There’s been a lot of debate over how unfair BAPCPA (the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005) is on consumer debtors. Some of that debate can actually be found on this site. There have been aspects of BAPCPA that I have called silly, and some that we have to question the logic on. Recently, the US Bankruptcy Court in New Hampshire issued a ruling that appears to correctly interpret the post-BAPCPA Bankruptcy Code, but also shows how absurd the amendments to the code may be.
Prior to BAPCPA, a Chapter 7 filing was not presumed to be an abuse of the bankruptcy code. Abuse needed to be proved by the party claiming it, and a finding of substantial abuse could lead to dismissal or conversion
Under BAPCPA, the word “substantial” disappeared, leaving only “abuse.” Also, the means test was implemented, creating an objective means to determine whether there is a presumption of abuse. If there is a presumption of abuse, the United States Trustee must file a report indicating whether the case is presumptively abusive under 11 U.S.C. Section 707(b) within 10 days of the creditor’s meeting. Within 30 days after that, the US Trustee must either file a motion to dismiss or convert the case, or a statement explaining the reasons why the US Trustee does not consider such a motion to be appropriate.
In the New Hampshire case, the US Trustee wanted to compel the debtor to produce documents as well as submit to a Rule 2004 examination (which is something like a deposition, but isn’t really the same thing – which is another subject I should write about sometime). The US Trustee argued that it did not have enough information to evaluate whether the debtor’s case was presumptively abusive. The US Trustee also argued that under Rule 9011, she had an obligation to conduct a reasonable investigation before filing a motion. Under this rule, a party can be sanctioned for filing a baseless pleading in court. In response, the debtor argued that the US Trustee’s request was overbroad and unduly burdensome.
“Both parties are right,” the court wrote “and both parties are wrong.”
The court pointed out that BAPCPA imposed new duties on the US Trustee, and those duties needed to be performed within a very short time frame. BAPCPA also imposed new requirements on the debtors: now they must submit tax returns and pay stubs (referred to as payment “advices”) as well as all the information on the means test form. Based on this, the court determined that BAPCPA did not impose any additional burden on the US Trustee to engage in discovery in order to evaluate the presumption of abuse, however, if the US Trustee filed a motion to dismiss, the discovery rules could then be used.
“The statutory framework and deadlines can only lead to the conclusion that Congress intended the US Trustee to file first and investigate beyond the documents submitted by the debtor later. In the context of the statutory mandate, the US Trustee can satisfy her obligations under Rule 9011 by making the determinations required under Section 707(b) on the documents in the file an provided to the chapter 7 trustee and, if a motion is filed, by pursuing discovery as contemplated by Rule 9014 in prosecuting such motion.
Attorneys and parties have a duty to make reasonable inquiry before filing a pleading. In fact, signing a pleading is a certification that there has been a reasonable inquiry. However, the court here said that Congress decided to turn that obligation around. The US Trustee’s reasonable inquiry is limited to those documents and information available under the code, and it puts the US Trustee in the position of having to file a motion before any details or context of the information can be obtained. While the court’s interpretation appears sound, its rationale highlights one of the absurd results BAPCPA has produced.
Related posts:
- I Was Wrong About BAPCPA
- Late Filing of Documents = Dismissal
- High Income Debtor Gets Chapter 7 Relief
- This Debtor Knew When to Fold
- Failure to Turnover Tax Refund Leads to Discharge Revocation
Tags: Bankruptcy, Bankruptcy Abuse Prevention & Consumer Protection Act of 2005, Chapter 7, Means Test
