S.256
Title I

S.256 - Section 102

Section 707 (b)(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 less than the lessor of –

    1. 25 percent of the debtor’s nonpriority unsecured claims in the case, or $6,000, whichever is greater; or
    2. $10,000

Issue: without regard for median income, this section can determine that a filing is an abuse.

Issue: current law uses the phrase "Substantial abuse", this is changed in the new law to "abuse". Abuse will probably be litigated regularly as it sets the bar for other actions. Will omissions, even unintential ones, be considered abuse?

 

Section 707 (b)(2)(A)(ii)(I)

Issue: no allowance for child care This issue resolved: it is covered by IRS guidelines that control how much is allowed when the IRS is after taxes due. The allowance for child care is what is reasonable and necessary. Regardless how you feel about it, if childcare is available at lower cost in your area, THAT will be the amount that is allowed, not your actual costs.

 

Section 707 (b)(2)(A)(ii)(II)

Issue: are these administrative expenses the trustee’s allowed expenses, or do they include what will be allowed for debtor’s attorneys in the plan?

 

Section 707 (b)(2)(A)(ii)(IV)

Issue: no private school costs $1,500 per year or less

 

Section 707 (b)(2)(A)(ii)(V)

Issue: allowance for housing and utilities does not break out how much utilities can be allowed for when you have homeowners.

Issue: allowances are lagging indicators

 

Section 707 (b)(2)(C)

Issue: EVERY debtor must calculate the means test and provide those calculations with their petition filing.

 

Section 707(b)(4)(c) The signature of an attorney on a petition, pleading, or written motion shall constitute a certification that the attorney has (ii) determined that the petition, pleading, or written motion – (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).

Issue: A finding of abuse puts the attorney on the hook.

 

Section 707 (b)(6) and Section 707 (b)(7)

Issue: If a finding of abuse is made, a bankruptcy judge or United States trustee MAY file a motion to dismiss or convert even if the income is less than the median income. There is no prohibition to the filing.

 

Issue: 707 (b)(6) limits judges or trustees to filing a motion under 707(b), but 707 (b)(7) prevents anyone from filing a motion under 707(b)(2)…why the distinction? Does this allow for a motion under 707(b)(1) despite (b)(6)?

 

 

Section 101 (10)(A) 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 --

Issue: does not account for the payment of state, local or federal income taxes. This issue is resolved: It is for current federal, FICA, Medicare, state and local taxes. A concern remains: if you receive a large refund (more than $500) you will probably have to adjust your withholding for federal - and possibly state - to maximize your monthly take home pay. People that rely on large refunds to pay property taxes for example will be unable to do so.

 

Section 704 (b)(1) With respect to a debtor who is an individual in a case under this chapter –

    1. the United States trustee (or the bankruptcy administrator) shall review all materials filed by the debtor and, not later than 10 days after the date of the first meeting of creditors, file with the court a statement as to whether the debtor’s case would be presumed to be an abuse under section 707(b), and
    2. not later than 5 days after receiving a statement under subparagraph (A), the court shall provide a copy of the statement to all creditors.

Issue: If a finding of abuse is made, but no motion for dismissal or conversion can be filed, what is the purpose of noticing creditors?

 

Section 342 (d) In a case under chapter 7 of this title in which the debtor is an individual and in which the presumption of abuse arises under section 707(b), the clerk shall give written notice to all creditors not later than 10 days after the date of the filing of the petition that the presumption of abuse has arisen.

Issue: Who is making the determination that abuse arises within 10 days of the filing? The trustee must only make his determination no later than 10 days after the first meeting….

 

 

S.256 - Section 104

Section 342(b) Before 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…

Issue: Currently, the first time the clerk knows a debtor exists is the filing….so, the notice will have to be provided to attorneys and preparers with a requirement (not provided for) that the information is provided to the debtor prior to filing and an affidavit of such filed with the petition.

 

 

S.256 - Section 105

…shall evaluate the effectiveness of….

Issue: No criteria is established to benchmark from….reduction in filings? Completion of plans? (18 months is only half the time for the least plan that can be proposed).

 

 

S.256 – Section 106

Section 109 (h)(1)…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.

Issue: How is a related budget analysis for each assisted individual to be performed in a group briefing or via telephone? Effectiveness? Relevance? Accuracy? This is an issue as this budget analysis must be provided with a filing of a chapter 13.

Issue: will a budget analysis be based on the allowable expenses provided for in the IRS guidelines? An attorney is going to have to evaluate the analysis of the NBCCA as s/he will have to certify any plan or budget provided with the petition.

 

Section 727 (a)(11) after filing the petition, the debtor failed to complete an instructional course concerning personal financial management described in Section 111…

Issue: This item is not qualified with regard to the testing regime (it must be carried out in all districts, not just the 6 selected in S.256 – Section 105.

 

Section 727 (d)(1)(B)learning materials and teaching methodologies designed to assist debtors in understanding personal financial management and that are consistent with stated objectives directly related to the goals of such instructional course;

Issue: HUH? gobble d gook. What stated objectives? What goals?

 

Section 1328 (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

Issue: This item is not qualified with regard to the testing regime (it must be carried out in all districts, not just the 6 selected in S.256 – Section 105.

 

Section 521 (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).

Issue: what purpose does a budget serve with regard to a chapter 7? Other than to support a conclusion (if warranted) of abuse – ability to pay above and beyond IRS qualified allowances?

Issue: In a chapter 13, is the budget going to be the benchmark by which a proposed plan will be judged?

Issue: Will a proposed budget in a chapter 13 have to substantially conform to the IRS guidelines or the budget developed by the NBCCA (nonprofit budget credit counseling agency)?

 

Section 111 (c)(2) Outside board can not financial benefit from the outcome of the counseling services..

Issue: How is compensation to be set? Can a corporation establish a wholly owned, but nonprofit subsidiary?

 

Section 111 (c)(2)(B)

Issue: what is a reasonable fee?

 

Section 111 (e) The United States trustee shall notify the clerk that a nonprofit budget and credit counseling agency or an instructional course is no longer approved….

Issue: do debtors that have used that agency in the period leading up to such ‘disapproval’ have to seek alternative instruction?

 

 

S.256 – Section 107

See S.256 – Section 102, Section 707 (b)(2)(A)(ii)(II)

 

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