remain with the debtor's business, absent a finding by the court based on evidence in the record that— `(A) the transfer or obligation is essential to retention of the person because the individual has a bona fide job offer from another business at the same or greater rate of compensation; `(B) the services provided by the person are essential to the survival of the business; and `(C) either-- `(i) the amount of the transfer made to, or obligation incurred for the benefit of, the person is not greater than an amount equal to 10 times the amount of the mean transfer or obligation of a similar kind given to nonmanagement employees for any purpose during the calendar year in which the transfer is made or the obligation is incurred; or `(ii) if no such similar transfers were made to, or obligations were incurred for the benefit of, such nonmanagement employees during such calendar year, the amount of the transfer or obligation is not greater than an amount equal to 25 percent of the amount of any similar transfer or obligation made to or incurred for the benefit of such insider for any purpose during the calendar year before the year in which such transfer is made or obligation is incurred; `(2) a severance payment to an insider of the debtor, unless— `(A) the payment is part of a program that is generally applicable to all full-time employees; and `(B) the amount of the payment is not greater than 10 times the amount of the mean severance pay given to nonmanagement employees during the calendar year in which the payment is made; or `(3) other transfers or obligations that are outside the ordinary course of business and not justified by the facts and circumstances of the case, including transfers made to, or obligations incurred for the benefit of, officers, managers, or consultants hired after the date of the filing of the petition.'

- 107 Deductions for Retirement, Pension, and Profit Sharing Plans, and for Repayment of amounts borrowed from those plans, including 401k Loans, receive Favorable Treatment. Tax exempt retirement funds, including transfers and roll-overs, are not property of the estate subject to payment of debts, at least up to $1,000,000 per individual. §522(b)(4) Loans from these plans are specifically exempted from discharge (favoring Debtor’s right to repay). §523(a)(18) Wage deductions for funding tax-deferred plans AND repayment of such loans are not subject to the Automatic Stay (i.e.-the deductions can continue). §362(b)(19) Payments are not “disposable income” in a Ch 13 case, and the terms of the loan cannot be materially altered by a Ch 13 plan. §1322(f) On the other hand, exempt property may still be liable for a domestic support obligation. § 522(c)(1)

WARNING - EXEMPT PROPERTY MAY BE LIABLE FOR A DOMESTIC SUPPORT OBLIGATION, EVEN IF IT WOULD NOT BE UNDER NON-BANKRUPTCY LAW.

__________________________________________________________________ The favored treatment of these types of loans may to some extent allow Debtors to borrow a reasonable sum of money from their own retirement account and then repay it during their Ch 13 case. Furthermore, since they are not counted as disposable income in a Chapter 13 case they may reduce required payment to unsecured creditors. Sec. 522. Exemptions [selected text from section] (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

- 108 not later than 60 days after the distribution of such amount.' Sec. 523. Exceptions to discharge [selected text from section] (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' Sec. 362. Automatic stay [selected text from section] (a) Except as provided in subsection (b) of this section, a petition filed under section 301, 302, or 303 of this title, or an application filed under section 5(a)(3) of the Securities Investor Protection Act of 1970, operates as a stay, applicable to all entities, of –…… `(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 1986 constitutes a claim or a debt under this title;' Sec. 1322. Contents of plan [selected text from section] `(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.'. Sec. 522. Exemptions … … [selected text from section] (c) Unless the case is dismissed, property exempted under this section is not liable during or after the case for any debt of the debtor that arose, or that is determined under section 502 of this title as if such debt had arisen, before the commencement of the case, except - `(1) a debt of a kind specified in paragraph (1) or (5) of section 523(a) (in which case, notwithstanding any provision of applicable nonbankruptcy law to the contrary, such property shall be liable for a debt of a kind specified in section 523(a)(5));'

- 109 Debts Subject to Property Settlements with Former Spouses are non-dischargeable in Ch 7 and dischargeable in Ch 13. All domestic support obligations are non-dischargeable in bankruptcy. Under the Act debts owed to a spouse, former spouse, or child of the debtor that are not domestic support obligations but that were incurred by the debtor in the course of a divorce or separation or in connection with a divorce are non-dischargeable in Ch 7, 11, and 12 cases. §523(a)(15) (For Ch 13, see the superdischarge section below). Property settlement debts due under property settlement agreements that affect division of property of the estate are subject to modification and discharge in Chapter 13 plans. Pre-petition domestic support obligations may be included for payment in Ch 13 plans.

WARNING - DOMESTIC SUPPORT CREDITORS CAN PROCEED AGAINST EXEMPT PROPERTY, EVEN IF CLAIMS AGAINST THE PROPERTY WOULD HAVE

BEEN EXEMPT UNDER STATE LAW. §523(C)

Judicial liens for domestic support obligations CANNOT be avoided. §522(f) Payments on domestic support obligations are not subject to avoidance as preferences. §547 _________________________________________________________________ Under previous law support obligations were dischargeable if the debtor did not have the ability to pay the debts or if discharging such debt would result in a benefit to the debtor that outweighed the detrimental consequences to a spouse, former spouse, or child of the debtor.

The change may have a major impact on divorced couples. In many cases, under a property settlement agreement one spouse agrees to pay joint debts, only to find that sometime in the future they are no longer able to make the payments due to a change in circumstances. Some of the changes are voluntary (remarriage), but some are not (disability). If the non-filing former spouse who is a co-debtor does not want to either pay the joint debts, or file bankruptcy, they may be able to effectively block any meaningful Ch 7 bankruptcy by having a State Court order the Debtor to pay the spouse so they can in turn pay the Creditors. This introduces a potential Ch 7 veto (property settlement claims can still be discharged in Ch 13 cases) into the bankruptcy code that, given the number of divorces, may have long term, unintended, consequences. § 523(a)(5) § 523(a)(15) Sec. 523. Exceptions to discharge [selected text from section] (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; (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;

- 110 No More Ch 13 “Superdischarge” – with only a few minor exceptions, Chapter 13 discharges are identical to Chapter 7 discharges.

A Ch 13 Plan can still discharge three types of debt under §1328(a) that cannot be discharged in a Ch 7 case, claims resulting from: 1. property settlements [not support obligations] (§523(a)(15) debts); 2. willful and malicious injury to property (§523(a)(6)); and 3. debts incurred to pay non-dischargeable tax obligations (§523(a)(14).

__________________________________________________________________ The Act defines the nondischargeable debts using references to §§ 507 and 1322, however §1328 denies a Ch 13 discharge of civil restitution or damages resulting from “willful OR malicious” acts, while under §507 a discharge is denied when the acts are both “willful AND malicious” – making the Ch 13 discharge more restrictive than the Ch 7 discharge.

The following are no longer dischargeable under Chapter 13:

1. unfiled, late-filed within two years of the petition date, and fraudulent tax returns (willful tax evasion); 2. liability for “trust fund” taxes, income taxes for 3 pre-petition tax years; and certain other taxes and duties. 3. credit extended under false pretenses or representations or actual fraud other than a financial statement; 5. credit extended under a written financial statement that the Debtor made with intent to deceive that was materially false and reasonably relied on by the creditor; 6. debts that were neither properly listed nor scheduled in the petition to permit timely filing of a proof of claim (and in the case of claims regarding luxury goods, fraud by a fiduciary, and willful injury, sufficient time to challenge dischargeability), unless the creditor had notice or actual knowledge of the case so as to permit a timely filed proof of claim; 7. fraud by a fiduciary, embezzlement, or larceny; 8. a domestic support obligation; 9. educational loans (as expanded by the Act - absent undue hardship); 10. death or personal injury caused by unlawfully operating a motor vehicle, vessel, or aircraft under the influence of intoxicants; 11. criminal restitution or a fine included in a sentence on the debtor's conviction of a crime; and 12. civil restitution or damages as a result of willful or malicious acts resulting in personal injury or death of an individual;

Sec. 1328. Discharge [selected text from section] (a) As '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--

- 111 (1) provided for under section 1322(b)(5) of this title; (2) of the kind specified in paragraph (5), (8), or (9) of section 523(a) of this title; or (3) for restitution, or a criminal fine, included in a sentence on the debtor's conviction of a crime. `(1) provided for under section 1322(b)(5); `(2) of the kind specified in paragraph `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 the death of an individual.'. [ Sec. 523. Exceptions to discharge [selected text from section] (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 – (6) for willful and malicious injury by the debtor to another entity or to the property of another entity; `(14A) incurred to pay a tax to a governmental unit, other than the United States, that would be nondischargeable under paragraph (1); … … (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;

- 112 A Discharge Hearing is Required in all Chapter 13 cases. A discharge cannot be granted in a Ch 13 case unless after notice and hearing at least 10 days prior to the Discharge Order, the Court finds that there is no reason to believe that the Debtor owes a debt for - violation of Federal or state securities laws and regulations; fraud, deceit, or manipulation in a fiduciary capacity in connection with registered securities; a civil remedy for securities violations; any criminal act, intentional tort, or willful or reckless misconduct that caused serious physical injury or death in the preceding 5 years, AND there is no pending proceeding where the Debtor may be found guilty of a felony or liable for a debt based on those acts. A discharge hearing, perhaps in a modified format, must be held in all Ch 13 cases before entry of the discharge. §1328(h) _________________________________________________________________ Sec. 1328. Discharge … … [selected text from section] `(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 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).

- 113 Willful Failure of a Creditor to Credit Payments Violates the Injunction. Willful failure of a creditor to credit payments under a confirmed plan, unless confirmation has been revoked, the plan is in default, or the creditor has not properly received payments, constitutes a violation of the injunction against the Creditor only if the failure causes material injury to the Debtor. Furthermore, if a creditor holds a claim that is secured by the principal residence of the debtor, the injunction does not apply to prevent an act in the ordinary course of business that is limited to obtaining periodic payments in lieu of pursuit of in rem relief to sell the property. [This may be a reasonable way to let a mortgage holder keep a debtor current with post-petition payments, often including tax and insurance escrow payments, to prevent foreclosure.] § 524(i) __________________________________________________________________ The section on willful failure to credit payments provides procedures to correct a creditor’s incorrect crediting of payments received during a Chapter 13 case. It is fairly common for creditors to continue to incorrectly credit payments so that late charges continue to accrue or interest charges are too high. Willfulness should be failure to provide and follow procedures to properly credit bankruptcy payments. The court can hold a creditor in contempt for violating §524. However the standard of material injury to the Debtor will probably prevent this section for being used in all but the most egregious situations. Sec. 524. Effect of discharge … … [selected text from section] `(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. `(j) Subsection (a)(2) does not operate as an injunction against an act by a creditor that is the holder of a secured claim, if-- `(1) such creditor retains a security interest in real property that is the principal residence of the debtor; `(2) such act is in the ordinary course of business between the creditor and the debtor; and `(3) such act is limited to seeking or obtaining periodic payments associated with a valid security interest in lieu of pursuit of in rem relief to enforce the lien.'.

- 114 Annual Reports may be Required. At the request of the judge or a party in interest (e.g.-a creditor), the Debtor in a Ch 13 case must file with the Court an annual financial statement. The statement must disclose the amount and sources of the income of the debtor; the identity of any other person responsible for the support of a dependent; and the identity of and the amount contributed by any person to the Debtor’s household. Presumably this provision requires a Debtor to provide information about every person who lives in their household, makes a substantial gift to the Debtor, etc. §521(f)(4) §521(g)(1) __________________________________________________________________ Note that the requirement is broader than in CMI calculations, and requires information on anyone who contributes to the household, not just those who pay on a regular basis for the household expenses of the debtor or the debtor's dependents. This could include almost any receipt of cash or cash equivalent – including gifts, etc. It is going to be difficult to convince clients that they should keep a diary of their activities instead of signing up for a 60% DMP. Sec. 521. Debtor's duties [selected text from section] `(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 … … `(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. `(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. `(2) The tax returns, amendments, and statement of income and expenditures described in subsections (e)(2)(A) and (f) shall be available to the United States trustee (or the bankruptcy administrator, if any), the trustee, and any party in interest for inspection and copying, subject to the requirements of section 315(c) of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.

- 115 Trustee Fees and Duties – Chapter 7 Trustees can now receive a percentage of assets they administer regardless of billable hours spent on a case. §328(a) If a Ch 7 case is converted under the bankruptcy abuse provisions, the Ch 7 Trustee may receive up to $25 a month for the duration of the Ch 13 Plan. §1326(b)(3) The duties of the Trustee and U.S. Trustee have been greatly expanded, and are beyond the scope of this summary. Debtor’s should be aware that the Trustees will be giving parties in interest notice of presumption of abuse and of domestic support obligations, including the providing of information about the Debtor to State child support enforcement agencies. §704 The Act limits a trustee’s right to subordinate tax liens on real or personal property to pay priority claims. If the property tax lien is perfected it will not be subordinated to pay any priority claim except a priority claim for wages, salaries, commissions, and contributions to employee benefit plans, and then only if the trustee exhausts the unencumbered assets of the estate and §506(c) recoveries from holders of secured claims. [Note that a drafting error refers to the administrative expense priority as a first priority instead of the correct second priority.] § 724(b) § 724(e) If there has been a default in an executory contract or unexpired lease, the trustee may not assume the contract or lease unless the trustee cures or provides adequate assurance that the trustee will promptly cure such default; other than a default arising from failure to perform nonmonetary obligations under an unexpired lease of real property that cannot be cured by the trustee, except from failure to operate in accordance with a nonresidential real property lease, such default shall be cured by performance at and after the time of assumption in accordance with such lease, and with pecuniary losses being compensated. §365(b) An unexpired nonresidential lease of real property shall be deemed rejected if the trustee does not assume or reject the lease within 120 days after the filing or confirmation date. The court may for cause extend the period for up to 90 days without lessor consent, or more than 90 days with lessor consent. §365(d)(4) If a lease of personal property is rejected or not timely assumed by the trustee, the leased property is no longer property of the estate and the stay is automatically terminated. An individual debtor in a case under chapter 7 may notify the creditor in writing that the debtor desires to assume the lease (the creditor may or may not allow assumption, with or without cure). §365(p)(1)

- 116 Debts secured by Motor Vehicles and Purchase Money Security interests may not be subject to Cram Down. Motor vehicles purchased by the debtor for personal use and financed within 910 days, and purchase money security interests incurred within 1 year, must be paid “in full”. In a Chapter 13 case a Debtor MUST pay the claim in full if a creditor has a purchase money security interest in: 1. a motor vehicle acquired for the personal use of the debtor securing a debt that was incurred within the 910-day period preceding the date of filing, 2. any collateral securing a debt that was incurred within 1 year preceding the filing date. (unnumbered paragraph following §1325(a)(9)) ___________________________________________________________________ If you follow the intent of §1325(a)(9+), the change is that the secured claim is not valued under §506(a), so you MUST pay the principal balance due on the date of filing through the plan. This leaves you free to modify the interest rate and the term of the loan. Modification of the interest rate would be useful if the contract rate exceeds the current Till rate, if it does not you might try proposing to pay the contract rate. Changing the length of repayment may also help, for example, by stretching 20 remaining payments out over 60 months.

Creditors may voluntarily agree to other treatment of their claims. It is also suggested that the “910 claim” can still be bifurcated and crammed down, even if in a much more convoluted way. The basic argument being that 910 claims may be “secured claims” but not “allowed secured claims” under §1325(a), §1325(a)(5) does not apply, and the claims can be modified under §1322(b)(2). The lien would probably survive, but the monthly plan payments would be lower. Debtor’s counsel will propose many creative approaches to the Act , some will succeed, most will not.

ALERT - IF YOU ARE GOING TO CONTINUE TO FILE CASES YOU NEED TO JOIN NACBA (WWW.NACBA.ORG), AND SUBSCRIBE TO COLLIERS OR SOME OTHER

BANKRUPTCY SERVICE, SO YOU CAN FOLLOW THE COURTS AS THEY TRY TO SORT OUT THE POORLY DRAFTED PROVISIONS OF THE ACT.

We might mention here an attempt to prevent the cramdown of mobile home loans. If the mobile home is considered to be personal property in your state and the debt was incurred within 1 year, then §1325(a)(9) applies. However, if the mobile home was purchased more than 1 year prior to filing, cram down may still be possible. The Act amended the definition of principal residence to include mobile homes. The problem is that if the mobile home is personality under non-bankruptcy law, then the debt may still not be a debt secured only by a security interest in real property that is the debtor's principal residence. So in those states where it is personalty, cram down is still theoretically possible. Sec. 1325. Confirmation of plan [selected text from section] (a) Except as provided in subsection (b), the court shall confirm a plan if - …… ` 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 [ed. “period”] 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.'. Sec. 506. Determination of secured status (a) (1) An allowed claim of a creditor secured by a lien on property in which the estate has an interest, or that is subject to setoff under section 553 of this title, is a secured claim to the extent

- 117 of the value of such creditor's interest in the estate's interest in such property, or to the extent of the amount subject to setoff, as the case may be, and is an unsecured claim to the extent that the value of such creditor's interest or the amount so subject to setoff is less than the amount of such allowed claim. Such value shall be determined in light of the purpose of the valuation and of the proposed disposition or use of such property, and in conjunction with any hearing on such disposition or use or on a plan affecting such creditor's interest. `(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 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.' 2 (b) To the extent that an allowed secured claim is secured by property the value of which, after any recovery under subsection (c) of this section, is greater than the amount of such claim, there shall be allowed to the holder of such claim, interest on such claim, and any reasonable fees, costs, or charges provided for under the agreement `or State statute' under which such claim arose. (c) The trustee may recover from property securing an allowed secured claim the reasonable, necessary costs and expenses of preserving, or disposing of, such property to the extent of any benefit to the holder of such claim `, including the payment of all ad valorem property taxes with respect to the property'. (d) To the extent that a lien secures a claim against the debtor that is not an allowed secured claim, such lien is void, unless – (1) such claim was disallowed only under section 502(b)(5) or 502(e) of this title; or (2) such claim is not an allowed secured claim due only to the failure of any entity to file a proof of such claim under section 501 of this title. 101`(13A) The term `debtor's principal residence'-- [selected text from section] `(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-- [selected text from section] `(A) property commonly conveyed with a principal residence in the area where the real property is located; `(B) all easements, rights, 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.'. Sec. 1322. Contents of plan [selected text from section] (b) (2) modify the rights of holders of secured claims, other than a claim secured only by a security interest in real property that is the debtor's principal residence... …

- 118 Interest & Penalties continue to accrue on Non-Dischargeable Debt If a debt is non-dischargeable (e.g.- certain tax claims and student loans), interest and penalties continue to accrue. If interest is payable on a tax claim or administrative tax expense, or to enable a creditor to receive the present value of a tax claim, the rate of interest is the rate under nonbankruptcy law, and if paid under a confirmed plan, the rate is determined based on the month of confirmation. §511 A Ch 13 plan may now provide for payment of post-petition interest on nondischargeable unsecured claims IF the plan provides for full payment of all allowed claims. §1322(b)(10) ________________________________________________________________ This provision would seem to be helpful where creditors fail to file proof’s of claim on significant amounts of dischargeable unsecured claims. When creditors do not file claims for non-dischargeable unsecured debts, Debtors attorneys should be alert to filing claims for them with interest and penalties when it is advantageous to the Debtor (i.e. - amounts otherwise paid to general unsecured creditors would be paid on nondischargeable debt). Note that claims may be filed by a Debtor for a Creditor during the 30 days following the bar date, which is 90 days after the 341 meeting for general creditors and 180 days for governmental units, except that in a Ch 13 case a claim with respect to a prepetition tax return, a claim is timely if filed on or before 60 days after the date the return was filed. §502 Even though a Chapter 13 discharge will not be available, a Chapter 13 case may be filed after a Chapter 7 discharge for the purpose of paying nondischargeable claims with interest. `Sec. 511. Rate of interest on tax claims [selected text from section] `(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.'. Sec. 1322. Contents of plan [selected text from section] (b) Subject to subsections (a) and (c) of this section, the plan may - `(10) provide for the 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; and Sec. 501. Filing of proofs of claims or interests [selected text from section] (a) A creditor or an indenture trustee may file a proof of claim. An equity security holder may file a proof of interest. (b) If a creditor does not timely file a proof of such creditor's claim, an entity that is liable to such creditor with the debtor, or that has secured such creditor, may file a proof of such claim. (c) If a creditor does not timely file a proof of such creditor's claim, the debtor or the trustee may file a proof of such claim. … …

- 119 Proof of Insurance Must be provided within 60 days after filing. A debtor must provide a lessor or secured creditor reasonable evidence of required insurance coverage no later than 60 days after the date of filing, and continue to provide proof of insurance for so long as the debtor retains possession of the property. §1326(a)(1)(B)&(C) ________________________________________________________________ This is an interesting section that appears to give Debtors who do not have the required insurance on the date of filing 60 days to get insurance, much longer than most Courts currently allow. Creditors will have to get insurance to cover this period or risk loss of their collateral. If the insurance lapses during a case, Courts will most likely allow the very short periods of time they traditionally allowed to provide proof of insurance, or will dismiss or allow conversion of the case. Sec. 1326. Payments … … [selected text from section] `(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.'

- 120 Summary of Changes to Dischargeability of Debts. 1. Taxes - if a return or equivalent report or notice (i.e.-signed by the Debtor, not a service filed return) that was last due during the two years preceding the date of filing was not filed with the appropriate taxing authority. § 523(a)(1). 2. Debts Incurred through Fraud or False Pretenses - Consumer debts incurred within 90 days before filing, totaling more than $500, and owed to a single creditor for “luxury goods or services” are presumed to be non-dischargeable. Cash advances from a single creditor totaling more than $750 obtained within 70 days before filing are presumed to be non-dischargeable. § 523(a)(2). 3. Domestic Support Obligations - All domestic support obligations are non-dischargeable in bankruptcy. § 523(a)(5) 4. Student Loans - unless the Debtor proves undue hardship, all student loans are now non-dischargeable. § 523(a)(8). 5. Debts incurred to pay non-dischargeable federal, state, and local taxes are non- dischargeable. § 523(a)(14A) 6. Federal Election Law Fines and Penalties are non-dischargeable in Chs. 7, 11, & 12. § 523(a)(14B). 7. Property Settlement Debts - debts owed to a spouse, former spouse, or child of the debtor that are not domestic support obligations but that were incurred by the debtor in the course of a divorce or separation or in connection with a divorce are non-dischargeable in Ch 7, 11, and 12 cases. § 523(a)(15). 8. Condo and Homeowner Association Fees are non-dischargeable only for so long as the debtor or the trustee has a legal, equitable, or possessory ownership interest. § 523(a)(16). 9. Court Costs and Fees Incurred by prisoners are non-dischargeable. § 523(a)(17). 10. Pension / 401K / 403B Loans are exempt from discharge. § 523(a)(18). 11. Debts Arising from Securities Violations where judgment is entered before or after the filing date. § 523(a)(19) Debts that are Non-Dischargeable in Chapter 7 case are also Non-Dischargeable in Chapter 13 cases with the following exceptions: 12. Property settlements [not support obligations] that are non-dischargeable in Ch 7 §523(a)(15) are dischargeable in Ch 13. §1328(a) 13. Debts due to Willful or malicious injury to property are non-dischargeable in Ch 7 (§523(a)(6)), Debts due to Willful and malicious injury to property are dischargeable in Ch 13. §1328(a) 14. Debts incurred to pay non-dischargeable tax obligations that are non-dischargeable in Ch 7 (§523(a)(14) are dischargeable in Ch 13. §1328(a) _______________________________________________________ Sec. 523. Exceptions to discharge [selected text from section] (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 a customs duty – (A) of the kind and for the periods specified in section

- 121 507(a)(2)(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; or (C) with respect to which the debtor made a fraudulent return or willfully attempted in any manner to evade or defeat such tax; (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; ‘(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.' `(5) for a domestic support obligation; `(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;'. `(14A) incurred to pay a tax to a governmental unit, other than the United States, that would be nondischargeable under paragraph (1); `(14B) incurred to pay fines or penalties imposed under Federal election law;'. (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; (16) for a fee or assessment that becomes due and payable after the order for relief to a membership association with respect to the debtor's interest in a dwelling unit that has condominium ownership or in a share of a cooperative housing 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 entry of the order for relief in a pending or subsequent bankruptcy case;

- 122 (17) for a fee imposed by a court `on a prisoner by any court' for the filing of a 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 section 1915(b) or (f) `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)'; or `(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' (19) that— (A) is for— (i) the violation of any of the Federal securities laws (as that term is defined in section 3(a)(47) of the Securities Exchange Act of 1934), any of the State securities laws, or any regulation or order issued under such Federal or State securities laws; or (ii) common law fraud, deceit, or manipulation in connection with the purchase or sale of any security; and [ed. Effective date opon enactment of Sarbanes-Oxley Act- The amendment made by subsection (a) is effective beginning July 30, 2002.] (B) results `, before, on, or after the date on which the petition was filed, from— (i) any judgment, order, consent order, or decree entered in any Federal or State judicial or administrative proceeding; (ii) any settlement agreement entered into by the debtor; or (iii) any court or administrative order for any damages, fine, penalty, citation, restitutionary payment, disgorgement payment, attorney fee, cost, or other payment owed by the debtor. `For purposes of this subsection, the term `return' means a return that satisfies 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.' (b) Notwithstanding subsection (a) of this section, a debt that was excepted from discharge under subsection (a)(1), (a)(3), or (a)(8) of this section, under section 17a(1), 17a(3), or 17a(5) of the Bankruptcy Act, under section 439A of the Higher Education Act of 1965, or under section 733(g) of the Public Health Service Act in a prior case concerning the debtor under this title, or under the Bankruptcy Act, is dischargeable in a case under this title unless, by the terms of subsection (a) of this section, such debt is not dischargeable in the case under this title. (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), or (15) of subsection (a) of this section, unless, on request of the 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),

- 123 or (15), as the case may be, of subsection (a) of this section. (2) Paragraph (1) shall not apply in the case of a Federal depository institutions regulatory agency seeking, in its capacity as conservator, receiver, or liquidating agent for an insured depository institution, to recover a debt described in subsection (a)(2), (a)(4), (a)(6), or (a)(11) owed to such institution by an institution-affiliated party unless the receiver, conservator, or liquidating agent was appointed in time to reasonably comply, or for a Federal depository institutions regulatory agency acting in its corporate capacity as a successor to such receiver, conservator, or liquidating agent to reasonably comply, with subsection (a)(3)(B) as a creditor of such institution-affiliated party with respect to such debt. (d) If a creditor requests a determination of dischargeability of a consumer debt under subsection (a)(2) of this section, and such debt is discharged, the court shall grant judgment in favor of the debtor for the costs of, and a reasonable attorney's fee for, the proceeding if the court finds that the position of the creditor was not substantially justified, except that the court shall not award such costs and fees if special circumstances would make the award unjust. (e) Any institution-affiliated party of an insured depository institution shall be considered to be acting in a fiduciary capacity with respect to the purposes of subsection (a)(4) or (11).

- 124

Miscellaneous Provisions Tax Refunds – The IRS is now specifically authorized to setoff tax refunds due for pre-petition tax periods against pre-petition tax debts. §362(b)(26) No Automatic Stay for §544 and §549 - The Act provides that the filing of a petition under section 301, 302, or 303 of this title, or of an application under section 5(a)(3) of the Securities Investor Protection Act of 1970, does not operate as a stay - under subsection (a), of any transfer that is not avoidable under section 544 and that is not avoidable under section 549; §362(b)(24) _____________________________________________________________ You need to read the sections to see the limited application of these stay provisions. Sec. 544. Trustee as lien creditor and as successor to certain creditors and purchasers [selected text from section] (a) The trustee shall have, as of the commencement of the case, and without regard to any knowledge of the trustee or of any creditor, the rights and powers of, or may avoid any transfer of property of the debtor or any obligation incurred by the debtor that is voidable by - (1) a creditor that extends credit to the debtor at the time of the commencement of the case, and that obtains, at such time and with respect to such credit, a judicial lien on all property on which a creditor on a simple contract could have obtained such a judicial lien, whether or not such a creditor exists; (2) a creditor that extends credit to the debtor at the time of the commencement of the case, and obtains, at such time and with respect to such credit, an execution against the debtor that is returned unsatisfied at such time, whether or not such a creditor exists; or (3) a bona fide purchaser of real property, other than fixtures, from the debtor, against whom applicable law permits such transfer to be perfected, that obtains the status of a bona fide purchaser and has perfected such transfer at the time of the commencement of the case, whether or not such a purchaser exists. (b) (1) Except as provided in paragraph (2), the trustee may avoid any transfer of an interest of the debtor in property or any obligation incurred by the debtor that is voidable under applicable law by a creditor holding an unsecured claim that is allowable under section 502 of this title or that is not allowable only under section 502(e) of this title. (2) Paragraph (1) shall not apply to a transfer of a charitable contribution (as that term is defined in section 548(d)(3)) that is not covered under section 548(a)(1)(B), by reason of section 548(a)(2). Any claim by any person to recover a transferred contribution described in the preceding sentence under Federal or State law in a Federal or State court shall be preempted by the commencement of the case. Sec. 549. Postpetition transactions [selected text from section] (a) Except as provided in subsection (b) or (c) of this section, the trustee may avoid a transfer of property of the estate - (1) that occurs after the commencement of the case; and (2) (A) that is authorized only under section 303(f) or 542(c) of this title; or (B) that is not authorized under this title or by the court. (b) In an involuntary case, the trustee may not avoid under subsection (a) of this section a transfer made after the

- 125 commencement of such case but before the order for relief to the extent any value, including services, but not including satisfaction or securing of a debt that arose before the commencement of the case, is given after the commencement of the case in exchange for such transfer, notwithstanding any notice or knowledge of the case that the transferee has. (c) The trustee may not avoid under subsection (a) of this section a transfer of `an interest in' real property to a good faith purchaser without knowledge of the commencement of the case and for present fair equivalent value unless a copy or notice of the petition was filed, where a transfer of `an interest in' such real property may be recorded to perfect such transfer, before such transfer is so perfected that a bona fide purchaser of such property `such real property', against whom applicable law permits such transfer to be perfected, could not acquire an interest that is superior to the interest `such interest' of such good faith purchaser. A good faith purchaser without knowledge of the commencement of the case and for less than present fair equivalent value has a lien on the property transferred to the extent of any present value given, unless a copy or notice of the petition was so filed before such transfer was so perfected. (d) An action or proceeding under this section may not be commenced after the earlier of - (1) two years after the date of the transfer sought to be avoided; or (2) the time the case is closed or dismissed.

- 126 Small Business Debtor – Provisions have been added to Ch 11 for individuals engaged in commercial or business activities, excluding owning or operating real property, that have aggregate noncontingent liquidated secured and unsecured debts to outside creditors totaling not more than $2,000,000. §101(51D)&(51C) §1116 §1121(e) §1125(f) §1129(e) Historically, Chapter 11 was not well suited for those debtors, and is modified by the Act to allow for a Chapter 13 like small business reorganization. Chapter 11 cases for individuals have been modified to allow enforcement of domestic support obligations. In a Ch 11 case property of the estate now includes property acquired after commencement of the case. §1115 The Act provides for funding the 11 from future income and requires a best effort plan, with a minimum 5 years of contributions of disposable income if a creditor objects. §1123(a)(8) §1129(a)(15) A Ch 11 debtor receives a discharge only if the plan is completed. §1141(d)(5) ____________________________________________________________ Select new provisions of the Code – Sec. 1112. Conversion or dismissal [selected text from section] (a) The debtor may convert a case under this chapter to a case under chapter 7 of this title unless - `(b) (1) Except as provided in paragraph (2) of this subsection, subsection (c) of this section, and section 1104(a)(3), on request of a party in interest, and after notice and a hearing, absent unusual circumstances specifically identified by the court that establish that the requested conversion or dismissal is not in the best interests of creditors and the estate, the court shall convert a case under this chapter to a case under chapter 7 or dismiss a case under this chapter, whichever is in the best interests of creditors and the estate, if the movant establishes cause. `(2) The relief provided in paragraph (1) shall not be granted absent unusual circumstances specifically identified by the court that establish that such relief is not in the best interests of creditors and the estate, if the debtor or another party in interest objects and establishes that— `(A) there is a reasonable likelihood that a plan will be confirmed within the timeframes established in sections 1121(e) and 1129(e) of this title, or if such sections do not apply, within a reasonable period of time; and `(B) the grounds for granting such relief include an act or omission of the debtor other than under paragraph (4)(A)-- `(i) for which there exists a reasonable justification for the act or omission; and `(ii) that will be cured within a reasonable period of time fixed by the court. `(3) The court shall commence the hearing on a motion under this subsection not later than 30 days after filing of the motion, and shall decide the motion not later than 15 days after commencement of such hearing, unless the movant expressly consents to a continuance for a specific period of time or compelling circumstances prevent the court from meeting the time limits established by this paragraph. `(4) For purposes of this subsection, the term `cause' includes-- `(A) substantial or continuing loss to or diminution of the estate and the absence of a reasonable likelihood of rehabilitation; `(B) gross mismanagement of the estate; `(C) failure to maintain appropriate insurance that poses a risk to the estate or to the public; `(D) unauthorized use of cash collateral substantially harmful to 1 or more creditors; `(E) failure to comply with an order of the court; `(F) unexcused failure to satisfy timely any filing or reporting requirement established by this title or by any rule applicable to a case under this chapter;

- 127 `(G) failure to attend the meeting of creditors convened under section 341(a) or an examination ordered under rule 2004 of the Federal Rules of Bankruptcy Procedure without good cause shown by the debtor; `(H) failure timely to provide information or attend meetings reasonably requested by the United States trustee (or the bankruptcy administrator, if any); `(I) failure timely to pay taxes owed after the date of the order for relief or to file tax returns due after the date of the order for relief; `(J) failure to file a disclosure statement, or to file or confirm a plan, within the time fixed by this title or by order of the court; `(K) failure to pay any fees or charges required under chapter 123 of title 28; `(L) revocation of an order of confirmation under section 1144; `(M) inability to effectuate substantial consummation of a confirmed plan; `(N) material default by the debtor with respect to a confirmed plan; `(O) termination of a confirmed plan by reason of the occurrence of a condition specified in the plan; and `(P) failure of the debtor to pay any domestic support obligation that first becomes payable after the date of the filing of the petition.' ‘Sec. 1115. Property of the estate [selected text from section] `(a) In a case in which the debtor is an individual, property of the estate includes, in addition to the property specified in section 541-- `(1) all property of the kind specified in section 541 that the debtor acquires after the commencement of the case but before the case is closed, dismissed, or converted to a case under chapter 7, 12, or 13, whichever occurs first; and `(2) earnings from services performed by the debtor after the commencement of the case but before the case is closed, dismissed, or converted to a case under chapter 7, 12, or 13, whichever occurs first. `(b) Except as provided in section 1104 or a confirmed plan or order confirming a plan, the debtor shall remain in possession of all property of the estate.'. `Sec. 1116. Duties of trustee or debtor in possession in small business cases [selected text from section] `In a small business case, a trustee or the debtor in possession, in addition to the duties provided in this title and as otherwise required by law, shall-- `(1) append to the voluntary petition or, in an involuntary case, file not later than 7 days after the date of the order for relief— `(A) its most recent balance sheet, statement of operations, cash-flow statement, and Federal income tax return; or `(B) a statement made under penalty of perjury that no balance sheet, statement of operations, or cash-flow statement has been prepared and no Federal tax return has been filed; `(2) attend, through its senior management personnel and counsel, meetings scheduled by the court or the United States trustee, including initial debtor interviews, scheduling conferences, and meetings of creditors convened under section 341 unless the court, after notice and a hearing, waives that requirement upon a finding of extraordinary and compelling circumstances; `(3) timely file all schedules and statements of financial affairs, unless the court, after notice and a hearing, grants an extension, which shall not extend such time period to a date later than 30 days after the date of the order for relief, absent extraordinary and compelling circumstances; `(4) file all postpetition financial and other reports required by the Federal Rules of Bankruptcy Procedure or by local rule of the district court; `(5) subject to section 363(c)(2), maintain insurance customary and appropriate to the industry; `(6) (A) timely file tax returns and other required government filings; and `(B) subject to section 363(c)(2), timely pay all taxes entitled to administrative expense priority except those being contested by appropriate proceedings being diligently prosecuted; and `(7) allow the United States trustee, or a designated representative of the United States trustee, to inspect the debtor's business premises, books, and records at reasonable times, after reasonable prior written notice, unless

- 128 notice is waived by the debtor.'. Sec. 1121. Who may file a plan [selected text from section] (a) The debtor may file a plan with a petition commencing a voluntary case, or at any time in a voluntary case or an involuntary case. (b) Except as otherwise provided in this section, only the debtor may file a plan until after 120 days after the date of the order for relief under this chapter. (c) Any party in interest, including the debtor, the trustee, a creditors' committee, an equity security holders' committee, a creditor, an equity security holder, or any indenture trustee, may file a plan if and only if - (1) a trustee has been appointed under this chapter; (2) the debtor has not filed a plan before 120 days after the date of the order for relief under this chapter; or (3) the debtor has not filed a plan that has been accepted, before 180 days after the date of the order for relief under this chapter, by each class of claims or interests that is impaired under the plan. (d) `(1) Subject to paragraph (2), on' request of a party in interest made within the respective periods specified in subsections (b) and (c) of this section and after notice and a hearing, the court may for cause reduce or increase the 120-day period or the 180-day period referred to in this section. `(2) (A) The 120-day period specified in paragraph (1) may not be extended beyond a date that is 18 months after the date of the order for relief under this chapter. `(B) The 180-day period specified in paragraph (1) may not be extended beyond a date that is 20 months after the date of the order for relief under this chapter.' (e) In a case in which the debtor is a small business and elects to be considered a small business - (1) only the debtor may file a plan until after 100 days after the date of the order for relief under this chapter; (2) all plans shall be filed within 160 days after the date of the order for relief; and (3) on request of a party in interest made within the respective periods specified in paragraphs (1) and (2) and after notice and a hearing, the court may - (A) reduce the 100-day period or the 160-day period specified in paragraph (1) or (2) for cause; and (B) increase the 100-day period specified in paragraph (1) if the debtor shows that the need for an increase is caused by circumstances for which the debtor should not be held accountable. `(e) In a small business case-- `(1) only the debtor may file a plan until after 180 days after the date of the order for relief, unless that period is— `(A) extended as provided by this subsection, after notice and a hearing; or `(B) the court, for cause, orders otherwise; `(2) the plan and a disclosure statement (if any) shall be filed not later than 300 days after the date of the order for relief; and `(3) the time periods specified in paragraphs (1) and (2), and the time fixed in section 1129(e) within which the plan shall be confirmed, may be extended only if— `(A) the debtor, after providing notice to parties in interest (including the United States trustee), demonstrates by a preponderance of the evidence that it is more likely than not that the court will confirm a plan within a reasonable period of time; `(B) a new deadline is imposed at the time the extension is granted; and `(C) the order extending time is signed before the existing deadline has expired.'

- 129 Sec. 1123. Contents of plan [selected text from section] (8) in a case in which the debtor is an individual, provide for the payment to creditors under the plan of all or such portion of earnings from personal services performed by the debtor after the commencement of the case or other future income of the debtor as is necessary for the execution of the plan. Sec. 1125. Postpetition disclosure and solicitation [selected text] (a) In this section - (1) ''adequate information'' means information of a kind, and in sufficient detail, as far as is reasonably practicable in light of the nature and history of the debtor and the condition of the debtor's books and records, `including a discussion of the potential material Federal tax consequences of the plan to the debtor, any successor to the debtor, and a hypothetical investor typical of the holders of claims or interests in the case,', that would enable a hypothetical reasonable investor typical of holders of claims or interests `such a hypothetical investor' of the relevant class to make an informed judgment about the plan, but adequate information need not include such information about any other possible or proposed plan `and in determining whether a disclosure statement provides adequate information, the court shall consider the complexity of the case, the benefit of additional information to creditors and other parties in interest, and the cost of providing additional information'; and (f) Notwithstanding subsection (b), in a case in which the debtor has elected under section 1121(e) to be considered a small business (1) the court may conditionally approve a disclosure statement subject to final approval after notice and a hearing; (2) acceptances and rejections of a plan may be solicited based on a conditionally approved disclosure statement as long as the debtor provides adequate information to each holder of a claim or interest that is solicited, but a conditionally approved disclosure statement shall be mailed at least 10 days prior to the date of the hearing on confirmation of the plan; and (3) a hearing on the disclosure statement may be combined with a hearing on confirmation of a plan. `(f) Notwithstanding subsection (b), in a small business case-- `(1) the court may determine that the plan itself provides adequate information and that a separate disclosure statement is not necessary; `(2) the court may approve a disclosure statement submitted on standard forms approved by the court or adopted under section 2075 of title 28; and `(3) (A) the court may conditionally approve a disclosure statement subject to final approval after notice and a hearing; `(B) acceptances and rejections of a plan may be solicited based on a conditionally approved disclosure statement if the debtor provides adequate information to each holder of a claim or interest that is solicited, but a conditionally approved disclosure statement shall be mailed not later than 25 days before the date of the hearing on confirmation of the plan; and `(C) the hearing on the disclosure statement may be combined with the hearing on confirmation of a plan.' `(g) Notwithstanding subsection (b), an acceptance or rejection of the plan may be solicited from a holder of a claim or interest if such solicitation complies with applicable nonbankruptcy law and if such holder was solicited before the commencement of the case in a manner complying with applicable nonbankruptcy law.' Sec. 1127. Modification of plan [selected text from section] `(e) If the debtor is an individual, the plan may be modified at any time after confirmation of the plan but before the completion of payments under the plan, whether or not the plan has been substantially consummated, upon request of the debtor, the trustee, the United States trustee, or the holder of an allowed unsecured claim, to— `(1) increase or reduce the amount of payments on claims of a particular class provided for by the plan; `(2) extend or reduce the time period for such payments; or `(3) alter the amount of the distribution to a creditor whose claim is

- 130 provided for by the plan to the extent necessary to take account of any payment of such claim made other than under the plan. `(f) (1) Sections 1121 through 1128 and the requirements of section 1129 apply to any modification under subsection (a). `(2) The plan, as modified, shall become the plan only after there has been disclosure under section 1125 as the court may direct, notice and a hearing, and such modification is approved.'. Sec. 1129. Confirmation of plan [selected text from section] (a) The court shall confirm a plan only if all of the following requirements are met: (9) Except to the extent that the holder of a particular claim has agreed to a different treatment of such claim, the plan provides that - ….. (C) with respect to a claim of a kind specified in section 507(a)(8) of this title, the holder of such claim will receive on account of such claim deferred cash payments, over a period not exceeding six years after the date of assessment of such claim, of a value, as of the effective date of the plan, equal to the allowed amount of such claim. `regular installment payments in cash— `(i) of a total value, as of the effective date of the plan, equal to the allowed amount of such claim; `(ii) over a period ending not later than 5 years after the date of the order for relief under section 301, 302, or 303; and `(iii) in a manner not less favorable than the most favored nonpriority unsecured claim provided for by the plan (other than cash payments made to a class of creditors under section 1122(b)); and' `(D) with respect to a secured claim which would otherwise meet the description of an unsecured claim of a governmental unit under section 507(a)(8), but for the secured status of that claim, the holder of that claim will receive on account of that claim, cash payments, in the same manner and over the same period, as prescribed in subparagraph (C).' `(14) If the debtor is required by a judicial or administrative order, or by statute, to pay a domestic support obligation, the debtor has paid all amounts payable under such order or such statute for such obligation that first become payable after the date of the filing of the petition.'; (15) In a case in which the debtor is an individual and in which the holder of an allowed unsecured claim objects to the confirmation of the plan— (A) the value, as of the effective date of the plan, 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 value of the property to be distributed under the plan is not less than the projected disposable income of the debtor (as defined in section 1325(b)(2)) to be received during the 5-year period beginning on the date that the first payment is due under the plan, or during the period for which the plan provides payments, whichever is longer. `(16) All transfers of property of the plan shall be made in accordance with any applicable provisions of nonbankruptcy law that govern the transfer of property by a corporation or trust that is not a moneyed, business, or commercial corporation or trust.' …. (B) With respect to a class of unsecured claims - (i) the plan provides that each holder of a claim of such class receive or retain on account of such claim property of a value, as of the effective date of the plan, equal to the allowed amount of such claim; or (ii) the holder of any claim or interest that is junior to the claims of such class will not receive or retain under the plan on account of such junior claim or interest any property`, except that in a case in which the debtor is an individual, the debtor may retain property included in the estate under section 1115, subject to the requirements of subsection (a)(14) of this section'.

- 131 …. `(e) In a small business case, the court shall confirm a plan that complies with the applicable provisions of this title and that is filed in accordance with section 1121(e) not later than 45 days after the plan is filed unless the time for confirmation is extended in accordance with section 1121(e)(3).' Sec. 1141. Effect of confirmation [selected text from section] (2) The confirmation of a plan does not discharge an individual debtor `A discharge under this chapter does not discharge a debtor who is an individual' from any debt excepted from discharge under section 523 of this title. (5) In a case in which the debtor is an individual— `(A) unless after notice and a hearing the court orders otherwise for cause, confirmation of the plan does not discharge any debt provided for in the plan until the court grants a discharge on completion of all payments under the plan; `(B) at any time after the confirmation of the plan, and after notice and a hearing, the court may grant a discharge to the debtor who has not completed payments under the plan if-- `(i) the value, as of the effective date of the plan, of property actually distributed under the plan on account of each allowed unsecured claim is not less than the amount that would have been paid on such claim if the estate of the debtor had been liquidated under chapter 7 on such date; and `(ii) modification of the plan under section 1127 is not practicable; and' `(C) unless after notice and a hearing held not more than 10 days before the date of the entry of the order granting the discharge, the court finds that there is no reasonable cause to believe that— `(i) section 522(q)(1) may be applicable to the debtor; and `(ii) 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).' `(6) Notwithstanding paragraph (1), the confirmation of a plan does not discharge a debtor that is a corporation from any debt-- `(A) of a kind specified in paragraph (2)(A) or (2)(B) of section 523(a) that is owed to a domestic governmental unit, or owed to a person as the result of an action filed under subchapter III of chapter 37 of title 31 or any similar State statute; or `(B) for a tax or customs duty with respect to which the debtor-- `(i) made a fraudulent return; or `(ii) willfully attempted in any manner to evade or to defeat such tax or such customs duty.

- 132 Audits & Appeals - the Act requires IRS like Audits of selected individual Chapter 7 and 13 cases, and provides for Direct Appeal to the Circuit Courts of Appeal. The Act imposes a duty on the Attorney General and on the Judicial Conference to perform audits on not less than 1 out of every 250 randomly selected individual Chapter 7 and 13 cases, AND audits of schedules in all cases with greater than average statistical variances for the district by reason of higher income or higher expenses. Each report will be filed with the court and the U.S. trustee and will specify any material misstatement of income, expenditures, or assets. The clerk will be required to give notice of the misstatement to creditors, and the United States trustee must then report the material misstatement, if appropriate, to the U.S. Attorney and take further appropriate action, including but not limited to commencing an adversary proceeding to revoke the debtor's discharge.

WARNING – DEBTORS AND ATTORNEYS MUST PREPARE AND KEEP DOCUMENTS THAT SUPPORT THE PETITION AND OTHER FILINGS.

WARNING - THE BUREAUCRATIC POTENTIAL FOR THIS PROVISION IS STAGGERING,

THE RISK TO HONEST BUT DISORGANIZED DEBTORS ENORMOUS. In an apparent effort to obtain quick resolution of matters relating to bankruptcy, and perhaps to bypass BAP rulings favorable toward Debtors, the Act provides for discretionary direct appeals to Circuit Courts of Appeal 28 USC §158 _________________________________________________________________ Audit standards must be established within 24 months after enactment, with the audit provisions taking effect 18 months after enactment. The Act provides for Revocation of Discharge if a debtor fails to satisfactorily explain a material misstatement in an audit or 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. Presumably a Debtor is required to keep all records relating in any way to their bankruptcy for an indefinite period after their Discharge? § 727(d)(4) Sec. 727. Discharge … … [selected text from section] (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 section 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.'. As you can see, the “Bankruptcy Abuse Prevention and Consumer Protection Act of 2005”, could be renamed the “Bankruptcy Elimination Act of 2005”.

- 133

APPENDIX

NOTICES TO DEBTORS

1. INFORMATION ABOUT BANKRUPTCY ASSISTANCE SERVICES You are required to provide the following statement to assisted persons within three days after you first offer (not first provide) services to them. As soon as a prospective client visits your office you need to give the notice to them. You may want to mail the disclosure at the time that the first appointment is made, and have the client bring signed copies to the initial conference. Otherwise, you need to have the client read, sign, and date the notices in your office before beginning the consultation. The disclosure about bankruptcy assistance services MUST be a single document separate from other documents or notices provided to the assisted person. Presumably this means that it cannot be stapled or attached to other papers. You are required to keep a copy of the notices for 2 years after the date you give them to your clients. The copies MUST be signed and dated by the clients to prove receipt. 2. BANKRUPTCY INFORMATION SHEET WITH ADDITIONAL NOTICES This Notice is a combination of the Bankruptcy Information Sheet released in 1996 by the UST (surprisingly the EOUST has not updated it), plus language that the Clerk is supposed to give to Debtors, plus our comment on oral statements. We think it is important to give the information to the Client when you first meet with them so you can move on to substantive matters. 3. SERVICES CONTRACT You are required to execute a written contract with your client no later than five (5) days after you first provide (not first offer) any bankruptcy assistance services to assisted persons and before a case is filed. The contract must clearly explain the services that will be provided, the fees or charges for such services, and the terms of payment. The client must be provided with a copy of the fully executed and completed contract. You should have the client acknowledge receipt by signing and dating a copy that you retain along with the other required documents. We have provided a sample contract loosely based on the official Disclosure of Compensation form. You can modify it so long as you include the services that will be provided, the fees or charges for such services, and the terms of payment. 4. AUTHORIZATION TO RELEASE FINANCIAL INFORMATION You may want to have your clients sign this authorization to make it easier for you to talk to creditors.

- 134 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 SPECIFYING 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.' Services were first offered to me (us) on __________. I (we) certify that I (we) received, read, and understood the above on ___________, _____________________________ Debtor _____________________________ Joint Debtor

- 135 BANKRUPTCY INFORMATION SHEET WITH ADDITIONAL NOTICES

BANKRUPTCY LAW IS A FEDERAL LAW. THIS SHEET GIVES YOU SOME GENERAL INFORMATION ABOUT WHAT HAPPENS IN A BANKRUPTCY CASE. THE INFORMATION HERE IS NOT COMPLETE. YOU MAY NEED LEGAL ADVICE. WHEN YOU FILE BANKRUPTCY: You can choose the kind of bankruptcy that best meets your needs: Chapter 7 - A trustee is appointed to take over your property. Any property of value will be sold or turned into money to pay your creditors. You may be able to keep some personal items and possibly real estate depending on the law of the state where you live. Chapter 13 - You can usually keep your property, but you must earn wages or have some other source of regular income and you must agree to pay part of your income to your creditors. The Court must approve your repayment plan and your budget. A trustee is appointed and will collect the payments from you, pay your creditors, and make sure you live up to the terms of your repayment plan. Chapter 12 - Like chapter 13, but it is only for family farmers. Chapter 11 - This is used mostly by businesses. In chapter 11, you may continue to operate your business, but your creditors and the Court must approve a plan to repay your debts. There is no trustee unless the Judge decides that one is necessary; if a trustee is appointed, the trustee takes control of your business and property. If you have already filed bankruptcy under chapter 7, you may be able to change your case to another chapter. Your bankruptcy may be reported on your credit record for as long as ten years. It can affect your ability to receive credit in the future. WHAT IS A BANKRUPTCY DISCHARGE AND HOW DOES IT OPERATE? One of the reasons people file bankruptcy is to get a "discharge." A discharge is a Court order which states that you do not have to pay most of your debts. Some debts cannot be discharged. For example, you cannot discharge debts for --

• most taxes;

• child support;

• alimony;

• most student loans;

• Court fines and criminal restitution; and

• personal injury caused by driving drunk or under the influence of drugs. The discharge only applies to debts that arose before the date you filed. Also, if the Judge finds that you received money or property by fraud, that debt may not be discharged. It is important to list all your property and debts in your bankruptcy schedules. If you do not list a debt, for example, it is possible the debt will not be discharged. The Judge can also deny your discharge if you do something dishonest in connection with your bankruptcy case, such as destroy or hide property, falsify records, or lie, or if you disobey a Court order. You can only receive a chapter 7 discharge once every eight years. No one can make you pay a debt that has been discharged, but you can voluntarily pay any debt you wish to pay. You do not have to sign a reaffirmation agreement or any other kind of document to do this.

Some creditors hold a secured claim (for example, the bank that holds the mortgage on your house or the loan company that has a lien on your car). You do not have to pay a secured claim if the debt is discharged, but the creditor can still take the property.

- 136 WHAT IS A REAFFIRMATION AGREEMENT? Even if a debt can be discharged, you may have special reasons why you want to promise to pay it. For example, you may want to work out a plan with the bank to keep your car. To promise to pay that debt, you must sign and file a reaffirmation agreement with the Court. Reaffirmation agreements are under special rules and are voluntary. They are not required by bankruptcy law or by any other law. Reaffirmation agreements --

• must be voluntary;

• must not place too heavy a burden on you or your family;

• must be in your best interest; and

• can be canceled anytime before the Court issues your discharge or within 60 days after the agreement is filed with the Court, whichever gives you the most time.

If you are an individual and you are not represented by an attorney, the Court must hold a hearing to decide whether to approve the reaffirmation agreement. The agreement will not be legally binding until the Court approves it. If you reaffirm a debt and then fail to pay it, you owe the debt the same as though there was no bankruptcy. The debt will not be discharged and the creditor can take action to recover any property on which it has a lien or mortgage. The creditor can also take legal action to recover a judgment against you. IF YOU WANT MORE INFORMATION OR HAVE QUESTIONS ABOUT HOW THE BANKRUPTCY LAWS AFFECT YOU, YOU MAY NEED LEGAL ADVICE. THE TRUSTEE IN YOUR CASE IS NOT RESPONSIBLE FOR GIVING YOU LEGAL ADVICE. All information that you are required to provide with your bankruptcy petition and thereafter during a case under this title is required to be complete, accurate, and truthful;

All your assets and all your liabilities are required to be completely and accurately disclosed in the documents filed to commence your case, and the replacement value of each asset as defined in section 506 [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] must be stated in those documents where requested after reasonable inquiry to establish such value;

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

Information that you provide during your case may be audited pursuant to this title, and failure to provide such information may result in dismissal of your case under this title or other sanction, including a criminal sanction.

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.

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

The written information we give you is correct, contradictory oral statements are NOT correct.

I (we), the debtor(s), affirm that I (we) have read and understand this notice.

Dated:_________________

_____________________________ _______________________________ Debtor Joint Debtor

- 137 LEGAL SERVICES CONTRACT Pursuant to 11 U.S.C. §528 the undersigned parties agree to the following:

__________________, Attorney, as a member of the firm of _______________________ does hereby agree to render attorney firm & address legal service for all aspects of a bankruptcy case to ______________________________ of _____________________, including: name(s) address a. Analysis of the financial situation of, and rendering advice to, the undersigned in determining whether to file a petition in bankruptcy;

b. Preparation and filing of any petition, schedules, statement of affairs and plan which may be required;

c. Representation at the meeting of creditors and confirmation hearing, and any adjourned hearings thereof;

d. Negotiations with secured creditors to determine replacement value;

e. Preparation and filing of motions for avoidance of liens on household goods securing non-purchase money debts;

By agreement with the undersigned, the following services are not included;

f. Preparation and filing of reaffirmation agreements;

g. Preparation and filing of motions for avoidance of judicial liens;

h. Representation in any dischargeability actions;

i. Representation in relief from stay actions;

j. Representation in any other adversary proceeding, or in regard to any other Motion or Hearing.

Client is responsible for payment for credit counseling and education, and, if checked, for [ ] credit reports $_____.

The undersigned do hereby agree that the first 30 minutes of consultation is without charge, and that if I (we) choose not to file a petition in bankruptcy we will not owe any fees to the above named Attorney or Firm.

If I (we) choose to file, I (we) agree to pay the sum of $___________ plus filing fee for the services agreed to herein.

$___________ PLUS A FILING FEE of $___________ MUST BE PAID BEFORE THE CASE IS FILED.

Payment after the Petition is filed shall be [ ] through Chapter 13 Plan OR [ ] in equal (circle) monthly/ bi-weekly / weekly payments of $______ beginning on ___________ and continuing until paid.

Additional services will be billed at the rate of $_______ per hour for attorney, $________ per hour for non-attorney.

Additional charges: _____________________________________________________________________________

The source of the compensation paid prior to filing is _____________, and after filing will be _____________.

The parties agree that compensation will be not be shared with people who are not members or associates of the above named law firm except as provided in the attached agreement.

The parties agree that the above named Attorney and Firm do not and will not represent the undersigned, unless and until initial payment is tendered and accepted by said Attorney.

The undersigned agree that this contract is based on full disclosure of information to Attorney, and that any failure to disclose information necessary for proceeding with our case may result in additional charges or termination of representation by said Attorney and firm.

The undersigned agree to timely provide all information and documents necessary or helpful in preparing a petition in bankruptcy, and by their signatures certify that said information, documents, and other communications with said Attorney, will be complete, true, and correct to the best of the undersigned’s knowledge and belief.

Services first offered on ____________, Services first provided on ____________.

This instrument represents the complete agreement between the parties and neither party is bound by any oral or written representation unless contained in a writing signed by both parties.

_______________________________ _________________________________ _____________________________ Name date Name date Attorney date

- 138

AUTHORIZATION TO RELEASE FINANCIAL AND MEDICAL INFORMATION The undersigned do(es) hereby give full and unrestricted permission to all individuals, corporations, partnerships, and other entities, including but not limited to attorneys, law firms, banks, credit issuers, financial institutions, physicians, hospitals, and health care facilities, to discuss with, release to, and provide copies of all existing and future financial documents and statements of account, and medical reports, and any and all other writings or other items in your possession relating in any way to my/our finances, income, expenses, assets, liabilities, and health, to: I/we agree to hold you harmless in regard to the release of said information. ___________________________ ____________________________ name date name date [notary]

- 139 The following is a fairly short list of documents that your Clients need to bring to you. Most experts believe a longer list of documents is needed. ----- Please bring to our office the following documents which are necessary for us to prepare your petition. If any documents are not available please tells us immediately. So that we can determine the financial condition of your family, you must bring your spouse’s documents to us even if you are filing individually, and your name is not on her documents.

1. Real estate – a copy of the recorded deed and all mortgages for every piece of land and other realty that you and/or your spouse may own an interest in, including land you inherited and land you own with other people, burial plots, condominiums, timeshares, etc. If you are not sure if you own an interest in a piece of property tell us about it. If you don’t have a copy that shows the recording information (book and page numbers) you need to get a copy from your local Courthouse.

2. Vehicles – copies of titles to every car, truck, boat, airplane, mobile home, and other property that has your name and/or your spouses name on the title, as owner or co-owner, even if you do not owe any money on it. Please bring a copy of the actual title, the document that shows if there is a lien or not.

3. Tax returns – copies of the last federal and state tax returns that you and/or your spouse filed. Tell us if there are any tax returns for last year or other years that you have not filed.

4. Bank statements – copies of the last seven months bank statements for all accounts that your name and/or your spouses name is on (if you use online banking you can print the statements on your computer).

5. Pay advices – We need every pay-stub and other record of money and property paid or transferred to you and to your spouse over the last seven months so that we can calculate your average monthly family income. Be sure to bring receipts and a list of all money and property you received, including money from bonuses, settlements, withdrawals, sales of property, rents, capital gains, child support, alimony, unemployment benefits, workers compensation, etc. We need to know about your income, every penny of money and every item of property your family received, from you, your spouse, and anyone else, during the last seven months.

6. Bring us every bill you and your spouse received during the last seven months, and, for those creditors who have not sent a bill, a list of everyone you and your spouse owe money to. Think of every debt you may possibly owe. Bring copies of your utility, insurance, and other bills so we can calculate your monthly expenses. Tell us about every debt, even if you plan to continue to pay the debt or if the current balance on the debt is zero. We need to know about your expenses, every penny of money and every item of property that your family paid or transferred during the last seven months.

7. Bring copies of all documents related to domestic support obligations you or your spouse may have.

8. If you own a business, bring us a copy of your last 12 months financial records (an electronic data file may be ok) and the last 2 years of corporate and other tax returns. Tell us about all business debts and taxes you may be personally liable for.

9. Bring documents related to all student loans you owe.

10. Bring documents related to educational IRA’s and State tuition plans.

11. Bring proof of insurance for all vehicles and your home.

12. Bring documents regarding civil or criminal proceedings you have been involved in over the last 5 years.

13. Bring copies of all life insurance policies, annuities, retirement plans, and other accounts and investments. Obtain current cash values (money you could get from them today) for each item.

14. We need to know about your assets, every item of real and personal property that you own that is worth anything at all,

15. We need to know about your liabilities, every debt you have that you are obligated to pay anything on, now or in the future.

16. Please fill out any attached lists and bring them to us.

17. When you meet with the Trustee you will also be required to give them a copy of all financial statements that show balances on the date of filing, current pay advices (pay stubs), and perhaps other documents.

18. If you are having trouble gathering the information, tell us – we may be able to help!

- 140

On the next few pages is a very short unified Questionnaire / Checklist that can be answered by your clients and then reviewed by you, or that you can use as a worksheet during your initial conference. In the past some offices have used extensive worksheets that clients fill out, others have relied on interviews only. In our opinion the new provisions are so uncertain and difficult that clients will be unable to answer many questions without assistance. On the other hand, with the added complexity of the code, increased need for “due diligence”, and potential for audits, you need to have a single document that summarizes important information in each case. This is especially true in those situations where immediate action is essential, and where clients need to be warned that bankruptcy will not prevent foreclosure or collection activities. With those considerations in mind we think it is very important that you use the attached form, or a similar form, to identify points of concern. You may want to have the clients run through the form and then go over it with them, or you may want to ask the questions and record the answers. We also think it is advisable to have the clients initial each page. Remember – the purpose of the Questionnaire is not to gather information necessary to complete the schedules, rather it is to quickly identify areas of risk so that you can deal with them before they create serious problems for you and your clients. Here is what each question is designed to do: Q1 – Alerts you to one of several situations resulting from prior filings that may affect the ability to file, or may affect the automatic stay. We provide an Office Use box to mark the potential problem and to raise an Alert. So that the Alert Box will not be overlooked - at the top of each page is a second Alert box that is to be checked at the same time any Alert box is checked on a page. This is a good place to emphasize the need to document “reasonable inquiry”. It is simple to verify previous filings in any state by entering social security numbers on the US Case Index page. If a previous filing is found, at the very least, you need to use Pacer to obtain the docket sheet for that case. This information should either be scanned and kept in a paperless format, or kept in paper form for the duration of the current case plus 2 years. When there is a previous filing you need to promptly inform the client of the potential consequences. Q2 – Identifies real property at risk for an imminent foreclosure sale, and when combined with the answers from Q1, allows you to warn a client that the property may be subject to sale even if a petition if filed. This gives the client an opportunity to proceed with state remedies and workouts, with no surprises when the gavel falls. When this Alert is checked the attorney should immediately inquire about the possibility of a foreclosure sale. Q3 – Simple question to alert about mortgage arrearages. Q4 – Attempts to identify possible §522(o) reduction of homestead. The 2 year question is designed to identify clients who may have been transferred funds in anticipation of filing and homestead protection, so that they will not be surprised if the improvements reduce their homestead allowance. Q5 – Attempts to identify possible §522 $125,000 limit on homestead. Q6 – Identifies rental and lease property where the client is at risk for imminent eviction, allowing you to warn a client that they may be evicted even if a petition if filed. When this Alert is checked the attorney should immediately inquire about the possibility of eviction. Q7/8 – Identify which state exemptions should be used on Schedule C. Q9/10/11 – Deal with the means test and alert you to timing issues. Q10 should raise an immediate alert if the client conference is near the end of the month. Given the timing issues, it is probably better not to even have initial client interviews on the last few days of each month unless you can do an emergency filing on that same day.

- 141 Q12 – Asks if all tax returns have been filed. Q13 – Deals with identifying 910 vehicles, 1 year PMSI’s, luxury goods, & cash advances. Note that we intentionally do not ask clients for details in these questions, for example we do not ask if a 910 vehicle was purchased for “personal use”. We think it is far better to identify as many potential problems as possible, and then let you find out if a problem actually exists, rather than giving the client the opportunity to make a mistake in interpreting a question and accidentally hide a problem. Q14 – Identifies Domestic Support Obligations so you can immediately warn a client that bankruptcy will do nothing to stop collections, protect licenses, etc. Q15 – Attempts to identify situations where a client was ordered to pay, for example, credit card debt in a property settlement agreement – effectively making that debt non-dischargeable in a Ch 7 case. Q16 – Checks to see if records regarding educational IRA’s and state plans are required. Q17 – Determines if a client needs to bring in bills more than 90 days old. The property list sheet that follows the Questionnaire is another compromise between worksheets and interviews. To satisfy due diligence, we think it is important for the client to list assets, but we don’t believe it is useful for them to assign values without assistance. Over many years we have seen one client value, for example, a television for $500, while another client values the identical television for $50, in situations where we would have valued the set for $150. It is extremely difficult to know what replacement value is if you have no experience with used furniture and appliance stores. For that reason we think you or your staff should help the client determine value. Remember, the values may be audited so be realistic about the value of every item. Also, circle every item that the client believes has been given as security for a purchase or non-purchase money loan. The next sheet looks at accounts and intangibles. In the past many attorneys used their experience to estimate the value of exempt intangible property, and other property, when it made no real difference what the actual value was. Under the Act it is important to be reasonably accurate about all values and other information. That does not mean that you must be accurate to the dollar, it does mean that you must be close enough that any variance cannot be construed to be a material misrepresentation. This is an important change that has the potential of causing serious trouble for attorneys who keep on doing things like they always have. Finally there is a checklist. All of these forms can be modified to suit your needs. Please do so with care because the Act is confusing and is filled with traps for the unwary practitioner.

- 142 Alert boxes checked [ ]

QUESTIONNAIRE The following questions will help us determine if you need to file a bankruptcy petition, and if you do, give us some of the information we need to prepare it. Please answer every question to the best of your knowledge and belief. If you are not absolutely sure what a question is asking, or what the answer is, check the [X] “not sure” box and we will go over it with you. It is very important that you list everyone you owe money to so that we can make sure the debt is covered by a bankruptcy. It is very important that you list everything that you own so we can apply exemptions to as much of your property as possible to allow you to keep what you own. It is also important that you list all income that you receive and monthly expenses that you have so we can file the type of bankruptcy that will help you the most. Remember, you are required by law to fill out your petition under penalty of perjury to the best of your knowledge and belief, the penalty for not listing assets, debts, income, and expenses is up to a $50,000 fine and a five year prison sentence. If you are married and filing individually, or filing jointly, answer the questions for BOTH you and your spouse so that we can get a complete picture of your family finances. Please indicate what assets, debts, income, and expenses you believe are your spouses and NOT yours. Ask for additional paper if needed. _______________________________________ _____________ ___________ Full Name SS# date of birth ______________________________________________________________phone#_________________ address

_______________________________________ _____________ ___________ Full Name SS# date of birth

____________________________________________________phone#______________ address Are you [ ] Married [ ] Married living in separate households [ ] Separated [ ] Single / Divorced [ ] Not sure of legal status 1. Have you filed bankruptcy in the past 8 years? [ ] Yes [ ] No

1. Office use only – check US Party / Case Index http://pacer.uspci.uscourts.gov/ and Pacer Docket Sheets OK [ ] Within: (check all that apply and check Alert box – obtain copy of US Case Index and docket sheets) Alert [ ] 8 years – discharge in a Chapter 7 [ ] 1 year - dismissal of 1 case [ ] 4 years - discharge in a Chapter 7, 11, or 12 [ ] 1 year - dismissal of 2 or more cases [ ] 2 years - discharge in a Chapter 13 [ ] 180 days – dismissal of case [ ] Notes: 2. Do you own any interest at all in land (real property & improvements), [ ] Yes [ ] No [ ] Not sure including land you inherited and own with relatives, burial plots, REMEMBER–ALL QUESTIONS MUST condominiums, and timeshares? BE ANSWERED FOR BOTH SPOUSES

During the last five years have you transferred any interest in real [ ] Yes [ ] No [ ] Not sure property to anyone, by sale, gift, foreclosure, or otherwise?

During the last five years has any real property you own or owned [ ] Yes [ ] No [ ] Not sure been foreclosed on or been involved in a Court action?

Initial: ____ ____

- 143 Alert boxes checked [ ] 2. Office use only – IF ANSWERS TO Q1 & Q2 ARE YES – Check Alert box OK [ ] Within (check all that apply and check Alert box – obtain copy of docket sheets for prior cases) Alert [ ] 2 years - dismissal of case with Real Estate Relief from Stay Order [ ] REVIEW IMMEDIATELY 1 year - dismissal of 1 or more cases – Stay Automatically Expires [ ] Inform Immediately 180 days – dismissal of case with 180 day bar on refiling [ ] of possible loss of Notes: real / personal property due to no stay

If your Answer to all parts of Question 2 was No (you have not owned real estate) then skip to Question 6.

3. Are you behind on any payments owed on any mortgage or other [ ] Yes [ ] No [ ] Not sure loan secured by real estate?

3. Office use only – Mortgage Arrearages – Check Alert box OK [ ] (obtain copy of payment history) Alert [ ]

4. During the last ten (10) years have you made improvements to the [ ] Yes [ ] No [ ] Not sure house you live in or other “homestead” property?

If yes, did you use money you already had [ ] Yes [ ] No [ ] Not sure (not borrowed money) to make the improvements?

If yes, were any improvements made during the last two (2) years? [ ] Yes [ ] No [ ] Not sure

4. Office use only – If yes then possible §522(o) situation – check Alert box OK [ ] Obtain details of improvements, source of funds used, dates of improvements, reason for improvements, etc. Alert [ ] Notes:

5. During the last 1215 days (about 3 years 4 months) have you [ ] Yes [ ] No [ ] Not sure purchased or made improvements to the house you live in or to other “homestead” property?

During the last 5 years have you been involved in anything that [ ] Yes [ ] No [ ] Not sure might lead to your being a defendant in a civil or criminal case?

5. Office use only – If yes then possible §522 homestead limit of $125000 – check Alert box OK [ ] Obtain details of purchase & improvements, and potential civil and criminal liability. Alert [ ] Notes:

6. Do you rent or lease? [ ] Yes [ ] No [ ] Not sure

If yes, are you behind in your rent or lease payments, or in default? [ ] Yes [ ] No [ ] Not sure

If yes, has your landlord or a Court given any kind of Notice [ ] Yes [ ] No [ ] Not sure to you telling you that they will not continue to rent / lease to you?

Has you landlord told you that you have done anything that [ ] Yes [ ] No [ ] Not sure might cause them not to continue to rent / lease to you?

6. Office use only – IF ANSWERS TO Q4 IS YES – Check Alert box OK [ ] Check all that apply and check Alert box – obtain copy of all related documents) Alert [ ] Notice of termination received [ ] REVIEW IMMEDIATELY Legal action filed [ ] Inform Immediately Judgment of Possession entered [ ] of possibility of Endangered property or illegal use [ ] eviction due to no stay Notes:

Initial: ____ ____

- 144 Alert boxes checked [ ] 7. Have you lived anywhere outside this State during the last 2 years? [ ] Yes [ ] No [ ] Not sure

If Yes please list every address where you (remember if you are married we are asking both of you) lived:

_________________________________________________________ from ____ to _____

_________________________________________________________ from ____ to _____

_________________________________________________________ from ____ to _____

8. If you answered Yes to Question 7 then carefully think about everywhere you lived during the period from 2 years ago to 2 ½ years ago, and tell us where you lived. We have a calendar if you need one.

_________________________________________________________ from ____ to _____

_________________________________________________________ from ____ to _____

_________________________________________________________ from ____ to _____

7/8. Office use only – continuously lived in this State during last two years [ ] OK [ ] Lived in the State of _____________ for the greatest part of the 180 day period preceding last 2 years. Alert [ ] Notes: 9. During the last seven months have you or your spouse [ ] Yes [ ] No [ ] Not sure worked for more than one employer?

During the last seven months have you or your spouse [ ] Yes [ ] No [ ] Not sure received different amounts on pay checks?

During the last seven months have you or your spouse [ ] Yes [ ] No [ ] Not sure received any money or property other than your pay?

Do you and your spouse have records of all the amounts [ ] Yes [ ] No [ ] Not sure you received during the last seven months?

9. Office use only – if any answers are No problem with pay advices may exist – check Alert box OK [ ] Notes: Alert [ ]

10. Are you expecting to receive more money or property [ ] Yes [ ] No [ ] Not sure next month than you received this month?

Are you expecting to receive less money or property [ ] Yes [ ] No [ ] Not sure next month than you received this month?

10. Office use only – If yes to either, Check Alert box – means test may be affected OK [ ] (obtain copy of last six months of pay advices) Alert [ ] Notes: REVIEW IMMEDIATELY MAY NEED TO FILE BY END OF CURRENT MONTH

11. Are you expecting to receive more money or property in the next [ ] Yes [ ] No [ ] Not sure six months than you received in the last six months?

Are you expecting to receive less money or property in the next [ ] Yes [ ] No [ ] Not sure six months than you received in the last six months?

11. Office use only – If yes to any, Check Alert box – means test may be affected by timing OK [ ] (obtain copy of last six months of pay advices) Alert [ ] Notes:

Initial: ____ ____

- 145 Alert boxes checked [ ] 12. Have you & your spouse filed ALL local, state, federal, and other tax [ ] Yes [ ] No [ ] Not sure returns that you or your spouse are required to file (even if payment was not sent with the return)?

12. Office use only – if answer is No, problem with providing returns may exist – check Alert box OK [ ] Notes: Alert [ ]

13. Have you financed the purchase of an automobile [ ] Yes [ ] No [ ] Not sure within the last 910 days (2 ½ years)? REMEMBER–ALL QUESTIONS MUST BE ANSWERED FOR BOTH SPOUSES Have you financed the purchase of any other item [ ] Yes [ ] No [ ] Not sure of personal property within the last year?

Have you purchased on credit any items, other than [ ] Yes [ ] No [ ] Not sure necessities, within the last 90 days?

Have you taken cash advances of more than $750 [ ] Yes [ ] No [ ] Not sure from a creditor within the last 70 days?

13. Office use only – if answer is Yes to any, problem with valuation or dischargeability – check Alert box OK [ ] Notes: Alert [ ]

14. Do you owe child or spousal support obligations of any kind, [ ] Yes [ ] No [ ] Not sure past or present, to any person or agency?

14. Office use only – IF ANSWERS TO Q11 IS YES – Check Alert box OK [ ] (obtain copy of all documents related to divorce) Alert [ ] Notes: REVIEW IMMEDIATELY Inform Immediately that ALL collection activities will continue and that notices will be sent to those receiving support

Alert boxes checked [ ] 15. Have you been ordered to pay any debts of any kind under [ ] Yes [ ] No [ ] Not sure a property settlement or divorce decree? 15. Office use only – If yes, Check Alert box – debts may be non-dischargeable in Ch 7 OK [ ] (obtain copy of property settlement and all related documents) Alert [ ] Notes:

16. Does anyone in your family have any kind of educational [ ] Yes [ ] No [ ] Not sure retirement account or qualified State tuition program?

16. Office use only – If yes, Check Alert box – evidence of account is required OK [ ] (obtain copy of all documents relating to the educational accounts) Alert [ ] Notes:

17. During the last 90 days has anyone you owe money to been [ ] Yes [ ] No [ ] Not Sure limited or prevented in any way from sending you a bill? 17. Office use only – If yes, Check Alert box – client may be required to produce bills more than 90 days old OK [ ] Notes: Alert [ ]

Initial: ____ ____

- 146 Please list the number and description of items you own: office use - replacement value / circle if security ____ Large screen tv’s

____ Small screen tv’s

____ Entertainment units

____ dvd’s / vcr’s / similar items

____ stereos / radios

____ mp3 / similar portables

____ desktop computers

____ notebook computers

____ computer accessories (like printers)

____ video game boxes & games

____ cameras

____ stoves

____ refrigerators / freezers

____ microwave

____ dishwasher

____ washer / dryer

____ couch / chairs / coffee tables

____ beds

____ dining room table

____ other furnishings

____ other household goods

____ antiques

____ silverware & cooking utensils

____ clothing

____ rings & other jewelry

____ unusual items [e.g. - pool table]

____ collectibles (art, dolls, and other collections)

____ sporting goods, firearms, camping, similar items

____ boats and motors, aircraft

____ hobby items (photography, woodworking, similar items)

____ office equipment

____ equipment & other business/work related items

____ inventory

____ pets,

____ farm animals, farm related items

____ all other personal property of any kind with value over $20 [like tape recorder, etc.] Initial: ____ ____

- 147 Alert boxes checked [ ] Please list number / description / value of items you own: office use – show value / circle if security cash on hand $ ________

checking, savings, other accounts

___________________________________ $ ________ ___________________________________ $ ________ security deposits (with landlord, utility, etc.)

___________________________________ $ ________ interests in insurance policies (not term life)

___________________________________ $ ________ Annuities

___________________________________ $ ________

Education IRA’s §521(c)

___________________________________ $ ________ Alert [ ] ___________________________________ $ ________ records FRBP 1007(b) IRA, ERISA, Keogh, other pension / profit sharing plans

___________________________________ $ ________ Alert [ ] ___________________________________ $ ________ obtain copies

Stocks and interests in businesses, partnerships, joint ventures

___________________________________ $ ________ Accounts receivable

___________________________________ $ ________

Government bonds

___________________________________ $ ________ Alimony, maintenance, support owed to client

___________________________________ $ ________ Equitable & future interests exercisable by client

___________________________________ $ ________ Contingent / non-contingent interests in estate of decedent

___________________________________ $ ________ Patents, copyrights, licenses, franchises, other general intangibles

___________________________________ $ ________ Customer lists §101(41A)

___________________________________ $ ________ Other liquidated & unliquidated debts owed to client (e.g.- tax refunds)

___________________________________ $ ________ Initial: ____ ____

- 148 Summary Checklist – Debtors: ____________________ ______________________ Case# ___________

Initial meeting with clients (offer of srvs) on: ___________ [deadlines are based on safest interpretation]

[ ] 1. Give clients “Information About Bankruptcy Assistance Services” notice [within 3 days of offer of srvs]

[ ] 2. Give clients “Bankruptcy Information Sheet” [same time]

[ ] 3. Execute client contract [within 5 days of date you first render services & before filing case]

[ ] 4. Execute general authorization to obtain financial information

[ ] 5. Complete Questionnaire Counsel clients regarding ALL potential problems identified by Questionnaire

[ ] 6. Give clients list of documents to provide

[ ] 7. Clients complete pre-petition counseling session and receive certificate (within 180 days before filing)

Second meeting with clients on: ___________ (may be same date)

[ ] 6. Documents returned

[ ] payment advices (e.g. - pay stubs) for last 7 months

[ ] deeds and mortgages

[ ] titles to vehicles

[ ] seven months bank statements

[ ] statements received from creditors during the last 90 days

[ ] tax returns for last year (Ch 13 - transcripts for 4 years for federal, state, local if requested)

[ ] last tax returns filed if debtor was not required to file in previous year(s)

[ ] all documents relating to domestic support obligations – including secured status of claims

[ ] copy of credit counseling certificate & DMP if prepared

[ ] record of interest in education IRA or qualified tuition program

[ ] copies of utility, insurance, and other bills to support schedule J and the means test

[ ] other ____________________________________ (it is not yet clear if other docs are required – monitor local practice closely)

except for ________________________________________________

[ ] 9. Obtain tax transcripts – execute appropriate IRS form

[ ] 10. Execute declaration that §522(p) does not apply / limit exemption – needed before discharge

[ ] 11. Check Pacer for previous filings [ ] None [ ] Previous cases

[ ] 12. Review all documents - ______________________________________________________

[ ] 13. Determine domicile/exemptions – current state if continuous resident for 730 days or state where resided longest portion of 180 days prior to 730 days

[ ] 14. Determine homestead cap – purchase & improvements within 1215 days

[ ] 15. Determine homestead reduction – improvements within 10 years

[ ] 16. Determine protection of contributions to educational IRA’s & tuition plans – made between 365 and 720 days, or more than 720 days before filing date

[ ] 17. Determine protection of interests in self-settled trusts acquired within 10 years of filing

- 149 [ ] 18. Determine priority of taxes assessed within 240 days of filing date

[ ] 19. Determine priority for wages, salaries, and commissions payable within 180 days prior to filing

[ ] 20. Determine dischargeability of luxury goods within 90 days and cash advances within 70 days

[ ] 21. Value motor vehicles purchased within 910 days and other PMSI’s in goods purchased within 1 year

Second meeting with clients (petition signing) on: ___________

[ ] 22. Prepare Petition and Schedules, Statement of Financial Affairs and review with clients

[ ] 23. File Petition and Schedules, Statement of Financial Affairs

Immediately on filing

[ ] 24. Eviction pending - files with Petition certification of non-bankruptcy cure and deposit of rent with the clerk

[ ] 25. Eviction for endangerment or illegal use – respond to Landlord Certificate if filed

Immediately on filing but not later than 30 days after filing date

[ ] 26. File statement of intention

Multiple cases – (carefully read guidebook and code in these situations)

[ ] 27. If stay is in effect on filing after 1 case dismissed in prior year – within 30 days of filing date file Motion for Stay to remain in effect or stay is automatically lifted

[ ] 28. If stay is NOT in effect on filing after 2 or more cases pending in prior year – within 30 days of filing date file Motion for Stay to take effect

[ ] 29. If stay is NOT in effect on filing under 2 year Order and real estate foreclosure is pending - within 30 days of filing date file Motion for Stay to take effect

Within 45 days of filing date

[ ] 30. File required documents with Clerk and Trustee – 45 days of filing OR AUTOMATIC DISMISSAL (Petition, Schedules, Statement of Financial Affairs, certificate of attorney regarding 342(b) notice, copies of all pay advices, itemized statement of monthly net income (Sch 22???? – check with local Court), statement disclosing reasonably anticipated increases in income or expenditures (Sch I statement????), statement of intention)

[ ] 31. Trustee Motion to turnover property and provide adequate protection – 45 days of filing

Within 60 days of filing date

[ ] 32. Provide proof of insurance to secured creditor

Motion for Relief filed

[ ] 33. If decision is pending, Motion to Extend Stay must be filed or stay is automatically lifted after 60 days

[ ] 34. send copies of tax returns to Trustee & requesting creditors no later than 7 days before 341 meeting OR AUTOMATIC DISMISSAL

[ ] 35. File tax returns within 90 days after IRS notice to file or case will be DISMISSED or converted

Meeting of Creditors

[ ] 36. UST sends notice to creditors on presumption of abuse no later than 10 days after 341 meeting

[ ] 37. no later than 30 days (45 days in other section is moot) after the 341 meeting - reaffirm or redeem

[ ] 38. Trustee Motion to turnover property and provide adequate protection – 30 days after 341 meeting

Chapter 13 cases

[ ] 39. Begin plan payments no later than 30 days after date of filing of case

- 150 [ ] 40. Begin adequate protection payments no later than 30 days after date of filing of plan

[ ] 41. Confirmation hearing between 20 days and 45 days after 341 meeting

[ ] 42. Ch 13 – provide copies of prior 4 years tax returns or transcripts if tax return was past due on filing date meeting can be continued 120 days if tax return was not past due, meeting continued later of 120 days or last auto ext. due date

[ ] 43. Prepare and file annual reports to Ch 13 Trustee as necessary

[ ] 44. Discharge hearing – 10 days prior to entry of Ch 13 discharge

Before Discharge – Ch 7 and Ch 13

[ ] 45. Obtain certificate of completion of post-petition financial education course (read applicable rule)

[ ] 46. Provide debtor certification of required payments of pre- and post-petition domestic support obligations

[ ] 47. Plan completed

[ ] 48. Discharge entered – review for conversion Ch 13 to Ch 7

[ ] 49. Case Closed

[ ] 50. Relax

- 151 Compact Library TOS

USE OF THIS FILE, ELECTRONIC BOOK, MEDIA, AND ALL OTHER MATERIALS FROM COMPACT LIBRARY PUBLISHERS Inc. (the “MEDIA”) CONSTITUTES YOUR AGREEMENT TO BE BOUND BY THESE TERMS AND CONDITIONS OF USE. This Media, including all of its features and content (the “Media”) is a service made available by Compact Library Publishers Inc., a Kentucky Corporation, and all content, information, publications, and software ordered or provided on or through this Media (“Content”) may be used solely under the following terms and conditions (“Terms of Use”). 1. Media Limited License. As a user of this Media you are granted a nonexclusive, nontransferable, revocable, limited license to access and use this Media and Content in accordance with these Terms of Use. Provider may terminate this license at any time for any reason. 2. Limitations on Use. The Content on this Media is for your personal use only and not for commercial exploitation. You may not use any robot, spider, other automatic software or device, or manual process to monitor or copy our Media or the Content without Provider’s prior written permission. You may not copy, modify, reproduce, republish, distribute, display, or transmit for commercial, non-profit or public purposes all or any portion of this Media, except for your personal use. You may not use or otherwise export or re-export this Media or any portion thereof, or the Content in violation of the export control laws and regulations of the United States of America. Any unauthorized use of this Media or its Content is prohibited. 3. Not Legal Advice. Content is not intended to and does not constitute legal advice and no attorney-client relationship is formed, nor is anything submitted to Compact Library Publishers Inc. treated as confidential. The accuracy, completeness, adequacy or currency of the Content is not warranted or guaranteed. Your use of Content on this Media or materials linked from this Media is AT YOUR OWN RISK. 4. Intellectual Property Rights. Except as expressly provided in these Terms of Use, nothing contained herein shall be construed as conferring any license or right, by implication, estoppel or otherwise, under copyright or other intellectual property rights. You agree that the Content and Media are protected by copyrights, trademarks, service marks, patents or other proprietary rights and laws. 5. Linking to this Media. You may provide links only to the homepage of this Media, provided you do not remove or obscure any portion of the homepage, including its terms of use, the copyright notice, or other notices, and you discontinue providing links to this Media if requested by Provider. 6. Errors and Corrections. Provider does not represent or warrant that this Media or the Content will be error-free, free of viruses or other harmful components, or that defects will be corrected or that it will always be accessible. Provider does not warrant or represent that the Content available on or through this Media will be correct, accurate, timely, or otherwise reliable. Provider may make improvements and/or changes to its features, functionality or Content at any time. 7. Third Party Content. Third party content may appear on this Media or may be accessible via links from this Media. Provider shall not be responsible for and assumes no liability for any infringement, mistakes, misstatements of law, defamation, slander, libel, omissions, falsehood, obscenity, pornography or profanity in the statements, opinions, representations or any other form of content contained in any third party content appearing on or linked through this Media. You understand that the information and opinions in the third party content is neither endorsed by nor does it reflect the belief of Provider. Third-party materials that are deemed by the Provider, in its sole discretion, to be objectionable will be removed or blocked as soon as possible after it becomes aware of the objectionable material. 8. DISCLAIMER. THIS MEDIA AND THE CONTENT ARE PROVIDED ON AN "AS IS, AS AVAILABLE" BASIS. PROVIDER EXPRESSLY DISCLAIMS ALL WARRANTIES, INCLUDING THE WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND NON-INFRINGEMENT. PROVIDER DISCLAIMS ALL RESPONSIBILITY FOR ANY LOSS, INJURY, CLAIM, LIABILITY, OR DAMAGE OF ANY KIND RESULTING FROM, ARISING OUT OF OR ANY WAY RELATED TO (A) ANY ERRORS IN OR OMISSIONS FROM THIS MEDIA AND THE CONTENT, INCLUDING BUT NOT LIMITED TO TECHNICAL INACCURACIES AND TYPOGRAPHICAL ERRORS, (B) ANY THIRD PARTY MEDIAS OR CONTENT THEREIN DIRECTLY OR INDIRECTLY ACCESSED THROUGH LINKS IN THIS MEDIA, INCLUDING BUT NOT LIMITED TO ANY ERRORS IN OR OMISSIONS THEREFROM, (C) THE UNAVAILABILITY OF THIS MEDIA, THE CONTENT, OR ANY PORTION THEREOF, (D) YOUR USE OF THIS MEDIA OR THE CONTENT, OR (E) YOUR USE OF ANY EQUIPMENT OR SOFTWARE IN CONNECTION WITH THIS MEDIA OR THE CONTENT. 9. LIMITATION OF LIABILITY. PROVIDER SHALL NOT BE LIABLE FOR ANY LOSS, INJURY, CLAIM, LIABILITY, OR DAMAGE OF ANY KIND RESULTING FROM YOUR USE OF THIS MEDIA, THE CONTENT, THE INTERACTIVE AREAS OF THIS MEDIA OR ANY FACTS OR OPINIONS APPEARING ON OR THROUGH AN INTERACTIVE AREA. PROVIDER SHALL NOT BE LIABLE FOR ANY SPECIAL, DIRECT, INDIRECT, INCIDENTAL, PUNITIVE OR CONSEQUENTIAL DAMAGES OF ANY KIND WHATSOEVER (INCLUDING, WITHOUT LIMITATION, ATTORNEYS' FEES) IN ANY WAY DUE TO, RESULTING FROM, OR ARISING IN CONNECTION WITH THE USE OF OR INABILITY TO USE THIS MEDIA OR THE CONTENT. TO THE EXTENT THE FOREGOING LIMITATION OF LIABILITY IS PROHIBITED OR FAILS OF ITS ESSENTIAL PURPOSE, PROVIDER’S SOLE OBLIGATION TO YOU FOR DAMAGES SHALL BE LIMITED TO $100.00. 10. Indemnification. You agree to indemnify, defend and hold harmless Provider, its officers, directors, employees, agents, licensors, suppliers and any third party information providers to the Media from and against all claims, losses, expenses, damages and costs, including reasonable attorneys' fees, resulting from any violation of these Terms of Use by you. 11. Third Party Rights. The provisions of paragraphs 15 (Disclaimer), 16 (Limitation of Liability), and 17 (Indemnification) are for the benefit of Provider and its officers, directors, employees, agents, licensors, suppliers, and any third party information providers to the Media. Each of these individuals or entities shall have the right to assert and enforce those provisions directly against you on its own behalf.

- 152 12. Unlawful Activity. Provider reserves the right to investigate complaints or reported violations of our Terms of Use and to take any action we deem appropriate including but not limited to reporting any suspected unlawful activity to law enforcement officials, regulators, or other third parties and disclosing any information necessary or appropriate to such persons or entities relating to user profiles, e-mail addresses, usage history, posted materials, IP addresses and traffic information. 13. Remedies for Violations. Provider reserves the right to seek all remedies available at law and in equity for violations of these Terms of Use, including but not limited to the right to block access from a particular Internet address to this Media and any other Media made available by the Provider. 14. Governing Law and Jurisdiction. The Terms of Use are governed by and construed in accordance with the laws of the State of Kentucky and any action arising out of or relating to these terms shall be filed only in state or federal courts located in Kentucky and you hereby consent and submit to the personal jurisdiction of such courts for the purpose of litigating any such action. 15. Modifications to Terms of Use. Provider reserves the right to change these Terms of Use at any time. Updated versions of the Terms of Use will appear on Websites operated by Compact Library Publishers Inc. and are effective immediately. You are responsible for regularly reviewing the Terms of Use. Continued use of this Media after any such changes constitutes your consent to such changes. If you find this Guide useful, and you have not already done so, please send a check or money order for $40.00 made payable to Compact Library Publishers to: Compact Library Publishers P.O. Box 1422 Ashland, KY 41105-1422 Please write you email address on your check or money order to identify your purchase. You may distribute copies so long as the copyright notice is attached and this request for payment is included.