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Web posted and Copyright © March 1, 2000, American Bankruptcy Institute.

SUMMARY OF KEY AREAS OF DISAGREEMENT: S. 625/H.R. 833 CONFERENCE

This month's Update provides excerpts of a summary of the key areas in disagreement between S. 625 and H.R. 833. These differences will have to be reconciled by a House-Senate conference committee, and the conference's final product will have to be passed by both the House and Senate before the bill can be sent to the president for his signature (enactment). Both bills now provide for an effective date of 180 days after the date of enactment. The full summary is online at http://www.abiworld.org/legis/bills/

Consumer Provisions S. 625 H.R. 833
Means Test (Standard for determination of "abuse") Abuse is presumed if, after application of the means test, the debtor can pay $15,000 ($250/month) or 25 percent of unsecured debt over 60 months. Report and any motions to be filed by the U.S. Trustee or Bankruptcy Administrator not later than 10 days before the §341 meeting. Section 102 of the bill. Abuse is presumed if, after application of the means test, the debtor can pay $6,000 ($100/month) of unsecured debt over 60 months. Report and any motions filed by panel trustee 10 days after the §341 meeting. Section 102 of the bill.
Means Test (IRS standards) Allowed expenses do not explicitly include actual costs for "other necessary expenses" that are separately allowed under IRS standards. Section 102 of the bill. Allowed expenses include other necessary expenses. Food and clothing expenses can be upward adjusted by 5 percent if reasonable and necessary. Also allows debtor to deduct up to $10,000 each year for private school tuition and expenses. Section 102 of the bill.
Means Test (Secured debt arrearages) Allows inclusion of arrearages on secured debt for necessary property as a factor in calculating repayment capacity under means test. Section 102 of the bill. No similar provision.
Means Test (Safe harbor) Relaxes presumption of presumed abuse for debtors between 100 percent and 150 percent of median income if debtor is left with ability to pay less than the greater of $15,000 ($250/month) or 25 percent of unsecured debts over 60 months. Section 102 of the bill. No similar provision.
Means Test (Safe harbor) No means test motions can be filed by creditors against debtors who are below state or national median income level. No creditor motions can be filed under either the means test or general abuse against those debtors who are under national or regional median income.
Credit Counseling Required as a condition of filing within 180 days prior unless not available within five days of request and exigent circumstances exist. May be done over the phone or on the Internet. Section 106 of the bill. Required as a condition of filing within 90 days prior unless debtor can show exigent circumstances exist. No phone or Internet option. Section 302(a) of the bill.
Lienstripping/Cramdown in Chapter 13 No cramdown for any transaction within five years secured by an automobile, or six months secured by other property. Includes both purchase-money and non-purchase- money security interests. Section 306 of the bill. No cramdown for any purchases of secured personal property within five years of the bankruptcy. Only includes purchase- money security interests. Section 122 of the bill.
Dischargeability Fraud presumed for debtors who incur $250 for luxury goods within 90 days or $750 in cash advances within 70 days of filing. Section 310 of the bill. Debts incurred to pay non-dischargeable debts 70 days before filing presumed fraudulent. Superdischarge eliminated. Sections 314(b), 707 of the bill. Fraud presumed for debtors who incur $250 for luxury goods or $250 in cash advances within 90 days of filing. Section 133 of bill. Debts incurred to pay non-dischargeable debts 90 days before filing presumed fraudulent. Superdischarge eliminated. Sections 127, 807 of the bill.
Reaffirmations Requires form disclosures to debtors who seek to affirm unsecured or minimally secured debts. Section 203 of the bill. Prohibits class actions for violations of discharge injunction. Section 114 of the bill.
Homestead Cap on exemption at $100,000, indexed. Section 324 of the bill. Cap at $250,000 but states can opt out by subsequent enactment. Section 147 of the bill.
Consumer Credit Disclosure Requires disclosure of impact of making only minimum payments each month. To get specific information, the customer would call a toll-free number provided by the creditor. Lenders regulated by the FTC (retailers) would not have to provide the 800 number. Requires prominent disclosure of introductory interest rates. Prohibits termination of credit card account due to the failure to carry a balance. Title XIX of the bill; Section 1901 et seq. Requuires a generic disclosure of the impact of paying only monthly minimum on an open-ended plan. Required only on the opening of the account and annually thereafter. No provision for customers to get exact information on monthly minimum payment impact. Section 112 of the bill.
Commercial Provisions S. 625 H.R. 833
Small Business Debt Eligibility Limit Amends §101 of the Code to define small businesses eligible for special treatment in chapter 11 (e.g., shortened time frames and enforcement mechanisms, broader authority for the U.S. Trustee) designed to convert or dismiss cases without a reasonable likelihood of successful reorganization, at a debt limit of $3 million or less at the beginning of the case. Defines small businesses eligible for special treatment at a debt limit of $4 million or less at the beginning of the case. Section 402 of the bill.
Plan Filing and Confirmation Deadlines in Small Business Cases Debtor has 180-day exclusive filing period unless extended by the court. The plan and any disclosure statement shall be filed not later than 300 days after the order for relief, with opportunities to extend only if it is more likely than not that the court will confirm a plan within a reasonable period of time. Plan to be confirmed not later than 175 days after the order for relief, unless extended by the court as above. Sections 437 and 438 of the bill. Limits exclusivity to 90 days and requires plan and disclosure statement to be filed within 90 days, unless a creditors' committee has been appointed that is "sufficiently active and representative to provide effective oversight of the debtor." The time periods may be extended for cause. The confirmation deadline is 150 days after the order for relief. Sections 407, 408 of the bill.
Assumption of Non-residential Leases Amends §365(d)(4) of the Code to state that an unexpired lease of non-residential real property under which the debtor is the lessee shall be deemed rejected if the trustee does not assume or reject by the earlier of 120 days after the order or relief or the date of entry of an order confirming a plan. The court may extend this period only upon a motion of the lessor. More restrictive of debtor's rights than the current law, which allows retail debtors to indefinitely postpone the decision on assumption or rejection of leases. Section 405 of the bill. Amends §365(d)(4) of the Code to establish finite deadlines by which a non-residential lease of real property must be assumed or rejected. Provides that thhis perios is the earlier of 120 days after filing or an order confirming a plan. Failure to act during this time constitutes an automatic rejection. This 120-day period may be extended for an additional 120 days on a motion of the trustee or lessor for cause. Subsequent extensions would be granted only with the lessor's written consent. Section 205 of the bill.
Non-monetary Defaults No provision. Amends §365(b) to provide that with respect to personal property leases, the failure to perform non-monetary obligations is an appropriate bar to the assumption of the lease; with regard to real estate leases, a trustee should cure those defaults that are curable, but is not required to cure defaults that are now impossible to cure; with respect to executory contracts, the court will determine, based on the equities, whether incurable defaults prevent assumption. Section 215 of the bill.
Chapter 12 Permanently extends chapter 12 (now due to sunset on June 30, 2000). Doubles the debt limit to $3 million. Eliminates the requirement that family farmer and spouse receive more than 50 percent of annual income from farming operations in year prior to bankruptcy. Reduces the amount of a government claim arising from a sale or transfer to that of an unsecured claim not entitled to priority. Prohibits retroactive assessment of disposable income when a chapter 12 plan is modified. Broadens the scope of chapter 12 to include family fishermen. Title X of the bill; see, also, §§1419, 1426, 1437 of the bill. Straight permanent extension of chapter 12, without other changes. Section 201 of the bill.

 

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