Bankruptcy Law Survey 2005 District of Connecticut
| Publication year | 2021 |
| Pages | 1 |
80 CBJ 1. BANKRUPTCY LAW SURVEY 2005 DISTRICT OF CONNECTICUT
I. LEGISLATION
The year 2005 brought sweeping changes to consumer bankruptcy. On April 20, 2005, President George W. Bush signed into law the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.(fn1) Most provisions of the law, commonly referred to as BAPCPA, became effective on October 17, 2005, and apply to cases filed on or after that date.(fn2) After twenty-five years with a Bankruptcy Code focused on paying creditors from the liquidation of nonexempt assets, the first focus under the new Code is the consumer debtor's ability to pay from future income.(fn3)
The first noticeable impact of BAPCPA was an extraordinary spike in filings prior to the law's effective date, followed by a very few new cases from the effective date through the end of the year.(fn4) The District of Connecticut reflected national activity in this regard.(fn5) In the one-week period before the effective date of BAPCPA, 4,874 cases were filed in the district, representing one-third of the 15,101 cases filed in calendar year 2005. A total of 205 cases were filed in the District of Connecticut in the entire two and one-half months remaining in 2005 after the law's effective date. Total filings in the District of Connecticut and Chapter 7 and 13 filings, for 2004 and 2005 are as follows:
* Of the New Haven Bar.
1 P.L. No. 109-8, 119 Stat. 23 (codified as amended in scattered sections of 11 U.S.C.) [hereinafter, "BAPCPA"].
2 BAPCA, §1501.
3 Hereinafter "the Code," or "the Bankruptcy Code" shall refer to Title 11, United States Code, containing provisions of the Bankruptcy Reform Act of 1978, Pub. L. 95-592 Stat. 2549, as amended, and "Chapter ___" and "Section ___" shall refer to numbered chapters and sections of the Code.
4 Numbers of case filings are provided by Deborah Hunt, Clerk of the United States Bankruptcy Court for the District of Connecticut, whose assistance is gratefully acknowledged.
(fn5)See, e.g., Steven Sloan, Chapter 7 Filing Boom Turns to Bust, WALL ST. J., Jan. 3, 2006.
BAPCPA requires application of a means test to determine the availability of a Chapter 7 discharge to an individual debtor owing primarily consumer debts. (fn6) If annualized income of such consumer debtors, based on the actual income of the last six full calendar months before the filing of the petition,(fn7) exceeds the Census Bureau's median income for households of similar size in the debtor's state of residence,(fn8) then the debtor is required to complete the means test, a detailed analysis of the ability to repay creditors. Comparing the annualized income to expenses based on a combination of the national and regional Internal Revenue Service's allowed expenses for tax debtors(fn9) and specified actual expenses particularly including secured and priority indebtedness,(fn10) the means test determines whether the debtor's straight bankruptcy constitutes a presumptive abuse of the provisions of Chapter 7.(fn11) The dismissal of the case on these grounds would be without prejudice to refiling under Chapters 11 or 13, which would require the consumer debtor to propose a plan for repayment of claims from future income.(fn12)
6 11 U.S.C. §707(b)(1). A debtor whose liabilities are not primarily consumer debts is not subject to dismissal under §707(b) and should not be required to complete the means test. "Consumer debt" is defined as debt incurred by an individual, primarily for a personal family, or household purpose. 11 U.S.C. § 101(8).
7 "Current monthly income" is defined at 11 U.S.C. §101 (10A).
8 11 U.S.C. §707(b)(7); "Median family income" is defined at 11 U.S.C. §101(39A).
9 11 U.S.C. §707(b)(2)(A)(ii).
10 11 U.S.C. §707(b)(2)(A)(iii), see also§§707(b)(2)(A)(ii) (II), (III), (IV) and (V) and (b)(2)(iii). As to secured debt, the amount of monthly deduction is calculated by adding any arrearages to the total of payments due in accordance with the contract within five years of the petition and dividing by 60 months. 11 U.S.C. §707(b)(iii). The priority debt, including such items as priority tax, child support and alimony claims, is totaled and divided by 60. 11 U.S.C. §707(b)(iv).
11 11 U.S.C. §707(b)(1) and (b)(2)(A)(i). Under the prior law, only in the rare case would §707(b) be involved. It provided for dismissal of the chapter 7 for "substantial abuse," but without any statutory criteria.
12 See, e.g., 11 U.S.C. §362(c)(3), which excepts from the limitations on the automatic stay applicable to other repeat filers any cases that were dismissed within the prior year under §707(b). Unlike prior law, see, e.g., Flor, 166 B.R. 512 (Bankr.D .Conn. 1994), for individual debtors in chapter 11, provisions of BAPCPA have made future income an asset of the estate available for use in a chapter 11 repayment plan. 11 U.S.C. §§1115(a)(2) and 1125(a)(9).
The Code revisions mandate numerous additional steps, documentation and certification that immediately made the filing of a Chapter 7 bankruptcy more cumbersome, and more expensive, for debtors. BAPCPA adds the requirement of credit counseling sessions as a condition precedent to filing for all individual debtors (fn13) and a post-filing requirement of an instructional course respecting consumer credit as well. Additionally, the law adds several attorney verification and certification obligations respecting information in bankruptcy schedules and the means tests (fn14) mandates detailed notices to debtors (fn15) and requires attorneys providing bankruptcy advice to refer to themselves as Debt Relief Agencies.(fn16)
BAPCPA makes a vast array of changes to the Bankruptcy Code, not only related specifically to implementation of the goal of forcing consumer debtors to repay debts from future income to the extent the means test suggests they are able, but also for a variety of other purposes. For instance, the core of debtor protections, the automatic stay of actions against the debtor and debtor's property, is restricted and modified by many of BAPCPA's changes.
The provisions of BAPCPA limit the automatic stay provided in Section 362 of the Code by eliminating its effect in a number of areas, including the following: certain actions in the areas of child custody, divorce, domestic violence enforcement and support matters;(fn17) attachment of property tax liens;(fn18) repayment of loans from pension plans;(fn19) limitation of the stay's protection of real property where the debtor has filed prior bankruptcy petitions or has transferred the real property without the secured creditor's consent;(fn20) in cases
13 11 U.S.C. §109(h). The provision applies to all individuals, not just consumer debtors. Despite provision in subsection 109(h)(3) for the opportunity to be excused, however temporarily, from this requirement the ability of debtors to obtain in a waiver of pre-bankruptcy credit counseling may be extremely limited. See, e.g., In re Talib, 335 B.R. 417 (Bankr. W.D. Mo. 2005).
14 See 11 U.S.C. §§526, 707(b)(4) and (5).
15 11 U.S.C. §§342(b), 527 and 528.
16 See Definitions in 11 U.S.C. §§101(12A) and 101(3) of "Debt Relief Agencies," and "assisted persons," and the applications of the terms in 11 U.S.C. §§ 526, 527 and 528.
17 11 U.S.C. §362(b)(2).
18 11 U.S.C. §362(b)(18).
19 11 U.S.C. §362(b)(19).
20 11 U.S.C. §362(b)(20) and (21).
where the debtor has other bankruptcy proceedings that were still pending within the year prior to the petition;(fn21) and where the debtor has failed to reaffirm loans or leases of automobile or other personal property, or to redeem or surrender the collateral.(fn22)
Certain provisions of Section 523(a) restricting discharge were further tightened by BAPCPA. For instance, property settlements arising in divorce and separation are no longer dischargeable.(fn23) The amount of debt incurred before the petition for luxury goods or services that creates a presumption of nondischargeability has been reduced from $1,225 within 60 days to $500 within 90 days; and, as to cash advances, the amount has been reduced from $1,225 within 60 days to $750 within 70 days.(fn24)
Chapter 13 also received some tweaking by BAPCPA. The new Code eliminates the Chapter 13 "superdischarge" formerly available for debts that could not be discharged in Chapter 7 under most provisions of Section 523(a).(fn25) A means test is applied to Chapter 13 debtors to determine whether the minimum length of the repayment plan is five years or three.(fn26) Basically, if the current monthly income exceeds the state median for the relevant family size the plan shall continue for five years unless the claims are paid in full. Also, Chapter 13 debtors no longer have the power to strip down liens on automobiles to the collateral's current value if the vehicle was purchased within 2(fn1)⁄2 years of the petition.(fn27)
BAPCPA creates new rules respecting which state's
21 11 U.S.C. §362(c)(3).
22 11 U.S.C. § 362(h). Debtors filing in the Second Circuit prior to the effective date of BAPCPA could take advantage of the "ride through" for auto loans, which was sanctioned by Capital Communications Fed. Credit Union v. Boodrow (In re Boodrow), 126 F.3d 43. (2d Cir. 1997). Under BAPCPA debtors must file their statement of intention under §521 and must act upon the statement by choosing to reaffirm, redeem or surrender the collateral within 45 days of the first meeting of creditors. 11 U.S.C. §521(a)(6). Should the debtor fail to act in a timely way, the property automatically is no longer property of the estate unless the trustee files a motion stating the property is of...
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