Misplaced Pages

#224775

107-686: Title 11 of the United States Code , also known as the United States Bankruptcy Code , is the source of bankruptcy law in the United States Code . Title 11 is subdivided into nine chapters. It used to include more chapters, but some of them have since been repealed in their entirety. The nine chapters are: United States Bankruptcy Code; 2019 Edition , Michigan Legal Publishing Ltd., 2019, ISBN   9781640020542 This United States federal legislation article

214-456: A Chapter 7 filing is the most common form of bankruptcy. Liquidation involves the appointment of a trustee who collects the non-exempt property of the debtor, sells it and distributes the proceeds to the creditors. Because all states allow for debtors to keep essential property, Chapter 7 cases are often "no asset" cases, meaning that the bankrupt estate has no non-exempt assets to fund a distribution to creditors. Chapter 7 bankruptcy remains on

321-460: A Chapter 7 liquidation case, an individual debtor may redeem certain "tangible personal property intended primarily for personal, family, or household use" that is encumbered by a lien. To qualify, the property generally either (A) must be exempt under section 522 of the Bankruptcy Code, or (B) must have been abandoned by the trustee under section 554 of the Bankruptcy Code. To redeem the property,

428-520: A Chapter 7 or 11 case is a separate taxable entity from the debtor. The bankruptcy estate of a corporation, partnership, or other collective entity, or the estate of an individual in Chapters 12 or 13, is not a separate taxable entity from the debtor. In 1982, in the case of Northern Pipeline Co. v. Marathon Pipe Line Co. , the United States Supreme Court held that certain provisions of

535-468: A bankruptcy filer's credit report for 10 years. United States bankruptcy law significantly changed in 2005 with the passage of Bankruptcy Abuse Prevention and Consumer Protection Act (US) —- BAPCPA , which made it more difficult for consumer debtors to file bankruptcy in general and Chapter 7 in particular. Advocates of BAPCPA claimed that its passage would reduce losses to creditors such as credit card companies, and that those creditors would then pass on

642-521: A chapter 7 case upon a finding of "substantial abuse". Under the former § 707(b), only the court or the United States trustee could bring a motion to find abuse under the section. The 2005 amendments removed these restrictions. Post-BAPCPA, § 707(b) provides two definitions of "abuse". "Abuse" may be found when there is an unrebutted "presumption of abuse" arising under a BAPCPA-created "means test", [ see 11 U.S.C.   § 707(b)(2) ], or through

749-458: A chapter 7 debtor does not complete the course, it constitutes grounds for denial of discharge pursuant to new 11 U.S.C.   § 727(a)(11) . The financial management program is experimental and the effectiveness of the program is to be studied for 18 months. Theoretically, if the educational courses prove to be ineffective, the requirement may disappear. In 2006 more than half of all certified pre-filing counseling sessions were rendered by

856-399: A class of unsecured claims . . . the holder of any claim or interest that is junior to the claims of such class will not receive or retain under the plan on account of such junior claim or interest any property." This requirement means that if any class of creditors votes against a plan of reorganization, the bankruptcy court may not confirm the plan if any class of claims or interests junior to

963-456: A company into bankruptcy so that creditors can enforce their rights. Except in Chapter 9 cases, commencement of a bankruptcy case creates an " estate ". Generally, the debtor's creditors must look to the assets of the estate for satisfaction of their claims. The estate consists of all property interests of the debtor at the time of case commencement, subject to certain exclusions and exemptions. In

1070-560: A contract is generally considered executory when both parties to the contract have not yet fully performed a material obligation of the contract. If the Trustee (or debtor in possession, in many chapter 11 cases) rejects a contract, the debtor's bankruptcy estate is subject to ordinary breach of contract damages, but the damages amount is an obligation and is generally treated as an unsecured claim. Under some chapters, notably chapters 7, 9 and 11, committees of various stakeholders are appointed by

1177-407: A creditor can get the automatic stay removed. Debtors, or the trustees that represent them, gain the ability to reject, or avoid actions taken with respect to the debtor's property for a specified time prior to the filing of the bankruptcy. While the details of avoidance actions are nuanced, there are three general categories of avoidance actions: All avoidance actions attempt to limit the risk of

SECTION 10

#1732844765225

1284-485: A debtor has a debt to a friendly creditor and a debt to an unfriendly creditor, and pays the friendly creditor, and then declares bankruptcy one week later, the trustee may be able to recover the money paid to the friendly creditor under 11 U.S.C. § 547. While this "reach back" period typically extends 90 days backwards from the date of the bankruptcy, the amount of time is longer in the case of "insiders"—typically one year. Insiders include family and close business contacts of

1391-472: A debtor will no longer be eligible to file under either chapter 7 or chapter 13 unless within 180 days prior to filing the debtor received an "individual or group briefing" from a nonprofit budget and credit counseling agency approved by the United States trustee or bankruptcy administrator. The new legislation also requires that all individual debtors in either chapter 7 or chapter 13 complete an "instructional course concerning personal financial management." If

1498-551: A district court may "withdraw the reference" (i.e., taking a particular case or proceeding within the case away from the bankruptcy court) and decide the matter itself. Decisions of the bankruptcy court are generally appealable to the district court, and then to the Court of Appeals. However, in a few jurisdictions a separate court called a Bankruptcy Appellate Panel (composed of bankruptcy judges) hears certain appeals from bankruptcy courts. The United States Attorney General appoints

1605-416: A federal list of exemptions and a list of exemptions provided by the law of the state in which the debtor files the bankruptcy case unless the state in which the debtor files the bankruptcy case has enacted legislation prohibiting the debtor from choosing the exemptions on the federal list, which almost 40 states have done. In states where the debtor is allowed to choose between the federal and state exemptions,

1712-464: A finding of bad faith, determined by a totality of the circumstances [ see 11 U.S.C.   § 707(b)(3) ]. Only debtors whose monthly income is higher than the median income of their state, as calculated by the Code, are subject to being found abusive under § 707(b)(2). Debtors whose income falls below the median income figure may be in violation of the means test, however no party is permitted to file

1819-594: A home or car, tools of the trade, and some personal effects. In other states an asset class such as tools of trade will not be exempt by virtue of its class except to the extent it is claimed under a more general exemption for personal property. One major purpose of bankruptcy is to ensure orderly and reasonable management of debt. Thus, exemptions for personal effects are thought to prevent punitive seizures of items of little or no economic value (personal effects, personal care items, ordinary clothing), since this does not promote any desirable economic result. Similarly, tools of

1926-443: A homestead can not be exempted. The only exception is if the value was transferred from another homestead within the same state or if the homestead is the principal residence of a family farmer (§ 522(p)). This "cap" would apply in situations where a debtor has purchased a new homestead in a different state, or where the debtor has increased the value to his/her homestead (presumably through a remodeling or addition). The new law adds

2033-415: A motion in order to find abuse under § 707(b)(2), [ see 11 U.S.C.   § 707(b)(7) ]. This creates a means test "safe harbor" for debtors below the state's median income figure. Current monthly income is defined in 11 U.S.C.   § 101(10A) as the monthly average of the income received by the debtor (and the debtor's spouse in a joint case) during a defined six-month time period prior to

2140-473: A number of new requirements for bankruptcy filers that attempt to make the filing process more difficult and costly. These additional requirements include: The 2005 bankruptcy bill was actually first drafted in 1997 and first introduced in 1998. The United States House of Representatives approved a version titled the "Bankruptcy Reform Act of 1999" and the Senate approved a slightly different version in 2000. After

2247-402: A percentage of debts must be paid over a period of 3–5 years) as opposed to Chapter 7 (under which debts are paid only out of existing assets), the additional penalties and responsibilities the bill placed on debtors, and the bill's many provisions favorable to credit card companies. Opponents of the bill regularly pointed out that the credit card industry spent more than $ 100 million lobbying for

SECTION 20

#1732844765225

2354-483: A plan of reorganization in a chapter 11 case. Bankruptcy Code § 362 imposes the automatic stay at the moment a bankruptcy petition is filed. The automatic stay generally prohibits the commencement, enforcement or appeal of actions and judgments, judicial or administrative, against a debtor for the collection of a claim that arose prior to the filing of the bankruptcy petition. The automatic stay also prohibits collection actions and proceedings directed toward property of

2461-402: A preference avoidance. Fraudulent transfer actions, however, sometimes require a showing of intent to shelter the property from a creditor. Fraudulent transfer may involve an actual or a "constructive" fraud. Actual fraud is based upon the intent of the transfer, whereas constructive fraud may be inferred based upon economic factors. Factors that may lead to an inference of fraud include whether

2568-490: A proof of claim (that is, a proof of claim is "deemed filed") if the creditor's claim is listed on the debtor's bankruptcy schedules, unless the claim is scheduled as "disputed, contingent, or unliquidated". If the creditor's claim is not listed on the schedules in a Chapter 11 case, the creditor must file a proof of claim. A distinctive feature of U.S. bankruptcy law is the absolute priority rule, codified at 11 U.S.C. § 1129(b)(2)(B)(ii). The rule provides that "[w]ith respect to

2675-405: A provision that protects creditors from monetary penalties for violating the stay if the debtor did not give "effective" notice pursuant to § 342, [§ 342(g)]. The new notice provisions require the debtor to give notice of the bankruptcy to the creditor at an "address filed by the creditor with the court," or "at an address stated in two communications from the creditor to the debtor within 90 days of

2782-504: A replacement for section 304) and deals with cross-border insolvency : foreign companies with US debts. As a threshold matter, bankruptcy cases are either voluntary or involuntary. In voluntary bankruptcy cases, which account for the overwhelming majority of cases, debtors petition the bankruptcy court. With involuntary bankruptcy , creditors, rather than the debtor, file the petition in bankruptcy. Involuntary petitions are rare, however, and are occasionally used in business settings to force

2889-617: A separate United States Trustee for each of twenty-one geographical regions for a five-year term. Each Trustee is removable from office by and works under the general supervision of the Attorney General. The U.S. Trustees maintain regional offices that correspond with federal judicial districts and are administratively overseen by the Executive Office for United States Trustees in Washington, D.C. Each United States Trustee, an officer of

2996-414: A trust agreement to contain a legally enforceable restriction on the transfer of a beneficial interest in the trust (sometimes known as an "anti-alienation provision"). The anti-alienation provision generally prevents creditors of a beneficiary from acquiring the beneficiary's share of the trust. Such a trust is sometimes called a spendthrift trust . To prevent fraud, most states allow this protection only to

3103-549: Is a stub . You can help Misplaced Pages by expanding it . Bankruptcy in the United States In the United States, bankruptcy is largely governed by federal law, commonly referred to as the "Bankruptcy Code" ("Code"). The United States Constitution (Article 1, Section 8, Clause 4) authorizes Congress to enact "uniform Laws on the subject of Bankruptcies throughout the United States". Congress has exercised this authority several times since 1801, including through adoption of

3210-415: Is an exception if the property is "reasonably necessary for the support of the debtor and any dependent of the debtor." These provisions were largely intended to prevent filers from forum shopping, i.e. moving assets and domiciles to a state with more favorable exemptions and filing. BAPCPA attempted to eliminate the perceived "forum shopping" by changing the rules on claiming exemptions. Exemptions define

3317-464: Is below the median income, as discussed above, only the court or the United States trustee (or bankruptcy administrator) can seek dismissal or conversion of the debtor's case. If the debtor's "current monthly income" is above the median income, as discussed above, any party in interest may seek dismissal or conversion of the case. The grounds for dismissal under 11 U.S.C.   § 707(b)(3) are

Title 11 of the United States Code - Misplaced Pages Continue

3424-432: Is similar to Chapter 13 but is available only to "family farmers" and "family fisherman" in certain situations. Chapter 12 generally has more generous terms for debtors than a comparable Chapter 13 case would have available. As recently as mid-2004 Chapter 12 was scheduled to expire, but in late 2004 it was renewed and made permanent. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 added Chapter 15 (as

3531-595: The Bankruptcy Reform Act of 1978 , as amended, codified in Title 11 of the United States Code and the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA). Some laws relevant to bankruptcy are found in other parts of the United States Code. For example, bankruptcy crimes are found in Title 18 of the United States Code (Crimes). Tax implications of bankruptcy are found in Title 26 of

3638-399: The bankruptcy of the city of Detroit, Michigan in 2013. Bankruptcy under Chapter 11 , Chapter 12 , or Chapter 13 is a more complex reorganization and involves allowing the debtor to keep some or all of his or her property and to use future earnings to pay off creditors. Consumers usually file chapter 7 or chapter 13. Chapter 11 filings by individuals are allowed, but are rare. Chapter 12

3745-428: The Bankruptcy Code may file a petition for relief under a number of different chapters of the Code, depending on circumstances. Title 11 contains nine chapters, six of which provide for the filing of a petition. The other three chapters provide rules governing bankruptcy cases in general. A case is typically referred to by the chapter under which the petition is filed. These chapters are described below. Liquidation under

3852-535: The Senate and House after the 2004 elections breathed new life into the bill, which was introduced in its current form by the chairman of the Senate Finance Committee , Republican Senator Chuck Grassley of Iowa . According to George Packer in his book The Unwinding , Joe Biden , Chris Dodd , and Hillary Clinton helped pass this bill. (Of the three, however, only Biden voted for the final bill. Dodd voted against, and Clinton did not vote. ) The bill

3959-411: The U.S. Department of Justice, is responsible for maintaining and supervising a panel of private trustees for chapter 7 bankruptcy cases. The Trustee has other duties including the administration of most bankruptcy cases and trustees. Under Section 307 of Title 11 of the U.S. Code, a U.S. Trustee "may raise and may appear and be heard on any issue in any case or proceeding" in bankruptcy except for filing

4066-505: The United States Code ( Internal Revenue Code ), and the creation and jurisdiction of bankruptcy courts are found in Title 28 of the United States Code (Judiciary and Judicial procedure). Bankruptcy cases are filed in United States bankruptcy court (units of the United States District Courts ), and federal law governs procedure in bankruptcy cases. However, state laws are often applied to determine how bankruptcy affects

4173-423: The allowed deductions (this equals $ 10,950 over five years) regardless of the amount of debt, or (2) the debtor has at least $ 109.59 of such income ($ 6,575 over five years) and this sum would be enough to pay general unsecured creditors more than 25% over five years. For example, if a debtor had exactly $ 109.59 of "current monthly income" left after deductions and owed less than $ 26,300 in general unsecured debt, then

4280-419: The amount of property debtors may protect from liquidation to pay creditors. Typically, every state has exemption laws that define the amount of property that can be protected from creditor collection action within the state. There is also a federal statute that defines exemptions in federal cases. In bankruptcy, Congress allowed states to opt out of the federal exemption scheme. Opt out states still controlled

4387-412: The amount of property that could be protected from creditors, or "exempted" from creditors, in bankruptcy cases. Under BAPCPA, a debtor who has moved from one state to another within two years of filing (730 days) the bankruptcy case must use exemptions from the place of the debtor's domicile for the majority of the 180-day time period preceding the two years (730 days) before the filing [§ 522(b)(3)]. If

Title 11 of the United States Code - Misplaced Pages Continue

4494-419: The apparent simplicity of these rules, a number of exceptions exist in the context of each category of avoidance action. Preference actions generally permit the trustee to avoid (that is, to void an otherwise legally binding transaction) certain transfers of the debtor's property that benefit creditors where the transfers occur on or within 90 days of the date of filing of the bankruptcy petition. For example, if

4601-508: The bankruptcy code would be considered as an "abuse" and therefore subject to dismissal. This decision was previously made by a bankruptcy court judge, who would evaluate the particular circumstances that led to a bankruptcy. Critics of the means test, which is triggered if a debtor makes more than their state's median income, argued that it ignored the many causes of individual bankruptcies, including job loss, family illnesses, and predatory lending , and would force debtors seeking to challenge

4708-426: The bankruptcy court. In Chapter 11 and 9, these committees consist of entities that hold the seven largest claims of the kinds represented by the committee. Other committees may also be appointed by the court. Committees have regular communications with the debtor and the debtor's advisers and have access to a wide variety of documents as part of their functions and responsibilities. Although in theory all property of

4815-400: The bankruptcy estate itself. In some courts, violations of the stay are treated as void ab initio as a matter of law, although the court may annul the stay to give effect to otherwise void acts. Other courts treat violations as voidable (not necessarily void ab initio ). Any violation of the stay may give rise to damages being assessed against the violating party. Non-willful violations of

4922-749: The bankruptcy system. As Congressman F. James Sensenbrenner Jr. (R-Wis), one of the bill's key supporters in the House, argued, "This bill will help restore responsibility and integrity to the bankruptcy system by cracking down on fraudulent, abusive, and opportunistic bankruptcy claims." Opponents of the bill argued that claims of bankruptcy abuse and fraud were wildly overblown, and that the vast majority of bankruptcies were related to medical expenses and job losses. These arguments were bolstered by an in-depth study and survey of 1,771 bankruptcy cases by scholars at Harvard University , of whom 931 submitted to interviews. The study found that "about half" of bankruptcy filers in

5029-403: The bankruptcy trustee is permitted to reverse certain transactions of the debtor within a period of time prior to the date of the bankruptcy filing. The time period varies depending on the relationship of the parties to the debtor and the nature of the transaction. In Chapters 7, 12, and 13, creditors must file a "proof of claim" to be paid. In a Chapter 11 case, a creditor is not required to file

5136-428: The bill over the course of eight years. There has also been significant criticism of BAPCPA's changes to Chapter 11 business bankruptcies. Harvey Miller, one of the most-prominent bankruptcy attorneys in the country (particularly in terms of representing corporate debtors) has described BAPCPA as "ill-conceived." One of the primary stated purposes of the bankruptcy bill was to cut down on abusive or fraudulent uses of

5243-425: The bill's Congressional sponsors to make it "more difficult for people to file for bankruptcy." The BAPCPA was intended to make it more difficult for debtors to file a Chapter 7 Bankruptcy—under which most debts are forgiven (or discharged )—and instead required them to file a Chapter 13 Bankruptcy—under which the debts they incurred are discharged only after the debtor has repaid some portion of these debts. Some of

5350-461: The bill's more significant provisions include the following: Prior to the BAPCPA Amendments, debtors of all incomes could file for bankruptcy under Chapter 7. BAPCPA restricted the number of debtors that could declare Chapter 7 bankruptcy. The act sets out a method to calculate a debtor's income, and compares this amount to the median income of the debtor's state. If the debtor's income is above

5457-421: The bill; according to Warren, after the briefing: President Clinton had been showing that this is another way that he could be helpful to business. It wasn't a very high visibility bill. And when Mrs. Clinton came back with a little better understanding of how it all worked, they reversed course, and they reversed course fast. And indeed, the proof is in the pudding. The last bill that came before President Clinton

SECTION 50

#1732844765225

5564-422: The case of a married person in a community property state, the estate may include certain community property interests of the debtor's spouse even if the spouse has not filed bankruptcy. The estate may also include other items, including but not limited to property acquired by will or inheritance within 180 days after case commencement. For federal income tax purposes, the bankruptcy estate of an individual in

5671-482: The circuit in which the applicable district is located. The United States District Courts have subject-matter jurisdiction over bankruptcy matters. However, each such district court may, by order, "refer" bankruptcy matters to the Bankruptcy Court, and most district courts have a standing "reference" order to that effect, so that all bankruptcy cases are handled by the Bankruptcy Court. In unusual circumstances,

5778-441: The conversion amounts to nothing more than a temporary arrangement. When finding the conversion of nonexempt into exempt assets to be a fraudulent transfer, courts tend to focus on the existence of an independent reason for the conversion. For example, if a debtor purchased a residence protected by a homestead exemption with the intent to reside in such residence that would be an allowable conversion into nonexempt property. But where

5885-435: The debtor has the opportunity to choose the exemptions that most fully benefit him or her and, in many cases, may convert at least some of his or her property from non-exempt form (e.g., cash) to exempt form (e.g., increased equity in a home created by using the cash to pay down a mortgage) prior to filing the bankruptcy case. The exemption laws vary greatly from state to state. In some states, exempt property includes equity in

5992-515: The debtor incurs on a monthly basis. Some commentators have referred to these deductions as "presumed expenses". The deductions applicable in the "means test" are defined in 11 U.S.C.   § 707(b)(2)(A) , (ii)-(iv) and include: An itemized list of the applicable IRS living standards can be found at the US Trustee's website. A "presumption of abuse" will arise if: (1) the debtor has at least $ 182.50 in current monthly income available after

6099-482: The debtor must pay the lienholder the full amount of the applicable allowed secured claim against the property. Bankruptcy Abuse Prevention and Consumer Protection Act (US) Referred to colloquially as the "New Bankruptcy Law", the Act of Congress attempts to, among other things, make it more difficult for some consumers to file bankruptcy under Chapter 7 ; some of these consumers may instead utilize Chapter 13 . It

6206-409: The debtor or a relative of the debtor, jewelry worth more than $ 500, with adjustment for inflation (except wedding rings), and motor vehicles. Prior to BAPCPA, the definition of household goods was broader so that more items could have been included, including more than one television, VCR, radio, etc. Under the new law, the homestead exemption , which allows bankruptcy filers in some states to exempt

6313-417: The debtor purchased the residence with all of their available funds, leaving no money to live off, that presumed that the conversion was temporary, indicating a fraudulent transfer. Courts look at the timing of the transfer as the most important factor. The strong arm avoidance power stems from 11 U.S.C. § 544 and permits the trustee to exercise the rights that a debtor in the same situation would have under

6420-449: The debtor that is not excluded from the estate under the Bankruptcy Code becomes property of the estate (i.e., is automatically transferred from the debtor to the estate) at the time of commencement of a case, an individual debtor (not a partnership, corporation, etc.) may claim certain items of property as "exempt" and thereby keep those items (subject, however, to any valid liens or other encumbrances). An individual debtor may choose between

6527-459: The debtor's "current monthly income" and the median income for the debtor's state. If the debtor's income exceeds the median income, then the debtor must apply the means test. For debtors subject to the means test, the test is calculated as follows. The debtor's "current monthly income" is reduced by a set of allowed deductions specified by the IRS . These deductions are not necessarily the actual expenses

SECTION 60

#1732844765225

6634-406: The debtor. Bankruptcy fraudulent transfer law is similar in practice to non-bankruptcy fraudulent transfer law. Some terms, however, are more generous in bankruptcy than they are otherwise. For instance, the statute of limitations within bankruptcy is two years as opposed to a shorter time frame in some non-bankruptcy contexts. Generally a fraudulent transfer action operates in much the same way as

6741-535: The differences in the bills were reconciled, Congress passed the "Bankruptcy Reform Act of 2000". President Clinton, however, employed what is known as a " pocket veto " by waiting for the lame duck congressional session to adjourn without signing the bill, a legislative maneuver tantamount to a veto. Professor Elizabeth Warren , a member of the National Bankruptcy Review Commission at that time, briefed First Lady Clinton on negative effects of

6848-451: The dissenting class (e.g., subordinated creditors or shareholders) receives any distribution of the debtor's estate pursuant to the plan. In practice, the rule requires that debtors satisfy the claims of senior creditors in full before distributing any estate property to junior creditors or shareholders under the plan, although senior creditors will often consent to a de minimis recovery for junior stakeholders in exchange for their support for

6955-478: The exceptions to discharge. The presumption of fraud in the use of credit cards was expanded. The amount that the debtor must charge for "luxury goods" to invoke the presumption is reduced from $ 1,225 to $ 500. The amount of cash advances that would give rise to a presumption of fraud has also been reduced, from $ 1,225 to $ 750. The time period was increased from 60 days to 90 days. Thus, if a debtor purchases any single item for more than $ 500 within 90 days of filing,

7062-473: The extent that the beneficiary did not transfer property to the trust. Also, such provisions do not protect cash or other property once it has been transferred from the trust to the beneficiary. Under the US Bankruptcy Code, an anti-alienation provision in a spendthrift trust is recognized. This means that the beneficiary's share of the trust generally does not become property of the bankruptcy estate. In

7169-480: The filing of a petition in "bad faith", or when "the totality of the circumstances (including whether the debtor seeks to reject a personal services contract and the financial need for such rejection as sought by the debtor) of the debtor's financial situation demonstrates abuse." Another change that resulted from the BAPCPA was an extension of the time between multiple bankruptcy filings. 11 U.S.C.   § 727(a)(8)

7276-459: The filing of the bankruptcy case. The notice must also include the account number used by the creditor in the two relevant communications [§ 342(c)(2)(e) & (f)]. An ineffective notice can be cured if the notice is later "brought to the attention of the creditor." This means that the notice must be received by a person designated by the creditor to receive bankruptcy notices. BAPCPA also provided more protections to creditors because it expanded

7383-421: The filing of the bankruptcy case. Some narrow classes of payments, for example, social security, are excluded from these figures. Notably, the average income may be higher or lower than the debtor's actual income at the time of filing for bankruptcy. This has led some commentators to refer to the bankruptcy code's "current monthly income" as "presumed income". If the debtor's debt is not primarily consumer debt, then

7490-423: The landlord has already obtained a judgment of possession prior to the bankruptcy case being filed, § 362(b)(22). The stay also would not apply in a situation where the eviction is based on "endangerment" of the rented property or "illegal use of controlled substances" on the property, § 362(b)(23). In either situation the landlord must file with the court and serve on the debtor a certificate of non-applicability of

7597-487: The law relating to Article I bankruptcy judges (who are not life-tenured "Article III" judges ) are unconstitutional. Congress responded in 1984 with changes to remedy the constitutional defects. Under the revised law, bankruptcy judges in each judicial district constitute a "unit" of the applicable United States District Court . Each judge is appointed for a term of 14 years by the United States Court of Appeals for

7704-435: The law. In some cases the assets of the estate are insufficient to pay all priority unsecured creditors in full; in such cases the general unsecured creditors receive nothing. Because of the priority and rank ordering feature of bankruptcy law, debtors sometimes collude with others (who may be related to the debtor) to prefer them, by for example granting them a security interest in otherwise unpledged assets. For this reason,

7811-399: The legal system accelerating the financial demise of a financially unstable debtor who has not yet declared bankruptcy. The bankruptcy system generally endeavors to reward creditors who continue to extend financing to debtors and discourage creditors from accelerating their debt collection efforts. Avoidance actions are some of the most obvious of the mechanisms to encourage this goal. Despite

7918-542: The lender is no longer relevant. Thus, even loans from "for-profit" or "non-governmental" entities are not dischargeable. Some types of liens may be avoided through a chapter 7 bankruptcy case. However, BAPCPA limited the ability of debtors to avoid liens through bankruptcy. The definition of "household goods" was changed—for example, by limiting "electronic equipment" to one radio, one television, one VCR, and one personal computer with related equipment. The definition now excludes certain items such as works of art not created by

8025-418: The means test is inapplicable. The applicable median income figure is adjusted by family size. Generally, the larger the family, the greater the applicable median income figure and the more money the debtor must earn before a presumption of abuse arises. A chart of the most recent applicable median incomes by state can be found at the US Trustee's website. This code section then requires a comparison between

8132-489: The median income amount of the debtor's state, the debtor is subject to a "means test." The most noteworthy change brought by the 2005 BAPCPA amendments occurred within 11 U.S.C.   § 707(b) . Congress amended this section of the Bankruptcy Code to provide for the dismissal or conversion of a Chapter 7 case upon a finding of "abuse" by an individual debtor (or married couple) with "primarily consumer debt". The pre-BAPCPA language of § 707(b) provided for dismissal of

8239-403: The new residency requirement would render the debtor ineligible for any exemption, then the debtor can choose the federal exemptions. Also, there is a "cap" placed upon the homestead exemption in situations where the debtor, within 1215 days (about 3 years and 4 months) preceding the bankruptcy case added value to a homestead. The provision provides that "any value in excess of $ 125,000" added to

8346-409: The plan. The Supreme Court has recognized an exception to the absolute priority rule known as the "new value" exception that allows junior stakeholders to recover property under a plan over the objection of senior creditors if the junior stakeholders provide "new value" to the restructured enterprise (typically defined as an upfront monetary contribution to the reorganized debtor that is commensurate with

8453-412: The present case is a third filing within one year, the automatic stay does not go into effect at all, unless the debtor or any other party in interest files a motion to impose the stay that demonstrates that the third filing is in good faith with respect to the creditor, or creditors, being stayed. The provision presumes that the repeat filings are not in good faith and requires the party seeking to impose

8560-432: The presumption of abuse would arise, [ see 11 U.S.C.   § 707(b)(2)(A)(i) ]. If a presumption of abuse is found under the means test, it may only be rebutted in the case of "special circumstances", [ see 11 U.S.C.   § 707(b)(2)(B) ]. Even in cases where there is no presumption of abuse, it is still possible for a Chapter 7 case to be dismissed or converted. If the debtor's "current monthly income"

8667-442: The presumption that the debt was incurred fraudulently and therefore non-dischargeable in the bankruptcy arises. Prior to BAPCPA, the presumption would not have arisen unless the purchase was for more than $ 1,225 and was made within 60 days of filing (§ 523(a)(2)(C)). BAPCPA amended § 523(a)(8) to broaden the types of educational ("student") loans that cannot be discharged in bankruptcy absent proof of "undue hardship." The nature of

8774-526: The property received or retained under the plan). The basis for the new value exception is that the holder of a junior claim or interest under such circumstances does not "receive or retain under the plan on account of such junior claim or interest any property" but rather receives or retains property under the plan on account of the new value contribution . 11 U.S.C. § 1129(b)(2)(B)(ii) (emphasis added). The bankruptcy trustee may reject certain executory contracts and unexpired leases. For bankruptcy purposes,

8881-447: The property rights of debtors. For example, laws governing the validity of liens or rules protecting certain property from creditors (known as exemptions), may derive from state law or federal law. Because state law plays a major role in many bankruptcy cases, it is often unwise to generalize some bankruptcy issues across state lines. Originally, bankruptcy in the United States, as nearly all matters directly concerning individual citizens,

8988-471: The property that is the subject of their security interests, after obtaining permission from the court (in the form of relief from the automatic stay). Security interests , created by what are called secured transactions , are liens on the property of a debtor. Unsecured creditors are generally divided into two classes: unsecured priority creditors and general unsecured creditors. Unsecured priority creditors are further subdivided into classes as described in

9095-410: The relevant state law. Specifically, § 544(a) grants the trustee the rights of avoidance of (1) a judicial lien creditor, (2) an unsatisfied lien creditor, and (3) a bona fide purchaser of real property. In practice these avoidance powers often overlap with preference and fraudulent transfer avoidance powers. Secured creditors whose security interests survive the commencement of the case may look to

9202-405: The requirement is serving its intended purpose. The automatic stay in bankruptcy is the result of Section 362 of the Bankruptcy Code that requires all collection proceedings to stop. There are exceptions, of course, but generally this is the term for the "relief" from collection proceedings a debtor receives by filing the bankruptcy with the bankruptcy clerk's office. BAPCPA limited the protections

9309-567: The savings to other borrowers in the form of lower interest rates. Critics assert that these claims turned out to be false, observing that although credit card company losses decreased after passage of the Act, prices charged to customers increased, and credit card company profits increased. A Chapter 9 bankruptcy is available only to municipalities . Chapter 9 is a form of reorganization, not liquidation. Notable examples of municipal bankruptcies include that of Orange County, California (1994 to 1996) and

9416-510: The secured creditor that the value of their collateral will not decrease during the stay. Without the bankruptcy protection of the automatic stay, creditors might race to the courthouse to improve their positions against a debtor. If the debtor's business were facing a temporary crunch, but were nevertheless viable in the long term, it might not survive a "run" by creditors. A run could also result in waste and unfairness among similarly situated creditors. Bankruptcy Code 362(d) gives four ways that

9523-469: The stay (usually the debtor) to rebut the presumption by clear and convincing evidence. There are exceptions. Notably, § 362(i) provides that the presumption that the repeat filing was not in good faith would not arise in a "subsequent" case if a debtor's prior case was dismissed "due to the creation of a debt repayment plan." BAPCPA also limited the applicability of the automatic stay in eviction proceedings. The stay does not stop an eviction proceeding if

9630-440: The stay are often excused without penalty, but willful violators are liable for punitive damages and may also be found to be in contempt of court. A secured creditor may be allowed to take the applicable collateral if the creditor first obtains permission from the court. Permission is requested by a creditor by filing a motion for relief from the automatic stay. The court must either grant the motion or provide adequate protection to

9737-438: The stay provides in some re-filed cases. New § 362(c)(3) provides that if the debtor files a chapter 7, 11 or 13 case within one year of the dismissal of an earlier case, the automatic stay in the present case terminates 30 days after the filing, unless the debtor or some other party in interest files a motion and demonstrates that the present case was filed in good faith with respect to the creditor, or creditors, being stayed. If

9844-479: The stay spelling out the facts giving rise to one of the exceptions. There is a process for the debtor to contest the assertions in the landlord's certificate or if state law gives the debtor an additional right to cure the default even after an order for possession is entered, § 362(l) & (m). In addition, BAPCPA extends the exceptions to automatic stay to certain paternity, child custody, domestic violence and domestic and child support proceedings. BAPCPA enacts

9951-466: The test into costly litigation , driving them even further into debt. Besides the stricter means test, opponents of the bill also objected to the many other obstacles the bill creates for individuals seeking bankruptcy protection. These changes included more detailed reporting requirements, higher fees, mandated credit counseling , and the additional liability placed on bankruptcy attorneys, which critics argued would drive up attorneys' fees and decrease

10058-516: The three largest agencies: Money Management International , Consumer Credit Counseling Service of Greater Atlanta and GreenPath Debt Solutions . A 2007 GAO report was inconclusive regarding the efficacy of the counseling provisions and concluded that there is no mechanism in place to evaluate it: ... the value of the counseling requirement is not clear. The counseling was intended to help consumers make informed choices about bankruptcy and its alternatives. Yet anecdotal evidence suggests that by

10165-419: The time most clients receive the counseling, their financial situations are dire, leaving them with no viable alternative to bankruptcy. As a result, the requirement may often serve more as an administrative obstacle than as a timely presentation of meaningful options. Because no mechanism currently exists to track the outcomes of the counseling, policymakers and program managers are unable to fully assess how well

10272-714: The trade may, depending on the available exemptions, be a permitted exemption as their continued possession allows the insolvent debtor to move forward into productive work as soon as possible. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 placed pension plans not subject to the Employee Retirement Income Security Act of 1974 (ERISA), like 457 and 403(b) plans, in the same status as ERISA qualified plans with respect to having exemption status akin to spendthrift trusts. SEP-IRAs and SIMPLEs still are outside federal protection and must rely on state law. Most states have property laws that allow

10379-422: The transfer was for reasonably equivalent value and whether the debtor was insolvent at the time of the transfer. The conversion of nonexempt assets into exempt assets on the eve of bankruptcy is not an indicia of fraud per se. However, depending on the amount of the exemption and the circumstances surrounding the conversion, a court may find the conversion to be a fraudulent transfer. This is especially true when

10486-478: The value of their homes from creditors, is limited in various ways. If a filer acquired their home less than 1,215 days (40 months) before filing, or if they have been convicted of security law violations or been found guilty of certain crimes, they may only exempt up to $ 125,000 (adjusted periodically), regardless of a state's exemption allowance.(§ 522(p)(1)). Filers must also wait 730 days before they are allowed to use their state's exemptions. (§ 522(b)(3)(A)). There

10593-421: The year 2001 cited out-of-pocket medical bills in excess of $ 10,000 as a major contributor to bankruptcy (the average bankruptcy filer in this study was a 41-year-old woman with a median income of $ 25,000, slightly below the personal income average for that year). Perhaps the most controversial provisions of the bill was the strict means test it established to determine whether a debtor's filing under Chapter 7 of

10700-677: Was a great supporting factor to eventually prevailing and getting Congress to pass the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. It was widely claimed by advocates of BAPCPA that its passage would reduce losses to creditors such as credit card companies, and that those creditors would then pass on the savings to other borrowers in the form of lower interest rates. These claims turned out to be false. After BAPCPA passed, although credit card company losses decreased, prices charged to customers increased, and credit card company profits soared. The 2005 bankruptcy bill

10807-501: Was a subject of state law. However, there were several short-lived federal bankruptcy laws before the Act of 1898: the Bankruptcy Act of 1800 , which was repealed in 1803; the Act of 1841, which was repealed in 1843; and the Act of 1867, which was amended in 1874 and repealed in 1878. The first more lasting federal bankruptcy law, sometimes called the " Nelson Act ", initially entered into force in 1898. The current Bankruptcy Code

10914-462: Was amended to provide that the debtor would be denied a discharge if a debtor had received a discharge in a prior Chapter 7 case filed within eight years of the filing of the present case. Prior to BAPCPA, the rule was six years between chapter 7 filings. BAPCPA did not change the rule for the waiting period if the debtor filed a chapter 13 previously. Another major change to the law enacted by BAPCPA deals with eligibility. Section 109(h) provides that

11021-610: Was enacted in 1978 by § 101 of the Bankruptcy Reform Act of 1978, and generally became effective on October 1, 1979; it completely replaced the former bankruptcy law, the "Chandler Act" of 1938, which had given unprecedented power to the Securities and Exchange Commission for the regulation of bankruptcy filings. The current code has been amended numerous times since 1978. See also the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. Entities seeking relief under

11128-440: Was opposed by a wide variety of groups, including consumer advocates, legal scholars, retired bankruptcy judges, and the editorial pages of many national and regional newspapers. While criticisms of the bill were wide-ranging, the central objections of its opponents focused on the bill's sponsors' contention that bankruptcy fraud was widespread, the strict means test that would force more debtors to file under Chapter 13 (under which

11235-433: Was passed by the 109th United States Congress on April 14, 2005, and signed into law by President George W. Bush on April 20, 2005. Provisions of the act apply to cases filed on or after October 17, 2005. The Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) made changes to American bankruptcy laws, affecting both consumer and business bankruptcies. Many of the bill's provisions were explicitly designed by

11342-459: Was supported by President George W. Bush . Tom DeLay also championed the legislation. The bill passed by large margins, 302–126 in the House and 74–25 in the Senate, and was signed into law by President Bush. Support for the act mostly came from banks, credit card companies, and other creditors. Since banks, credit companies and other creditors are the ones who must bear the losses for debts discharged through bankruptcy, their lobby power

11449-766: Was that bankruptcy bill that was passed by the House and the Senate in 2000 and he vetoed it. And in her autobiography, Mrs. Clinton took credit for that veto and she rightly should. She turned around a whole administration on the subject of bankruptcy. She got it. In the years since 2000, the bill was introduced in each Congress, but was repeatedly shelved due to threats of a filibuster from its opponents and because of disagreements over various amendments, including one backed by Senate Democrats that would have made it harder for anti-abortion groups to discharge court fines related to legal debts incurred from lawsuits filed by pro-abortion groups. The increase in Republican majorities in

#224775