The Bankruptcy Reform Act of 1999's
Impact on Creditors

By Angelo J. Bolcato, Esq.

In May 1999 the United States House of Representatives passed its version of a Bankruptcy Reform Act. The Senate recently approved the House version along with an amendment. This legislation has a significant impact on creditor’s rights.

A summary of the most salient points covered by this legislation include:

1. Section 103 of the Act requires written notice to an individual consumer debtor before commencement of a case (1) advising of the available credit counseling services; (2) the debtor's liability for civil and criminal penalties in connection with fraud or concealment of assets; (3) notice that all information supplied by the debtor in connection with the case is subject to examination by the Attorney General.
2. Section 108 modifies the debt reaffirmation guidelines for wholly unsecured debts to require additional disclosures for debts that would otherwise be dischargeable.
3. Section 109 lists circumstances by which the Court may reduce an unsecured consumer debt claim by up to 20% if the debtor can show that the claim was filed by a creditor who unreasonably refused to negotiate an alternative repayment schedule proposed by an approved credit counseling agency on behalf of the debtor.
4. Section 114 modifies the guidelines governing the discharge of debtor’s liabilities as well as the automatic stay to allow a debtor who is injured by the willful failure of a creditor to credit payments received to file an action for actual damages and legal fees.
5. Section 117 addresses serial filings. Serial filings involve a debtor filing for bankruptcy. When the case is dismissed, the debtor refiles. This Section would terminate the automatic stay, which prohibits creditors from taking certain actions against the debtor and the debtor’s property, 30 days after filing a Chapter 7, 11 or 13 petition, if another case was pending and dismissed during the previous year unless the subsequent case is filed in good faith. The revision also provides guidelines by which a history of prior bankruptcy filings gives rise to a presumption that the current case was not filed in good faith.
6. Section 118 directs the Court to grant relief from the automatic stay upon the request of a creditor, with respect to certain real property, if the Court finds that filing the petition was part of a scheme to delay, hinder and defraud creditors. This section also denies automatic stay protection, including certain creditor's enforcement actions against real property, for a specified period following a prior order in bankruptcy which prohibited the debtor from being a debtor in another bankruptcy case.
7. Section 119 modifies the debtor’s duties to require affirmative action be taken by Chapter 7 debtors, including reaffirmation of a debt or redemption of property, within 45 days in order to retain possession of personal property. Creditors may take action with respect to such property under non-bankruptcy law if the debtor fails to act within 45 days, unless the Court determines that such property is of consequential value or benefit to the estate, and the Court orders the protection of the creditor’s interest and the debtor to deliver to the trustee any collateral in the debtor’s possession.
8. Section 133 reduces from $1,000 to $250 the threshold amount of luxury goods and consumer credit cash advances presumed non-dischargeable in bankruptcy if acquired within 90 days before the bankruptcy is filed.
9. Section 136 precludes an automatic stay of an eviction, or lawful detainment or acts under similar proceedings by a lessor against the debtor involving residential property if (1) the debtor resides and has not paid rent after the commencement and during the case; (2) the rental agreement is terminated; (3) the debtor has previously filed within the last year and failed to pay post-petition rent during the course of that case; or (4) the eviction action is based on endangerment to property or person or the use of illegal drugs.
10. Section 137 extends the period between Chapter 7 discharges to eight (8) years and between Chapter 13 discharges to five (5) years.
11. Section 214 denies discharge in bankruptcy for a debt for a fee or assessment arising from the debtor’s interest in a lot in a homeowners association for as long as the debtor or trustee retains a specified interest in the property.
12. Section 302 denies bankruptcy eligibility to an individual unless the individual received the required credit counseling within 90 days before filing bankruptcy.
13. Section 603 expands the debtor’s duties to require filing with the Bankruptcy Court all tax returns; evidence of payments received; monthly net income projections; and anticipated debtor expenditure increases. This section also permits a Chapter 7 or 13 creditor to request the debtor’s petition, schedules and plan. The debtor must comply with the creditor’s request within five days of the request.
    
14. Section 604 provides for automatic dismissal of a Chapter 7 case if the debtor fails to furnish all mandatory information or fails to timely file the requisite schedules. This section also requires the Court to order dismissal within five days of a request by a party based on the debtor’s failure to timely submit required documents.

As creditors’ advocates, we look forward to the proposed Code changes that enhance the potential collectibility of debts. In future updates we will inform you of the status of the legislation and its impact on creditor’s rights. We welcome the opportunity to discuss this legislation, as well as any other collection related issues you may have.

  Angelo J. Bolcato is a partner at Laddey, Clark & Ryan, LLP, and is chair of the firm's Corporate and Business Law Practice Group.  For more information on him and his practice, click here for the Our Attorneys section of this website.