October 19, 2018

BAPCPA at 4 Years – Has It Solved Anything?

paperworkI have been representing debtors in bankruptcy cases filed in the Northern District of Georgia for over 20 years. Until the law changed in 2005, filing bankruptcy was a fairly straightforward process – often I would meet with a client, decide whether to file and select Chapter 7 or Chapter 13, collect information about creditors, develop a budget, then file that day.

Attorney’s fees and filing fees in those days were relatively low and relatively hassle free. Most Chapter 7 cases processed through to discharge, and Chapter 13 cases worked as long as the debtor remained employed and committed to making his case work.

Fast forward to October, 2005 – the time that the BAPCPA amendment to the Bankruptcy Code went into effect. The system became significantly more complicated. Clients were expected to gather page after page of documents, lawyers were charged with performing extensive budget calculations (the median income and means test).

Fees went up because both the attorney’s liability and the amount of work required increased greatly. And what is the end result? Many people with limited income and no hope of paying it back are filing Chapter 7. Others who would have fit into Chapter 7 sometimes do not qualify immediately and end up having to delay their filing for a few months. Folks with some capacity to pay end up in Chapter 13, but trustees are more demanding and Chapter 13 plans that would have worked under the old law do not always work now. [Read more…]

Credit Counseling on the Day of Your Bankruptcy Filing May be Invalid

Consumer Bankruptcy News recently published an article discussing the holding of a Tennessee Chapter 13 case called In re Cole in which the Bankruptcy Judge dismissed a case because the debtor filed his consumer bankruptcy case the same day as he received his credit counseling.

Judge Richard Stair held that Section 109(h)(1) of the Bankruptcy Code provides that a debtor must obtain credit counseling “during the 180 day period preceeding the date of filing of the petition.”   Judge Stair interpreted the phrase “preceding the date of filing” to not include the actual day of the filing.  If Congress had meant to include the date of filing, the statute would have said “on or within the 180 day period.”  Judge Stair further observed that the credit counseling requirement was intended to give debtors a chance to think about their actions and that filing bankruptcy that same day gave little time for such contemplation.

Judge Stair’s decision is yet another example of the absurd application of our new bankruptcy laws.  Bankruptcy Court statistics show that less than 5% of potential bankruptcy filers end up not filing because of the mandatory credit counseling.  As a practical matter, therefore, the credit counseling requirement simply serves as a $30 to $50 tax on debtors and provides limited if any benefit.

My own clients report that the credit counseling is basically a waste of time.  If Courts around the country adopt Judge Stair’s reasoning, deserving but unfortunate debtors – especially those facing home foreclosure – will find the doors of the courthouse closed to them.

According to the SplitCircuits blog, several other bankruptcy judges have refused to follow Judge Stair’s interpretation of Bankruptcy Code Section 109(h)(1).  Until we see how this shakes out, my advice is to get your credit counseling early and avoid this 109(h) issue altogether.

Top Ten Consumer Bankruptcy Law Mistakes in post-October 17 World

Legal publisher Lexis/Nexus has released its list of the top ten mistakes made by consumer bankruptcy lawyers in the post-October 17, 2005 era.  Topping the list is failing to insure that the debtor has received pre-bankruptcy credit counseling.  As discussed elsewhere on this blog, bankruptcy judges have been unwilling to waive the credit counseling requirement under most circumstances.  A case filing without the certificate will be dismissed.  For debtors filing on the eve of foreclosure, when credit counseling organizations have no space, this requirement can be a real problem.

The remainder of the problems discussed in the Lexis/Nexus report all deal with the burdensome filing and paperwork requirements of the new law.  In reality, cases that are otherwise workable are being dismissed because debtors are having problems collecting necessary paperwork.

In my practice, I will not file a case until I have all the necessary paperwork in hand.  This is causing delays in filing and I may be losing some business.  But, given the aggressive posture of the U.S. Trustee on these document requirements, that is the way things must be.

Thanks to my colleague Milton Jones of College Park for noting this Lexis/Nexus report on his Paperless Law Office blog.

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