Bankruptcy Abuse Prevention and Consumer Protection Act of 2005; How Will the World Change?
By Joseph C. McDaniel - 2005
First, let me remind you that no article, especially not a short one, can do adequate justice to a statutory re-write like the BAPCPA. Do not rely on this article as a definitive discussion of changes to the Code, because it’s not. In it I discuss a few troublesome aspects of the new law, with more to come next time. Go directly to the text of the BAPCPA itself, do not pass go, and collect a bankruptcy attorney along the way to explain it. All attempts to simplify distort.
Having said that, some of the provisions of the new law are fairly straightforward, if unpleasant and user-unfriendly. Which, of course, they are designed to be.
Time periods under 11 USC 727 are amended, for instance, to increase the time between effective Chapter 7 bankruptcy filings from six years to eight years. That’s pretty straightforward, but there are other statutory changes that must be read in conjunction with it to make the determination whether a potential debtor can receive a discharge in a case filed under the BAPCPA (see, for instance, 11 USC 1328), and if so, which chapter the debtor must choose.
Amendments to 11 USC 521 will now require additional mandatory disclosures from debtors, but that shouldn’t pose any particular hardship; debtors need to provide trustees with essentially any documents concerning their financial history under Bankruptcy Rule 2004. The amendments simply make the productions automatic, required and mandatory on pain of dismissal of the case.
Under BAPCPA, random audits performed by certified or licensed public accountants must be done on .04% of filings of personal Chapter 7 and 13 cases, and on cases where the numbers are statistically varient from statistical norms. Amendments to 11 USC 727 provide a new ground for denial of the discharge if the debtor fails to cooperate with the auditor or to explain satisfactorily a material misstatement.
While those changes above sound fairly scary, they aren’t so earth shattering as they may appear. Under current law, a debtor is at risk if he or she fails to list a material asset, or intentionally fails to list a creditor, and there are criminal penalties associated with both issues. So the new sanctions are somewhat burdensome, and will kill many trees, but they are not a huge departure from current sanctions, nor will experienced and diligent debtor lawyers need to scare their clients more than they currently do in order to get compliance under the new system of sanctions.
Some provisions BAPCPA appear to be designed primarily to provide business for approved nonprofit budget and credit counseling agencies; debtors must under 11 USC 109 receive a briefing within 180 days of filing, which briefing may be individual or group, and it must assist in a budget analysis.
I note parenthetically that about half of consumer debtors are consumer debtors because of medical bills and illness. When I consider the number of debtors who are in the soup because of unemployment, divorce, and similar issues, I must wonder how much credit counseling will help the poor debtor who has been served with his divorce papers immediately after his bypass and subsequent job loss. But I suppose it won’t hurt much, either.
Other sections of the new law require the Executive Director of the Office for United States Trustees to put together a curriculum to educate debtors on how to better manage their finances. I won’t even consider the irony of asking the Federal Government to put together a budgeting course for debtors, but I will observe in passing that the Food Pyramid designed by the Federal Government has apparently not slowed the progression of obesity in the United States.
BAPCPA greatly modifies one of the fundamental debtor protections under current law, the automatic stay, provided in 11 USC 362. Under prior law (the Old Act), previous to the New Code which became effective in October of 1979, the stay was in two parts, and was much less effective than the automatic stay of the New Code.
The BAPCPA automatic stay turns back the clock on effectiveness of the stay in several ways, including making it less automatic and in some cases non-existent, and in some cases changing the burden of going forward away from the creditor.
One change, located at 11 USC 362, is a provision that if a new case is filed within a year of a case which was dismissed, the stay vanishes in 30 days unless a party in interest demonstrates that the case was filed in good faith. Another multiple filing provision provides that in some cases, the stay will simply not come into effect.
The automatic stay under current law has two prongs, and they vanish at different times. One relates to property of the estate under 11 USC 541, and the other relates to property of the debtor. Since 1979, trustees have not had the burden of running into Bankruptcy Court to plead for a stay to avoid dismemberment of the estate. Under BAPCPA, that may become a more frequent occurrence.
There are additional amendments to the automatic stay concerning real property, including for eviction proceedings where a judgment was obtained prior to the filing, and in connection with endangerment of the property or the illegal use of controlled substances on the property.
The above discussion scratches the surface of the changes to come in the Bankruptcy Code. This week will, in all probability, see President Bush signing BAPCPA into law.
And my next article will discuss, generally, what debtors and their counsel will need to know fairly quickly; what is the effective date of the new law.
Here’s a preview: a tiny percentage of the new provisions go into effect immediately, most will go into effect six months down the line, and a few will take longer to kick in. But don’t take my word for it; go look at the statute itself.
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