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Web posted and Copyright © October 1, 1998, American Bankruptcy Institute.

Key Areas of Disagreement—Consumer Bankruptcy
As of Sept. 17, 1998. Hon. Eugene R. Wedoff (N.D. Ill.) prepared much of this comparison.

Issue H.R. 3150 S. 1301
1. Means testing §101. A debtor would be ineligible for chapter 7 relief where (1) the debtor's household income is above national median for same size household, and (2) the income—after deduction of (a) expenses allowed according to IRS collection standards, (b) extraordinary expenses shown by the debtor, and (c) amounts necessary to pay secured and priority debts—is both greater than $50 per month and sufficient to pay 20 percent of general unsecured claims over a five-year period. Trustees would be required to report on ability to repay in all chapter 7 cases.

§103. Any party in interest would be allowed to challenge any debtor's eligibility based on ability to repay.

§102. A chapter 7 case would be subject to dismissal or conversion to chapter 13 (on the debtor's request) if the debtor could pay 30 percent of general unsecured claims through a chapter 13 plan. [changed on Senate floor from 20 percent]

Any party in interest would be allowed to move for such dismissal or conversion, unless the debtor's income was below a specified level. Where the debtor's household is four or less, the threshold would be the national median for a household of the same size. Where the debtor's household is larger than four, the threshold would be the national median for a household of four, increased by $583 for each member of the debtor's household beyond four.

2. Chapter 13 plan length §§102, 409. Where the debtor's household income is above the national median for the same size household, the minimum plan term would be five years. No change is made in current law, which has a minimum plan term of three years.
3. Extended chapter 13 non-dischargeability
Note: Both bills would make non-dischargeable in chapter 13 (as well as chapter 7) all debts covered by §523(a)(2) and (4) of the Code, and would make property settlements arising from divorce or separation now covered by §523(a)(15), non-dischargeable under §523(a)(5), which applies to both chapter 7 and chapter 13 cases.
§143. All debts covered by §523(a)(6) (willful and malicious injury) would be non-dischargeable in chapter 13 as well as in chapter 7.

§508. All debts covered by §523(a)(1) (certain tax obligations) would be non-dischargeable in chapter 13 as well as in chapter 7.

§314. Debts covered by §523(a)(6) would be non-dischargeable in chapter 13 only if they involved injuries resulting in personal injury or death.

No change is made in current law, under which §523(a)(1) applies only in chapter 7 cases.

4. Presumption of fraud for credit extensions on the eve of bankruptcy §142. Fraud would be presumed under §523(a)(2) for all debts incurred within 90 days of an order for relief except for purchases of "necessaries" that do not exceed an aggregate of $250 to a single creditor. §316. Fraud would be presumed as to all debts incurred within 90 days of the order for relief that are (1) in an aggregate amount of more than $400 to a single creditor, and (2) for goods and services not reasonably necessary for the support of the debtor or a dependent child of the debtor.
5. Priority for debt incurred to pay non-dischargeable debt §141. Debts incurred to pay any non-dischargeable debt—except for certain debts of single parents—would be non-dischargeable (in chapter 7) and would be given a priority, apparently equal to the priority of the debt paid. §315. The exception to discharge under §523(a)(14) would apply only where the debtor "incurred the debt to pay such a non-dischargeable debt with the intent to discharge the newly-created debt." There is no provision according priority to the non-dischargeable debt.
6. Limit on successive discharges §171. After a debtor receives a bankruptcy discharge, the debtor would be ineligible for any bankruptcy relief for a period of five years, and ineligible for chapter 7 relief for a period of 10 years. No change is made in current law, which places no time limit on the availability of a chapter 13 discharge, and allows an objection to a chapter 7 discharge if the debtor received a chapter 7 discharge in a case commenced within six years of the filing of the pending case.
7. Debtor education §112. The Executive Office of the U.S. Trustee would be required (1) to develop a program to educate debtors on the management of their finances, (2) to test the program for one year in three judicial districts, (3) to evaluate the effectiveness of the program during that period, and (4) to submit a report of the evaluation to Congress within three months of the conclusion of the evaluation. The test program would be made available, on request, to both chapter 7 and 13 debtors, and, in the test districts, bankruptcy courts could require financial management training as a condition to discharge.

§117. Congress would express its sense that states should develop course in personal finance for grade school and high school students.

§321. A new exception to discharge would be applicable in chapter 7 cases for situations in which the debtor failed to complete a course in personal financial management administered or approved by the U.S. Trustee. The court would be directed not to grant a chapter 13 discharge to any debtor who failed to complete such a course.
8. Credit counseling §104. Debtors would generally be ineligible for bankruptcy relief until they had first attempted to negotiate a voluntary repayment plan through a consumer credit counseling service approved by the U.S. Trustee, with approval withheld from any service that did not offer its program either without charge or at reduced charges in situations of hardship. Exception would be made (1) if the U.S. Trustee found that there was no suitable credit counseling service available in the debtor's geographical area, or (2) if the debtor was made subject to a debt collection proceeding, involving a potential loss of property, "before the debtor could complete" the good-faith attempt. If the debtor filed the bankruptcy without an effort at repayment because of pending debt collection activity, the debtor would be required to attempt to negotiate a voluntary repayment, after the bankruptcy filing, outside of the judicial process. Only the U.S. Trustee would be allowed to bring a motion for dismissal of the bankruptcy case on the grounds that the debtor failed to meet these new eligibility and filing requirements. §321. Debtors would generally be ineligible for bankruptcy relief until they had first attempted to negotiate a voluntary repayment plan through a consumer credit counseling service approved by the U.S. Trustee. Exceptions would be made for situations (1) in which the chief judge of the bankruptcy court found that credit counseling services were unavailable and (2) in which the debtor was unable to obtain credit counseling services within five days of making a request from an approved counselor. There is no limitation on standing to bring a motion to dismiss based on the debtor's ineligibility under this section.
9. Filing of financial documentation and tax returns
Note: Both bills currently provide for automatic dismissal of bankruptcy cases in which the required information is not filed within 45 days of the bankruptcy filing. The only difference is in the length of time of the maximum extension allowed. H.R. 3150 §407 (15 days); S. 1301 §312 (20 days).
§406. Several items would be added to the information that individual chapter 7 and 13 debtors are required to provide, unless otherwise ordered by the court. These items include (a) copies of any federal tax returns, including schedules and attachments, filed by the debtor during three years prior to the bankruptcy case; (b) copies of any tax returns and schedules filed during the pendency of the case, either for current tax years, or for the three years preceding the filing; (c) any amendments of the returns set out above; and (d) evidence of payments made by any employer of the debtor during the 60 days prior to the filing of the case. These documents would be available for inspection and copying by any party in interest. §301. Several items would be added to the information that individual chapter 7 and 13 debtors are required to provide, unless otherwise ordered by the court. These items include (a) copies of any federal tax returns, including schedules and attachments, filed by the debtor during three years prior to the bankruptcy case; (b) copies of any tax returns and schedules filed during the pendency of the case, either for current tax years or for the three years preceding the filing; (c) any amendments of the returns set out above; and (d) evidence of payments made by any employer of the debtor during the 60 days prior to the filing of the case. These documents would be available for inspection and copying by any party in interest, but the Director of the Administrative Office of the U.S. Courts would be required to "establish procedures for safeguarding the confidentiality of any tax information."
10. Audits §404. At least 1 percent of all individual chapter 7 and 13 cases would be required to be audited "in accordance with generally accepted auditing standards...by independent certified public accountants or independent licensed public accountants." The proposal requires the Attorney General to establish procedures for fully funding the audits, but does not specify a source of funding. §307. Auditing would be performed by "qualified persons" according to procedures established by the Attorney General. It would apply to only 0.2 percent of individual chapter 7 and 13 cases and on schedules reflecting "greater than average variances from the statistical norm of the district in which the schedules were filed."
11. Abusive chapter 7 petitions and motions to dismiss No change is made in current law, which treats abusive chapter 7 petitions and motions to dismiss, like other unsupported court filings, under Fed.R.Bank.P. 9011. §102. Debtor's attorneys would be required to reimburse panel trustees for all costs of prosecuting a successful motion to dismiss under §707(b) of the Code, wherever the court found the filing of the case "not substantially justified." If such a motion to dismiss was not substantially justified, the court would have discretion to award costs against the moving party only if (1) the motion was brought "solely for the purpose of coercing the debtor into waiving a right guaranteed...under the Bankruptcy Code, and (2) the moving party did not have an aggregate claim against the estate of less than $1000."
12. Secured claim valuation §128. Secured claims incurred within 180 days of bankruptcy would not be bifurcated.

§129. All bifurcation of secured claims would be based on the debtor's cost of replacement, without deduction for costs of sale. For household and personal goods, this would be retail price.

§302. Secured claims incurred within 90 days of bankruptcy would not be bifurcated. No bifurcation of secured claims would take place in chapter 13.
13. Family support §149. States would be directed to provide for collection procedures protecting the priority of support claims. No change is made in current law, which contains no such provision.
14. Homestead exemption §§181, 182. The debtor must be domiciled in the state for one year before asserting the state's exemption scheme; no homestead cap. §320. Homestead exemptions under state law would be capped at $100,000, except by a family farmer for the principal residence of the farmer.
15. Adequate protection pending chapter 13 plan payments §162. Payments of adequate protection would be required to be made in the amounts and frequency specified by the applicable contract, but the debtor could seek a court order reducing the amounts and frequency, although the frequency could not be less than monthly and the amount could not be less than the depreciation of the collateral. §319. Payments of adequate protection would be required at times and in amounts determined by the court, but not less than monthly and not less than the depreciation of the collateral.

Other Areas of Disagreement for a House-Senate Conference
as of Sept. 17, 1998

Issue H.R. 3150 S. 1301
1. Treatment of certain financial instruments in bankruptcy No provision. Title IV would provide for new rules affecting the enforcement of agreements such as forward contracts, swap agreements, securities and commodities contract and repurchase agreements during and after the bankruptcy process.
2. Special rules for small business cases Creates "fast track" procedures for chapter 11 debtors with debts of $5 million or less; shortens time for plan confirmation; increases the duties of the debtor; enhances the responsibility of the U.S. Trustee to monitor the debtor; and expands the grounds for dismissal, conversion or appointment of a trustee. No provision.
3. Single asset real estate cases Strikes the $4 million cap on the application of special rules for SARE cases, providing for expanded grounds for secured creditors to get relief from the stay unless the debtor, within 90 days, files a plan or begins monthly payments in an amount equal to the interest at the contract rate, based on the value of the creditor's claim. No provision.
4. Appellate procedure §411. Provides for appeals from final bankruptcy court decisions to be heard directly by the circuit courts of appeals, eliminating the district court review. §602. Provides for appeal of a final bankruptcy judge decision to the courts of appeal if the district court has not filed a decision on the appeal from the bankruptcy court within 30 days.
5. Chapter 12 §203; 210. Would make chapter 12 permanent, but would limit the exclusive filing period to 150 days; would provide secured creditors with additional grounds for relief from stay, and allows such creditors to elect to have their claims treated as secured notwithstanding §506(a). §604. Straight repeat of the sunset provision would make chapter 12 permanent. Indexes the debt limit and makes other changes to make more farmers eligible.
6. Executory contracts and unexpired leases §213. Establishes definite deadline of 120 days to assume or reject a non-residential lease of real property, up to an additional 150 days with the lessor's consent or court approval, but in no case beyond 270 days. §601. An unexpired lease of non-residential real property is deemed rejected if not assumed within 120 days, unless the lessor agrees to a longer time.
7. Return of goods in commercial cases (Reclamation §546) No provision. §606. Extends the period for trade creditors to reclaim goods from 20 days to 45 days.
8. Preferences (safe harbor for trade creditors) §207; 208. Allows a defendant in an action to establish that the transfer was made in accordance with ordinary business terms. The amount of the transfer must be at least $5,000, and transfer actions under $10,000 must be venued in the district where the defendant resides. No provision.


 

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