S.256
Title II

S.256 - Section 201

Section 502 (k)(1) ...may reduce a claim filed under this sction based in whole on an unsecured consumer debt by not more than 20 percent of the claim, if --

    1. the claim was filed by a creditor who unreasonably refused to negotiate a reasonable alternative repayment schedule proposed on behalf of the debtor by an approved NBCAA(nonprofit budget and credit counseling agency);
      1. the offer was made at least 60 days before the filing of the petition;
      2. provided for payment of at least 60% of the debt over a period not to exceed the repayment period or a reasonable extension therefor, and
    2. no part of the debt is nondischargeable.
(k)(2) The debtor shall have the burden of proving, by clear and convincing evidence that

    1. the creditor unreasonably refused...
    2. ...the proposed alternative repayment schedule was made prior to the expiration of the 60 day period

 

Issue: the only ones able to propose an alternative repayment plan is the NBCAA!

 

Issue: this only applies to a chapter 13 (it could in asset chapter 7's but those are less than 4% of the chapter 7 filings now). However, we routinely ignore unsecured claims in the majority of chapter 13s because they are getting less than 100% of their claim (often less than 10%) and a 20% reduction in the claim would not amount to much in the plan.

 

Section 547 (h) The trustee may not avoid a transfer if such transfer was made as a part of an alternative repayment schedule...

Issue: our bet is that Trustees will hate this provision. The amount involved could be substantial as avoiding looks back 90 days...three payments.

 

 

S.256 - Section 202

Section 524)(i)

Issue: willful violations of the stay are very hard to prove and our experience is that the Judges will not enforce it on creditors. Usually they give the creditor a chance to correct the issue and usually the issue doesn't even come up unless the debtor is in trouble in the plan in the first place.

 

 

 

S.256 - Section 203

Section 524)(k)(5) "I herby certify that (1) this agreement represents a fully informed and valuntary agreement by the debtor; (2) this agreement does not imposed an undue hardship on the debtor or any dependent of the debtor; and (3) I have fully advised the debtor of the legal effect and consequences of this agreement and any default under this agreement.

Issue: This section is to discourage "abuse" of the reaffirmation process. What it will discourage is any bankruptcy attorney signing off on reaffirmations. Regarding unsecured creditors - almost no attorney agrees to reaffirming unsecured debt. It is almost never in the client's best interest. Even reaffirming secured debt is often problematic. This particular section deals with the certification of the debtor's attorney. A comprehensive document covering all the bases will have to be signed by the debtor (if the attorney is wise).

Issue: There is a means test here also: if the debtor's monthly expenses (not including the reaffirmation amount) exceed the debtor's income, there is a presumption of hardship that has to be rebutted in court explicitly. If the court is unpersuaded, what does that mean for the attorney certification? In a chapter 13, this debt should have been provided for and hardship should not be an issue. In a chapter 7, the debt should have been part of the means test calculation (if it is for secured debt). If the debt to be reaffirmed is unsecured, there should not be enough money to pay for the reaffirmation, if there is, there is a likelyhood that the budget provided for in the petition was ...wrong...

Issue: There is a period specified when the presumption issue is to be reviewed, it however exempts credit union reaffirmations from this review process. Credit Union reaffirmations can be an undue hardship and the courts do not have the opportunity to review it.

 

 

S.256 – Section 211

Section 101 (14A) "domestic support obligation"…

Issue: Gone is child support. A new definition of support is added that includes spousal support, alimony and maintenance...in addition to child support. This puts spousal support on the same footing as child support.

 

 

S.256 – Section 212

Section 507(a)

Issue: Domestic support will take precedence in payments from the bankruptcy estate. Only the Trustee will receive funds prior to the payment of a DSO. How exactly attorney fees for the debtor's attorney will be paid is up in the air. Secured creditors will also play second fiddle. Mortgage companies could have to wait for months before getting their arrearages.

 

 

S.256 – Section 214

Section 362(b)(2)

Issue: the stay no longer applies to: withholding of income (garnishment), withholding a license (including driving); interception of a tax refund; In a chapter 13, the arrearage gets first priority but the petition does not stop a garnishment - given the current state of affairs regarding States and sovereign immunity (and our own experience with a State thumbing it's nose at the Bankruptcy Law) plans will have to be proposed around DSO garnishments.

 

 

S.256 – Section 217

Section 547(c)(7)

Issue: another instance where the Trustee may not avoid a transfer that occurs prior to the filing of the petition.

 

 

S.256 – Section 219

Section 704(a)(10)

Issue: recently we had a state agency for child support claim that it is not their responsibility to file claims in Chapte 13 for payment of arrears, it is the spouse or parent's responsibility: this changes that to force the agency to assist the person due the arrearage.

 

 

S.256 – Section 221

Section 110(e)(2)(A) A bankruptcy petition preparer may not offer a potential bankruptcy debtor any legal advice ...includes...whether to file...what chapter is appropriate...characterize the nature of the debtor's interests in property...concerning bankruptcy procedures and rights...

Issue: Shortly, we will show that both a bankruptcy petition preparer and an attorney that prepares bankruptcy petitions are both designated "debt relief agency" (DRA) and that certain requirments for a DRA can not be met by the bankruptcy petition preparer and are therefore specifically promolgated against the attorneys that assist consumers.

 

 

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