ABI Consumer Committee Judicial Co-chair Hon. Dennis R. Dow

The first impact of the bankruptcy reform legislation may occur before its effective date. Conventional wisdom has it that the enactment of the legislation will result in a significant increase, during the period prior to the effective date, in the number of Chapter 7 bankruptcy filings. The act makes the most significant changes in bankruptcy law since the enactment of the Bankruptcy Code in 1978. The first and most obvious impact on the judiciary is simply the task of becoming familiar with the many and significant changes made by the legislation and of modifying bankruptcy rules, forms and procedures to accommodate the changes. The changes will have an impact on bankruptcy court clerk’s offices as the bankruptcy court now has an obligation to provide certain new notices to creditors, respond to requests for pleadings and generate statistics for later analysis on the effect of some of the changes made by the legislation. Some predict that because of new obligations imposed on debtors’ counsel, some lawyers will cease to do debtors’ work reducing availability of counsel for bankruptcy filers. If true, the number of pro se cases may increase in all jurisdictions, including some which have not had a traditionally high load of such cases. Pro se cases, because of the unfamiliarity of the debtors with the Bankruptcy Code and rules, frequently impose more demands on judges as well as others in the court system. The court will be required to conduct hearings on new kinds of requests for relief which would not previously have been filed. For example, as a result of new restrictions of the availability of the automatic stay for repeat filers, first day motions in Chapter 13 cases may become a new reality. The procedures for such motions, for example whether these requests may be brought by motion or require the filing of an adversary proceeding, have not been made clear. Depending on how many cases are affected by the new means test, the court may be holding significantly more hearings on this threshhold question of the debtors’ eligibility for relief than it did under the old regime of “substantial abuse” under § 707(b). The means test is complicated and extremely detailed and may require a substantial investment of judicial resources. In some instances, the Code employs new standards for granting or denying relief (such as “special circumstances” in abuse motions) without detailed explanation of the standard. The courts will be required to infuse meaning into these new phrases and apply them to individual circumstances. As is often the case with any significant legislative change, some provisions do not coordinate well with related provisions on similar subjects or create ambiguities which will require judicial resolution. Although apparently a technical amendments bill is already in the works, the scope of that bill is unclear. Demands on bankruptcy court time for hearings may increase not only as a result of litigation regarding the means test and reimposition of the automatic stay, but on discharge matters as well. This scope of dischargeable debts in Chapter 13 has been restricted, the amendments making nondischargeable in such cases debts which previously were subject to a completion discharge in Chapter 13 cases. Accordingly, the courts may be required to hear dischargeability challenges in Chapter 13 cases, such as on credit card debt, which they were not previously required to hear. (Back)

ABI Consumer Committee Co-chair Dennis J. LeVine

From a secured creditor’s perspective, I anticipate the effect of the major changes from the Code to the Reform Act will be:

- a significant reduction in the effect of serial filings

- expedited confirmation hearings in Chapter 13

- a reduction in "cram downs" of personal property liens in Chapter 13

- codifying "retail value" for personal property valuations

- greater likelihood of adequate protection payments being made without
Court intervention

The changes in the Code are designed to make the bankruptcy process move along more quickly. The change in the valuation standard in Section 506, which applies to valuations in both Chapter 13 cases and redemption in Chapter 7 cases, clearly will benefit the recoveries of secured creditors.

On the other hand, the unknown and unintended consequences of the changes in the Code may undercut the "gains" which secured creditors anticipate. For example, debtors may simply surrender their older secured property (e.g. their used cars) and purchase a new one just before filing bankruptcy. What we can be sure of is that the debtor’s bar will "fight back", and Bankruptcy Judges may be of the mind to interpret the new provisions of the Code so as to support the arguments made by debtors’ attorneys. (Back)

ABI Consumer Committee Judicial Co-chair Hon. Thomas F. Waldron

Judge Waldron:
From my judicial perspective, the initial major change from the Code to the Reform Act will be the new hearings necessitated by the Reform Act. By new hearings, I mean court proceedings which have never previously been held in the bankruptcy court. [i.e., § 109(h) - eligibility and a possible waiver “satisfactory to the court” of a required credit counseling and budget briefing?; § 342 – “effective” notice in the proceeding before the court?; § 362(c)(3) & (4) – will a stay be in effect, or extended, in proceedings involving certain repeat filings? – and many more] The Reform Act contains many new terms, often not defined, which will cause new factual presentations and new legal arguments requiring new hearings and resulting in new bankruptcy court decisions. In the existing bankruptcy court system, which is currently under funded, understaffed and facing a continuingly burgeoning caseload, a clear concern for the court, creditors and debtors is whether these new hearings, which will inevitability result in justice delayed, will also result in justice denied. (Back)

ABI Consumer Committee Co-chair Thomas J. Yerbich

From the debtor’s perspective, the Act has created a sea change beginning with pre-filing requirements and extending through discharge, These may be summarized as follows. First, undergo credit counseling before filing the petition and then complete a course in financial management before receiving a discharge.Second, reduced availability of chapter 7 for those with the means to pay debt. Third, provide additional documentation, verification and justification for expenses, Fourth, if income exceeds the applicable median income for the state of residence, face significant changes in lifestyle in order to obtain relief. Fifth, may “assume” residential and personal property leases along with reaffirming secured debts.Sixth, make more of their financial records part of the public records. Seventh, if subject to a domestic support order, maintain postpetition payments current, Eighth, meet more stringent domiciliary requirements for state exemptions. Ninth, automatic exemption of qualified pension plans whether state or federal exemptions are taken.Tenth, if income exceeds the applicable median income for the state, subject to a lengthened plan duration of five years.(Back)