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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:
-
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.
-
Section 108 modifies the debt reaffirmation
guidelines for wholly unsecured debts to require additional
disclosures for debts that would otherwise be dischargeable.
-
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.
-
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.
-
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.
-
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.
-
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.
-
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.
-
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.
-
Section
137 extends the period between Chapter 7 discharges to eight
(8) years and between Chapter 13 discharges to five (5) years.
-
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.
-
Section
302 denies bankruptcy eligibility to an individual unless
the individual received the required credit counseling within
90 days before filing bankruptcy.
-
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.
-
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 and maintains a specialty
in collections. For more information on him and his practice,
click on the Our Attorneys section of this website.
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