Posts Tagged ‘Bankruptcy Abuse Prevention & Consumer Protection Act of 2005’

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Truth and Consequences: The Bankruptcy Debate Continues

Tuesday, January 29th, 2008

The Mortgage Bankers Association which represents the real estate finance industry is apparently not pleased with a report by the Center for Responsible Lending which urges reforms to the US Bankruptcy Code. According to David Kittle, the Chairman Elect of the MBA:

Policymakers should ignore this report as it is more rhetoric than fact. Bankruptcy reform is not the answer for consumers having trouble making their mortgage payments. It will drive up the cost of credit in the form of higher rates, larger down payments and greater closing costs.

Further, bankruptcy is a logistical and financial nightmare for consumers. Filing for bankruptcy is expensive and approximately two-thirds of all bankruptcy plans fail. Nobody should be holding it out as a better alternative to working with your lender to try to find a mutually agreeable resolution.

But the CRL is responding with a report that shows that voluntary loan modification fall short. You’ll find a link to the PDF report, and the statistics here.

As for Kittle’s comments, I have no idea where the uncited reference to “two-thirds of all bankruptcy plans fail.” Where does that factoid come from? There are lots of reasons why bankruptcy cases fail, but there is no magical statistic that I am aware of. That’s flat-out misleading. And as for a “nightmare”, oh come on now. While none of my clients want to be in bankruptcy, they would rather keep their home and put food on the table, than live with the proposed “resolutions” offered by their lender.

And unfortunately, for Mr. Kittle, the sad news is that for an increasing number of homeowners, filing bankruptcy is the better alternative to working “with your lender.” The fact is, some lenders are unwilling (or for their own reasons unable) to “work” with a homeowner. When there can be no “mutually agreeable resolution”, bankruptcy is the better alternative. And until lenders start getting serious about modifications, and about their lending practices that got the country into this mess, that alternative will only appear better and better.

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Posted in Bankruptcy, Chapter 13, Chapter 7 | 1 Comment »

The Two Edge’s of BAPCPA’s Sword

Tuesday, November 13th, 2007

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.”

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Posted in Bankruptcy, Chapter 7 | No Comments »

Nasty Debt Collector, WaMu Responds, and BAPCPA

Thursday, November 8th, 2007

Houston-based LTD Financial Services got slapped with $1.3 million in civil penalties to settle FDCPA violation charges.

Washington Mutual issued a press release in response to the action filed by the NY Attorney General. We reported on that action earlier this week.

An astute observation on the passage of BAPCPA: “Be careful what you wish for.”

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Posted in Bankruptcy, Fair Debt Collection Practices | No Comments »

What’s Income, and What’s Not?

Wednesday, July 18th, 2007

In yesterday’s post, I discussed the definition of “Current Monthly Income” as set forth in Section 101(10A) of the Bankruptcy Code. Currently Monthly Income is used to determine whether someone is “abusing” the bankruptcy process by filing a Chapter 7 petition, when they (arguably) should be filing a Chapter 13 petition. The Current Monthly Income (or CMI) calculation does not include “benefits received under the Social Security Act.” This would obviously include Social Security benefits, such as those received at retirement. But would this apply to other sources of income that might emanate from the act? How about DUA or unemployment benefits? A Massachusetts Bankruptcy Judge recently said yes.

In this case, the married debtors excluded from their CMI the $1,010 monthly income the wife was receiving in unemployment benefits. The US Trustee objected and sought to dismiss the case, claming that the unemployment benefits should be included in the CMI calculations, and if the income was included, there would exist a presumption that the bankruptcy process was being abused (what we also refer to as the “presumption of abuse”). Debtors argued that the unemployment compensation was a “benefit under the Social Security Act” and that Social Security Act included received as unemployment compensation.

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Filing Bankruptcy: Timing can be Everything in Chapter 13

Tuesday, July 17th, 2007

There are many things that factor into the decision to file bankruptcy. Avoiding a foreclosure sale, stopping a wage garnishment, or just ending the relentless harassment of collectors all force people into the bankruptcy court. But under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, something new was invented that factors into the decision as to when a bankruptcy petition should be filed. It’s called “Current Monthly Income.”

I have mentioned before that “Current Monthly Income” is neither current, nor monthly, and it is certainly not income. Under Bankruptcy Code Section 101(10A),

the term “current monthly income”–
(A) means the average monthly income from all sources that the debtor receives (or in a joint case the debtor and the debtor’s spouse receive) without regard to whether such income is taxable income, derived during the 6-month period ending on–
(i) the last day of the calendar month immediately preceding the date of the commencement of the case if the debtor files the schedule of current income required by section 521(a)(1)(B)(ii) [11 USCS § 521(a)(1)(B)(ii)]; or
(ii) the date on which current income is determined by the court for purposes of this title if the debtor does not file the schedule of current income required by section 521(a)(1)(B)(ii) [11 USCS § 521(a)(1)(B)(ii)]; and
(B) includes any amount paid by any entity other than the debtor (or in a joint case the debtor and the debtor’s spouse), on a regular basis for the household expenses of the debtor or the debtor’s dependents (and in a joint case the debtor’s spouse if not otherwise a dependent), but excludes benefits received under the Social Security Act [42 USCS §§ 301 et seq.], payments to victims of war crimes or crimes against humanity on account of their status as victims of such crimes, and payments to victims of international terrorism (as defined in section 2331 of title 18 [18 USCS § 2331]) or domestic terrorism (as defined in section 2331 of title 18 [18 USCS § 2331]) on account of their status as victims of such terrorism.

What this really means (we think) is that “current monthly income” is ultimately determined by the amount of income received during the 6 calendar month period prior to filing. That’s a really simplistic definition, since “income” is still being defined (and I’ll be writing about that later this week). But the big question is, why is any of this relevant in the context of a Chapter 13 plan?

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Posted in Bankruptcy, Chapter 13 | No Comments »

Tricky, Cumbersome, Inane and Unjust

Monday, April 10th, 2006

And I forgot, spiteful.

These are just some of the words used to describe the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.

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Happy October 17th!!

Monday, October 17th, 2005

Years from now October 17 will be an anniversary. Today is the day the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005 finally takes effect. Today follows years of fighting on Capital Hill between consumer advocates and the credit industry. Today follows weeks and months of what time will reveal was a mad rush to the bankruptcy courts to file bankruptcy petitions by both consumers and businesses. It will be an anniversary of the day everything changed.

First and foremost, know that I will not refer to the new law as BAPCPA when publicly expressing my disdain for the law. Certainly, if I am discussing legal cases and decisions on the this blog, I will appropriately and respectfully refer to the law by its given acronym: BAPCPA.

However, as many of my colleagues can attest, BAPCPA is little more than a Bankruptcy Abuse Reform Fiasco. Thus, I shall use the term BARF when appropriate (and in fairness, I admit that I was not clever enough to think of this acronym myself).

While the statistics are not out yet, I can say from my own experiences and from those shared by my colleagues all over the country that in the last several weeks thousands of people dashed to the bankruptcy courts trying to get protection under – what can now be referred to as the “old law.” Why? Well, it’s simple: the war in Iraq, Katrina and the credit card industry, but not necessarily in that order. Or, as Bill Clinton’s 1992 campaign astutely noted: “it’s the economy, stupid.”

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Posted in Bankruptcy | 1 Comment »

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