Source: https://www.abi.org/abi-journal/legislative-update-the-bankruptcy-reform-act-of-1998
Timestamp: 2020-01-19 04:42:12
Document Index: 277698937

Matched Legal Cases: ['§362', '§506', '§1301', '§522', '§547', '§1322', '§159', '§502']

Legislative Update The Bankruptcy Reform Act of 1998 | ABI
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Legislative Update The Bankruptcy Reform Act of 1998
This month’s update contains excerpts from the section-by-section analysis of the two new bankruptcy bills introduced in February. The full text of the documents and other legislative updates can be found at ABI World at: http://www.abiworld.org/legis/.
Title I — Consumer Bankruptcy Provisions
This section amends §362 to provide that if an individual debtor does not file a timely statement of intention with respect to property securing the creditor’s claim or act in accordance with that statement of intention, a secured creditor may seek relief from the stay.
The bill amends §506(a) to set the value of personal property securing an individual debtor’s personal property as the replacement value of the property on the petition date (without deductions for marketing or sales costs). The provision also clarifies that "replacement value" means the price a retail merchant would charge for property of that kind, considering its age and condition.
The bill amends §1301 so that the co-debtor stay would continue to be available when the debtor who borrowed the money sought chapter 13 relief, but if a guarantor or other co-debtor who did not receive the consideration for the creditor’s claim filed for relief, the debtor who borrowed the money would not be protected by a stay unless he or she also filed for bankruptcy protection.
The bill amends §522(b)(2)(A) to require a debtor to be domiciled in a state for 365 days, or the majority of 365 days, before filing a petition in order for that state’s exemptions to apply. Currently, a debtor must be domiciled in a state only for 180 days, or the majority of 180 days, for a state’s exemptions to apply.
Title II — Business Bankruptcy Provisions
This provision helps enable small creditors to mount effective defenses against preference actions. Proposed §547(c)(9) increases the minimum aggregate transfer that must be sought in a case against a creditor to $5,000. This section also clarifies the ordinary course of business exception for preferential transfers by disallowing a creditor from being sued for receipt of a preferential transfer if it has received a payment in the ordinary course of the debtor’s business or made according to ordinary business terms.
Chapter 1 — Small Business Bankruptcy
Sec. 236. Debtor’s Duties in Small Business Cases.
Chapter 2 — Single Aset Real Estate
This section establishes a clear, objective standard for new-value plans in SARE cases—the exception would be satisfied only if the secured portion of the loan was paid down to 80 percent of the value of the property, permitting the debtor to "strip off" liens to the extent that they exceed the current value of the property, while providing the secured creditors conventional terms on the remaining portion of the lien. This section allows the debtor to reorganize overencumbered property in chapter 11, over the objection of its secured creditor, by reducing the mortgage debt to the current value of the property and retaining the property through a new-value contribution.
Title IV — Bankruptcy Administration
The bill would amend §§1322(d) and 1329(c) to allow confirmation of plans with a life span of five years if the debtor’s current monthly income is at least 75 percent of the national median family income for a family of equal size (or at least 75 percent of the national median household income for one earner) or more on the date of confirmation. In such cases, it would also permit the court to approve a plan longer than five years up to a maximum of seven years.
Sec. 412. Jurisdiction of Appeals Relating to Bankruptcy.
The bill would create a new 28 U.S.C. §159 that would require the EOUST to compile statistics on bank-ruptcy cases involving individual debtors, and report these statistics annually to Congress.
THE CONSUMER LENDERS AND BORROWERS BANKRUPTCY ACCOUNTABILITY ACT OF 1998
(Nadler-Conyers)
Subsection 2(a) Limiting Claims Arising from Irresponsible Credit Extensions. Irresponsible conduct by a few aggressive lenders has contributed to the rise in bankruptcies. They should not be rewarded for their irresponsible conduct by then being allowed to use the bankruptcy system to divert the debtor’s assets away from honest and responsible creditors.
The subsection adds to the list of bases on which a creditor’s claim shall be disallowed under 11 U.S.C. §502(b):
—claims for unsecured credit which, when extended, pushed the debtor’s aggregate unsecured debts over 40 percent of the debtor’s annual gross income;
—claims for secured debt, specifically mortgages and second mortgages, that violated the prohibitions against unfair, deceptive or abusive lending practices in violation of the Home Ownership and Equity Protection Act of 1994;
—claims by creditors who refused to waive interest as part of a credit counseling program designed to help debtors avoid bankruptcy;
—claims by creditors for debts incurred in or adjacent to a gambling facility, or debt which the creditor knew or should have known was intended to be used by the debtor for gambling purposes.
Section 4: Stop Creditors’ Abuses of the Bankruptcy System.
Subsection (a)(1) would require the court to award to a consumer debtor reasonable attorneys’ fees and costs if a claim (other than a claim for alimony or child support) is disallowed or reduced by an amount representing more than 5 percent of the original claim or $500, whichever is less.
Subsection (a)(2) would require the court to award reasonable attorneys’ fees and costs if a creditor challenges the dischargeability of a debt, other than a domestic relations debt, and the debt is discharged.
Subsection (a)(3) provides penalties against creditors who violate the discharge or the automatic stay. Provides for damages of three times actual damages, but not less than $5,000, plus costs and attorneys’ fees, and in appropriate circumstances, punitive damages.
Subsection (a)(4) would increase the penalty for any willful violation of the automatic stay from actual damages, including costs and attorneys’ fees, to three times actual damages, but not less than $5,000, plus costs and attorneys’ fees.
Subsection (b): Dismissal. Provides for damages in the amount of three times the debtor’s actual damages (but not less than $5,000) and, in appropriate circumstances, punitive damages, if the court finds that a motion to dismiss a chapter 7 petition was not substantially justified.
Subsection 4(c): Prohibit Reaffirm-ations and Threats of Repossession Against Debtors Who Are Current in Their Payments. This subsection permits a debtor who is current on all payments on a debt, and who continues to make payments on time, to be protected against having a lien enforced, or having a payment schedule accelerated simply because the debtor has filed for bankruptcy.
Subsection 6(a): Improved Credit Reporting for Chapter 13 Debtors. The proposed change would provide credit references from a consumer’s credit report five years after a successfully completed reorganization case is commenced under chapter 12 or chapter 13.
Section 8: Prevent Abuse of Bankruptcy System by Debtors Who Can Afford to Pay Their Debts.
This provision strengthens the test under current law which allows the court to dismiss a chapter 7 case if the debtor is able to pay those debts in a chapter 13 plan.
The bill would require a court to dismiss a chapter 7 case for abuse if, after providing a reasonable standard of living for the debtor and the debtor’s dependents that is not excessive, providing for payments on secured debts, non-dischargeable debts, priority debts and arrearages on such debts, the debtor is able to pay the debtor’s unsecured non-priority debts as they come due or pay them in full over a 36-month chapter 13 plan, and the court, after consideration of all the circumstances finds the case to be an abuse of chapter 7.
Section 9: Prevent Abusive Bankruptcy Filings.
Subsection 9(a): Prevent Abuse of Bankruptcy Filings. This amendment would sort out the abusive cases from the non-abusive cases and deny the automatic stay to the abusive repeat filers. It is similar to the recommendations of the National Bankruptcy Review Commission.
Subsection 12(a): Invalidating Hidden Security Interests and Valueless Household Liens. Builds on the 1978 Bankruptcy Reform Act, by preventing creditors from retaining liens in household goods, such as clothes and appliances, with a purchase price of $1,500 or less. This provision is similar to a recommendation of the National Bankruptcy Review Commission, except that the Commission recommended eliminating liens on household goods with a current value of $500 or less.
Subsection 12(c): Treat Rent-to-Own Transactions as Credit Sales. The National Bankruptcy Review Commission has recognized that consumer "rent-to-own" transactions, in which consumers make weekly "rental" payments for appliances and furniture and become owners of the items after a certain number of payments are made, are in reality credit sales.
Subsection 12(d): Valuation of Secured Claims. This amendment puts in place a bright-line test for implanting a recent Supreme Court ruling concerning the valuation of secured claims. Associates Commercial Corp. v. Rash, 117 S.Ct. 1879 (1997). The amendment provides that the value shall not be more than the cash wholesale value of the property.
Section 13: Reinforce the Fresh Start.
Subsection 13(a): Restoration of an Effective Discharge. This amendment repeals certain exceptions to discharge. It would allow for discharge of debts incurred to pay non-dischargeable tax debts. The tax debts themselves would remain non-dischargeable.
Subsection 13(b): Protection of Retire-ment Funds in Bankruptcy. Although current law protects ERISA-qualified retirement plans in bankruptcy, many debtors who do not have access to ERISA plans are not similarly protected. This amendment would protect other types of retirement funds to the extent those funds receive favorable tax treatment.
Subsection 14(d): Treatment of Certain Leases in Chapter 7 Cases. This provision allows for "ride through" on leases of personal or residential property in chapter 7, following the rejection of the lease by the trustee.
Subsection 14(f): Clarifying Issue Preclusion and Vicarious Liability for Non-dischargeability Cases. This change would resolve a split in the case law concerning the preclusive effect of state court judgments in actions to determine the dischargeability of a debt by applying the federal rule that a prior default judgment shall not have issue-preclusive effect.