Q & A about the New Bankruptcy Law Amendments

(continued) Questions 43 - 49

43. What happens if the debtor does not timely file documents the New Law requires debtor to file?
    1. Per 11 USC §521(i)(I), if the debtor fails to file the documents required by 521(a)(1) (includes the pay stubs) within 45 days after filing the petition, "the case shall be automatically dismissed effective on the 46th day after the date of the filing of the petition" per 11 USC 521(I)(1), with certain exceptions as follows:
       1. On motion of the debtor brought before the 45 days expires, the Court may allow the debtor an additional 45 days to file the information required by 521(a)(1), "if the court finds justification for extending the period".
       2. On motion of the trustee, the court may decline, per 521(I)(4) to dismiss the case, if the court finds the debtor attempted in good faith to file all the information required by subsection521(a)(1)(iv)--ie, pay stubs--and that the best interests of creditors would be served by administration of the case".
       3. Per 521(j), taxing agencies can request conversion or dismissal if the debtor does not timely file tax returns that come due during the case, and the court shall dismiss or convert the case if the debtor does not file the required return or get an extension to do so within 90 days after a taxing authority requests dismissal for failure to file the return
       4. Also, per 11 USC 707(a)(3) the Office of the US Trustee may file a motion to dismiss the debtor's case if the debtor fails to file all items required by 521(1).

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44. Are there New Law changes re scheduling creditors?
    1. Yes, per New Law 11 USC §342( c ) (1) and (2) has new rules regarding notices to creditors and scheduling creditors.
       1. New Law Section 342( c )(2) provides that "if within 90 days before the commencement of a voluntary case, a creditor supplies the debtor in at least 2 communications sent to the debtor with a 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.
       2. Per New Law Section 342( c )(1) "if notice is required to be given to creditors,... such notice shall contain the name, address and last 4 digits of the taxpayer identification number of the debtor."
       3. New Law section 342(e) a creditor at any time during the case can file and serve a notice of address, which must thereafter be used for that creditor by debtor and court. Per 342(f) an entity may file an address to be used for that entity by the bankruptcy court in ALL bankruptcy courts in that District.

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45. How does the New Law make it harder for people to file bankruptcy?
    1. First, New Law aims to make representing consumer debtors so risky for lawyers that the number of attorneys representing debtors in consumer bankruptcy cases will go down, and the smart debtors attorneys decide the personal liability exposure is not worth it and quit representing debtors
    2. Second, by putting so many additional requirements that debtor attorneys must do more work which will result in attorneys having to raise their rates for consumer cases from whatever they were charging before.
    3. By requiring that the consumer debtor attend and complete "credit counseling" before filing bky, as a pre-requisite for being eligible to file bky, and file with the Bankruptcy Court a . 11 USC §109(h) and 11 USC §521(b)(1).
    4. By increasing Chapter 7 court filing fees for filing a Chapter 7 bankruptcy case.
    5. By providing that after they file bky, consumer debtors can't be granted a discharge until they have taken and completed a "financial literacy" course, during their bky, given by an approved provider
    6. By reducing the types of debts that can be discharged, even in Chapter 13
    7. By forcing more debtors to file Chapter 13, instead of Chapter 7
    8. By making most Chapter 13 plans 5 years, instead of 3

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46. Please describe the requirement of mandatory credit counseling for consumer debtors before they are allowed to file bankruptcy?
    1. New Law adds section 11 USC §109(h), which states that "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 are
    2. What does "approved" credit counseling agency refer to? Refers to fact that the pre- bankruptcy filing credit counseling only counts if it is from a credit counseling agency that is on the US Trustee "approved" credit counseling provider list. Under the New Law, the Office of the US Trustee decides which credit counseling providers get on the US Trustee approved list.
    3. What does "nonprofit" mean. Does NOT mean free to your clients. To the contrary, the client will have to pay a fee to the credit counseling agency for the credit counseling. "Nonprofit" just means the credit counseling company can't have money left over (profit) after it pays its expenses, including salaries of executive insiders. US Trustee nationally working on standards right now. KPM is on the CD Consumer Bankruptcy Attorney Association "auditioning" credit counseling agencies, and writing US Trustee nationally and for our region to say what consumer bankruptcy debtor attorneys think the standards for approval should be.
    4. Must be within 180 days before the bankruptcy is filed. In reality, will probably be after they come to you, and you tell them they have to do it.
    5. Can be on line or on phone credit counseling, "if effective" and if US Trustee approves the credit counselor who offers on line or on phone credit counseling. We expect that there will be credit counseling agencies approved that offer phone in, maybe on line.
    6. Prices being quoted at NACBA [National Association of Consumer Bankruptcy Attorneys] 3 day conference on New Law were between $35 and $50 per debtor, if all the credit counselor does is talk to debtor and decide that credit counseling won't work, and then issues a certificate of compliance.
    7. If the financial problems of the client can be solved by an out of bankruptcy payment plan, and the client signs up with the credit counseling agency for one, the agency charges them (in California a fee of cap of 8.5% of total payments that debtor will pay to the credit counseling agency, for the credit counseling agency to pay to the various creditors). So if $50,000 were to be paid to creditors though credit agency, fee would be $4250 to credit agency, over time. WE may be cheaper. But may be "cap" of $35 per month to credit counseling agency; if it were a 60 month payment plan x $35 per month, that would be $2100.
    8. Attorneys for consumer debtors hope that an on-line credit counselor gets on approved list, or phone in, and use them, as faster.
    9. When the client completes the pre-petition credit counseling, if credit counseling without bankruptcy does not solve the client's debt problems, then the client gets a certificate from the approved credit counselor, which certificate is required to be filed with the Bankruptcy Court as part of the bankruptcy filing [11 USC §521(b)(1)].
    10. Use an approved provider who will email a copy of the certificate to your law firm, as well as emailing a copy to the client, because you can't trust the client to get the certificate filed with the court, so it's the attorneys who will end up having to file the certificates with the Bankruptcy Court Court
    11. If the credit counseling agency has produced a debt repayment plan for the client, the debt repayment plan must be filed with the bankruptcy court, in addition to the certificate being filed with the bankruptcy court. [11 USC §521(b)(2)]. Again attorney should use a credit counseling agency which will email a copy of any plan to the law firm as well as the client. You don't want a plan, because its has danger of being inconsistent with the schedules
    12. Debtor also has to file with the court a record of any interest debtor has in an education individual retirement account. 11 USC §521(c)

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47. Under the New Law Are there any exceptions to consumer debtors having to complete an approved credit counseling course before the debtor files bankruptcy.
    • 1. Yes, but not very useful or long lasting ones. 11 USC §109(h)(3)(A) provides that the requirements of pre- bankruptcy credit counseling "shall not apply with respect to a debtor who submits to the court a certification that-(1) 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 provider but was unable to obtain the services during the 5 day period beginning on date of request, and (iii) is satisfactory to the court.
      2. The last requirement "(iii) satisfactory to the court' is probably fatally vague. Or maybe not if impliedly means satisfactory to the court in the court's reasonably exercised discretion".
    1. Who issues the certificate? Doesn't say. I don't see how you are going to get a certificate from the provider that doesn't have time to see you? It will take case law to explain that. Maybe try a declaration of the debtor stating facts that fall within this "exigent circumstances" exception to pre-filing credit counseling.
    2. How do you figure out what all these new rules and tests and terms added by the New Law actually mean
       1. Will take years of case law to find out just what is considered to be an "exigent circumstance" justifying consumer filing bky without going to credit counseling before file. Certainly if foreclosure sale about to be held, car about to be repossessed, judgment about to be entered. But what if just being harassed by phone calls, or law suit filed but not close to judgment. Doubtless will be variation among judges and probably regions of country as to what is an exigent circumstance
    3. If the individual doesn't do the pre-bankruptcy credit counseling because of "exigent circumstances", does that mean the debtor is permanently excused from doing the "approved" credit counseling?
       1. No, debtor in that case still has to complete the approved credit counseling within 30 days after the bankruptcy is filed, get the credit counseling completed certificate, and file it with the Court, or the case will be dismissed. [11 USC §109(h)(3)(B)] Moreover, the 30 days can only be extended once, by the court, for cause, for 15 more days, and that is all.
       2. Any permanent exceptions to having to complete credit counseling? Yes, if debtor is unable to complete the requirements because of "incapacity, disability, or active military duty in a military combat zone". But impaired is defined as mental illness or defect so severe that debtor is incapable of realizing and making rationale decisions with respect to his financial responsibilities, and "disability" means that the debtor is so physically disabled that debtor can't participate in telephone or internet credit counseling. Basically forget it. Even if in military in Iraq, they have internet.
       3. ETHICS: If client is mentally disabled, what should attorney do. Use a "best friend" to review and sign everything for the debtor, including sign your contract along with debtor. The FRBP Rules were amended recently to allow an incompetent person to use a "best friend", authorized by bankruptcy judge, instead of having to go to state court and get a conservator or guardian appointed by state court, before do bankruptcy. Best friend would sign petition documents under penalty of perjury and would be the person questioned at 341a meeting.
       4. If the certificate of completion of credit counseling has not been filed with the Court (from an approved provider) within the 30 or 45 day time period, then on the 46th day, the case must be automatically dismissed, per 11 USC §521 "exigent circumstances " declaration

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48. Does the requirement of pre-bankruptcy filing credit counseling apply to all debtors?
    1. No, it does not apply to corporations or to partnerships. This requirement only applies to individuals who are consumer debtors.
    2. What does consumer debtor mean?
       1. Defined as more than ½ debts of person are consumer debts rather than business debts.
    3. What if more than ½ debts of person are business debts?
       1. If more than ½ debts are business debts, as opposed to debt from personal items (medical, dental, credit cards used for personal expenses as opposed to business expenses) then NOT a consumer debtor and Don't have to do credit counseling before file bky.

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49. What is the post-filing "debtor education" required by the New Law?
    1. After consumer debtors have completed their pre-bankruptcy credit counseling, from a US Trustee approved credit counseling provider, and then they file bky, consumer debtors still can't get a discharge until--during bankruptcy case--they take and complete an approved "debtor education" course.
    2. Who does the approving? The Office of US Trustee.
    3. Is it free? No, its nonprofit, but the nonprofit providers can and will charge a fee, just as the approved nonprofit pre-bankruptcy credit counseling agencies will charge debtors a fee.
    4. What will be included in the "debtor education" course? Guidelines not finished, but certainly things like how expensive credit card interest is, minimize use of credit cards, etc.

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