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	For more current information and cases see Bankruptcy This Week For a digest of cases interpreting BAPCPA go to King's Digest of BAPCPA Law For older material see the BAPCPA Archive

Dec. 2006

YOUR CREDIT REPORT WILL NEVER BE RIGHT

CREDIT REPORTING LAG TIME

Stephen Snyder

Stephen Snyder is the founder and president of the After Bankruptcy Foundation a non-profit organization that assists people increase their credit scores and improve their lifestyles. Stephen is also a bestselling author and popular speaker.

In addition, Stephen is one of only three personal finance commentators in the nation trained by Fair Isaac Corporation, the firm that created the credit scores that credit reporting agencies use to calculate a consumer's credit worthiness.

Stephen Snyder is also a popular resource that the media often turns to for accurate information on credit scoring. He's been featured in The Wall Street Journal, Newsweek, Smart Money, The Washington Post, Bloomberg Television, CBS MarketWatch, CNNfn, CNBC, Family Circle, Better Homes and Gardens and other media outlets.

You're getting ready to make a major purchase on credit and want to get the lowest interest rate possible. You know that paying down your credit cards will increase your credit scores.

So that's what you do.

You collect all your recent credit card statements. Verify each balance owed. And grab your checkbook.

But then you think, "I want these payments to post as soon as possible." So you look at your different lenders to determine the fastest way they will accept your payments.

For some, it makes more sense to pay by phone - so you phone in your payments. Others, you pay over the web. And for the ones you must send a check by mail - you use FedEx® - so your payment arrives as soon as possible. You think, "Now I'll really see results fast!"

Or will you?

You've significantly reduced the balances on all of your credit cards. Two weeks go by. (Enough time for the lender to receive your payment and post it to your account, right?) You call each lender to verify they received your payment. They did.

So far, so good.

Now...the moment you've been waiting for. You go to your computer and type in www.myfico.com/12 to purchase your new FICO credit scores. You type in your credit card information, press "purchase," and await your new and improved FICO scores. Visions of your new car, new home, increased credit card limit, or small business loan dance in your head.

Your FICO scores appear on the computer monitor...

Nothing's changed...your scores are the same. What happened?

You have become a victim of "credit reporting lag time"

For full story

A BANKRUPTCY BOOM COMETH

Hannah Clark

Earlier this year, Wilbur L. Ross, founder of private equity fund W.L. Ross & Co., was looking for a loan for one of the companies in his portfolio. One hedge fund offered to lend money, but didn‚ÄöÃÑÃ¥t send anyone to Ross‚ÄöÃÑÃ¥s due diligence meetings. Ross called to thank the hedge fund manager for the loan, but asked why no one from the fund had attended the meetings. The response: "For a $10 million investment, it‚ÄöÃÑÃ¥s not worth sending someone."

While Ross may have appreciated the easy loan process, the scenario could soon spell trouble for the economy. Too much capital plus too little due diligence adds up to a bankruptcy boom in the making.

For more story

 

 

Dec. 16 2006

RECENT RULE AMENDMENTS PERMIT CREDIT COUNSELING CERTIFICATE TO BE FILED AFTER THE PETITION

The Judicial Council formally adopted a number of amendments to the Official Bankruptcy Rule, effective Dec. 1 of this year.

One of the changes amended Rule 1007, which formerly required the certificate of completion of credit counseling to be filed with the petition; the certificate may now be filed within 15 days of filing the petition. Specifically, former (or interim) Rule 1007(c) required the documents described at Rule 1007(b)(3), the certificate of credit counseling and the proposed payment plan, to be filed with the petition. Subsection 1007(b)(3) is deleted from the revised Rule.

See amended Rules effective Dec. 1 2006

 

 

ABA ENDORSES CALL FOR TOUGHER DISCIPLINE FOR BANKRUPTCY ATTORNEYS

Stirring up a hornet's nets at NACBA, the American Bar Association in August appears to have adopted a resolution endorsing a proposed tougher policy toward bankruptcy attorneys.

One debtors' attorney responded:

"If the ABA passed this resolution this past August, which I assume is true, then I must have been asleep at the wheel because I sure missed it. I really am a little taken back by the "emergency" nature of the alleged problems and the extent of these "special disciplinary rules" for bankruptcy attorneys. And, quite frankly, the proposed rules are directed primarily toward the debtor's bar. If the ABA and Congress really want to kill off the practice of consumer bankruptcy law, then this appears to be a pretty big second step. BARF, of course, was step number one.

O. Max Gardner III

Shelby NC

Read ABA memo and attachment

 

Nov. 22 2006

SECTION 526(a)(4) HELD UNCONSTITUTIONAL

Sec. 526(A)(4) in Violation of Free Speech

District Court Judge Dorsey, of the District Court of Connecticut, has found unconstitutional the BAPCA?s provisions prohibiting counsel from advising debtors to incur debt. Judge Dorsey found that the provision violated the First Amendment?s free speech provisions - - - ?[b]y prohibiting lawyers from advising clients to take lawful, prudent actions as well as abusive one, §526(A)(4) is overbroad and restricts attorney speech beyond what is ?narrow and necessary? to further the governmental interest.? Zelotes v. Martini, 2006 US Dist. Lexis 81385 (D.Conn. Nov. 7, 2006).

This follows two other decisions finding this provision unconstitutional on similar grounds. See Hersh v. U.S., 347 B.R. 19 (N.D. Tex. 2006), Olsen v. Gonzales, No. 05-6365-HO, 2006 U.S. Dist. Lexis 56197 (D.Or. Aug. 11, 2006). Please note that the pending motions in Connecticut Bar Ass?n v. U.S., No. 06cv729 (CFD)(D.Conn.), dealing with the same and other issues pending before District Court Judge Droney, are still pending. The CLLA has filed an amicus brief in Connecticut Bar Ass?n v. U.S. and we have reported to you previously on the status of the hearings on this case.

CLLA

_________________________

STUDY CLAIMS SOME IMPROVEMENT IN FINANCIAL MANAGEMENT KNOWLEDGE

SHOWS AVE. TIME FOR CREDIT COUNSELING EXCEEDS 2.5 HOURS

Consumers of Bankruptcy Law - First Year Impact

According to a survey released yesterday (Oct. ) by the National Foundation for Credit Counseling, the average annual unsecured debt is $11,599 greater than average annual income, among those filing bankruptcy in the year since the new law becoming effective, and mortgage delinquency is prevalent.

NFCC surveyed 107 out of 108 member agencies and examined the filing and education requirements of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, for the time period October 17, 2005, through August 31, 2006, and took a comparative look at the consumers being served by credit counseling agencies.

The survey found:

NFCC member agencies conducted 563,494 bankruptcy counseling and education sessions.

Consumer bankruptcies showed that unsecured debt-to-income ratio has deteriorated and bankruptcy was likely to be the debtor?s only option.

Mortgage delinquency was more prevalent for consumers filing for bankruptcy than for those receiving non-bankruptcy counseling.

Telephone/internet Credit counseling was the predominant choice for those services; face-to-face counseling, the most expensive, accounted for only about 15 percent of pre-filing counseling.

The number one reason consumers filed bankruptcy protection was "poor money management/excessive spending;" reduced income/unemployment was cited nearly as often.

The time necessary to complete pre-discharge education sessions averaged more than two and a half hours; 25% greater than originally anticipated.

Testing by some NFCC agencies shows that consumers improve their financial knowledge by 10-40%, at least in the short-term, as a result of counseling.

NFCC agencies waived the fee for services provided to 16% of pre-filing sessions and 13% of pre-discharge education classes.

David Goch

Washington Legislative Counsel

Commercial Law League of America

___________________________

CONTROVERSY ON IRS PRIVATE DEBT COLLECTION

Nina Olson recently stated that her 2006 Annual Taxpayer Advocate Report to Congress recommends repeal of he IRS program using private debt collectors to collect delinquent tax debt.

In addition, Olson indicated she is recommending the IRS engage in a controlled unit study comparing IRS workers and private debt collectors in efforts to make collections by telephone. Olson suggested that the IRS ask "lower-graded employees" to make the same telephone calls that private collectors are making to see if there could be full payment or payment over three years; in comparison to private collectors.

David Goch

Washington Legislative Counsel

Commercial Law League of America

________________________

 

Oct. 30 2006

BANKRUPTCY TRUSTEE REVIEWING CANDIDATE'S FAMILY LAND TRANSFER

David Hammer

Associated Press

WASHINGTON - A federal bankruptcy trustee is scrutinizing whether an eastern Ohio congressional candidate gave property to her family last year to keep it away from her creditors.

Court files show state Sen. Joy Padgett transferred her one-third share of her family farm last year, less than a month before she and her husband sought bankruptcy protection for their failing office supply company. She also lists different dates for the transfer on different official forms.

"I am looking into it within the office," John Kennedy, lawyer for U.S. Bankruptcy Trustee Frank Pees, told The Associated Press on Thursday. "We would be investigating any transfer that might have an impact on a debtor's ability to pay creditors."

For full story

 

REFORM ACT ONE YEAR LATER

What's your review of bankruptcy law on its first birthday?

BY MARTIN E. SEGAL

askdoctorlaw@MiamiHerald.com

Q: We read that the new, stricter bankruptcy law was a year old this month. When it was passed, there was much discussion back and forth. Supporters said it would curb abuses, such as canceling valid debts, and opponents said it made it too difficult to get a fresh start. How have things turned out in its first year?

-- A Boca Raton business

A: The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, commonly known as the Bankruptcy Reform Act, was signed into law in April 2005, but most of its provisions took effect six months later.

Like any new law of such importance, it was controversial and the reviews are mixed. Credit card companies and other business supporters say it has been a success because it reduced allowable debt cancellation under Chapter 7 liquidation bankruptcy and increased the number of debtors who had to repay creditors under a Chapter 13 payment plan.

Opponents argue the law fails consumers for these same reasons. A true evaluation probably lies somewhere in between.

Among the major changes in the new law are:

For full story

 

Oct. 29 2006

NATIONAL CREDITOR REGISTRATION SERVICE WEB SITE ESTABLISHED

The National Creditor Registration Service (NCRS) is a free service provided by the U.S. Bankruptcy Courts to give creditors options to specify a preferred U.S. mail, e-mail address, or fax number to which bankruptcy notices should be sent.

The Preferred Address service supports the amendment to title 11 U.S.C. § 342(f) of the bankruptcy act of 2005, along with the pending amendment to Bankruptcy Rule 2002(g)(4), both of which permit a creditor to specify a preferred mailing address to be used by all the bankruptcy courts or by particular bankruptcy courts for providing notices.

The Electronic Bankruptcy Noticing (EBN) program supports Federal Rule of Bankruptcy Procedure 9036 which allows court notices to be transmitted electronically to notice recipients, delivering them faster and more conveniently than mailed paper notices.

CLICK HERE FOR REGISTRY WEB SITE

 

Oct. 29, 2006

BANKRUPTCY IS BACK

Carol Colliersmith, Atlanta attorney and president of Atlanta Metro Consumer Bankruptcy Group, is quoted in this recent article.

Although personal bankruptcies plummeted in the year since the new federal bankruptcy law went into effect—in part because consumers who might otherwise have waited until later in the year to file felt pressured to go ahead and do it, the numbers are starting to climb again, according to a study released by the National Foundation for Credit Counseling.

Moreover, the new law triggered a surge of bankruptcy filings just ahead of its effective date. Also, the bankruptcy numbers went down, in part, because many consumers mistakenly believed the new law eliminated filing for personal bankruptcy altogether, says Colliersmith, president of the Metro Atlanta Consumer Bankruptcy Attorneys Group. That's not the case, but the law did make filing for personal bankruptcy more difficult and expensive.

For full article 

 

Oct. 20 2006

Associated Press

78 CHARGED IN BANKRUPTCY FRAUD STING

By LARA JAKES JORDAN

Nine lawyers, an ex-police officer and an electrician who bribed a former governor were among 78 people charged with bankruptcy fraud in the past two months, the Justice Department said Wednesday.

Eighteen of the arrests came this week alone, said Deputy Attorney General Paul McNulty, who outlined the nationwide crackdown on people trying to conceal more than $3 million in assets.

"In the end, we all wind up paying for fraud, in the form of higher interest rates and fees from companies that offer credit and loans," McNulty told reporters.

Bankruptcy fraud often follows false claims on mortgages, banks and the mail, McNulty said.

The arrests are on track to outpace last year's estimated total of 100 bankruptcy fraud cases, the FBI said.

FOR FULL STORY

 

Oct. 14 2006

FEDERAL TRADE COMMISSION WEB SITE HELPS YOU GET FREE CREDIT REPORT

The three nationwide consumer reporting companies have set up a central website, a toll-free telephone number, and a mailing address through which you can order your free annual report.

To order, visit annualcreditreport.com, call 1-877-322-8228, or complete the Annual Credit Report Request Form and mail it to: Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281. The form is on the back of this brochure; or you can print it from ftc.gov/credit. Do not contact the three nationwide consumer reporting companies individually. They are providing free annual credit reports only through annualcreditreport.com, 1-877-322-8228, and Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281.

You may order your reports from each of the three nationwide consumer reporting companies at the same time, or you can order your report from each of the companies one at a time. The law allows you to order one free copy of your report from each of the nationwide consumer reporting companies every 12 months.

Visit the FTC web site credit report page

 

October 14 2006

ON ANNIVERSARY OF BANKRUPTCY REFORM - TIME TO CRACK DOWN ON PREDATORY LENDERS

One Year After Bankruptcy Bill, It's Well Past Time To Crack Down On Predatory Lenders

(Our guest blogger, John Edwards, is a former North Carolina Senator and candidate for Vice President)

There are happy anniversaries and sad ones. October 17th is one of the sad ones. It's been a year since Congress put into effect a new bankruptcy law that makes it harder for people to declare bankruptcy and get a fresh start. It was easy for Congress to characterize bankrupt families as "deadbeats" and ignore the reality that more than 90 percent of all bankruptcies are due to medical emergencies, job loss, divorce or a death in the family.

This anniversary has got me thinking. Our middle class is built on shaky ground. The latest sign: a wave of new foreclosures driven by higher interest rates, lower housing prices, and predatory mortgage lending.

For full story

 

Octo. 12 2006

SUPREME COURT TO CONSIDER 9TH CIR. RULE DISALLOWING ATTORNEY FEES IN ADJUDICATION OF BANKRUPTCY ISSUES

In a chapter 11 case a creditor filed a proof of claim asserting that the debtor (PG&E) had indemnification liabilities. During the case the creditor (Travelers') incurred attorneys' fees and costs in the process of adjudicating its rights in connection with the proof of claim. The 9th Circuit affirmed the rulings of the District Court and the Bankruptcy Court fees are not allowable in the context of adjudicating federal bankruptcy-related issues. The court acknowledged that fees might be awarded where state law provides for fees to the prevailing party if the substantive issues are governed by state law. Here, the substantive issues were peculiar to bankruptcy law, and thus the Code does not provide for the award of fees.

On Oct. 6 the U.S. Supreme Court granted certiorari.

Travelers Casualty and Surety Co. v. Pacific Gas and Electric, No. 05-1429 (below ruling 167 Fed.Appx. 593 (9th Cir. 2006)

 

Oct. 10 2006

BANKRUPTCY JUDGE DENOUNCES U.S. POLICY ON THE DETENTION OF "ENEMY COMBATANTS" AS "THE TACTICS OF THE OLD SOVIET UNION."

By LAURA MCGANN Dow Jones Newswires

© 2006 The Associated Press

WASHINGTON — A judge who usually constrains his opinions to the technicalities of bankruptcy law broke from habit last week and denounced U.S. policy on the detention of "enemy combatants" as "the tactics of the old Soviet Union."

The judge took issue with an Administration spokesman who argued that such prisoners are ineligible for the protections of the Geneva Conventions.

"The very idea of holding anyone without trial, without the right to see the evidence that was used to justify naming them an enemy combatant, and depriving them of the ability to challenge why they're even there, is so repugnant to a constitutional democracy that I'm shocked this man actually claims to be defending American values," Clark said in the e-mail. "These are the tactics of the old Soviet Union, not of a country that stands for freedom and the rule of law."

For full article

 

Oct. 9 2006

REVISED OFFICIAL FORMS TAKE EFFECT OCTOBER 1

The Judicial Conference has approved some modified bankruptcy forms which become effective today (Oct. 1 2006). For information about the new forms visit -

REVISED FORMS

 

October 4 2006

NACBA SURVEY RESULTS

NACBA SURVEY OF BANKRUPTCY LAWYERS SHOWS HUGE INCREASE IN WORKLOAD FOR LAWYERS AND COSTS FOR DEBTORS TO FILE BANKRUPTCY

Only a small increase in number of debtors filing chapter 13 rather than chapter 7

The National Association of Consumer Bankruptcy Attorneys ("NACBA") has published its results of a survey of some 700 members and found that for all the smoke and noise the Reform Act does not appear to have substantially accomplished its goal of forcing more debtors into chapter 13; while 34.4 % of lawyers report more debtors filing chapter 13 than under pre-reform law,, 53.4% report the respective filings are about the same as before the Reform Act kicked in, and 10.8% report an actual decrease in the proportion filing chapter 13.

And, in what may a litmus test for the economy as a whole, the responding lawyers identified problems with the mortgage as the thing forcing them into bankruptcy.

For full report of results:

 

October 2 2006

BILL WOULD SHIELD TITHING FROM BANKRUPTCY

By Robert Gehrke

The Salt Lake Tribune

The Senate passes the bill, co-sponsored by Sen. Hatch unanimously; to become law it must still pass the House and get Bush's signature.

 

WASHINGTON - The Senate unanimously approved legislation early Saturday that would allow individuals who have filed for bankruptcy to continue paying religious tithing and some other charitable contri- butions.

Co-sponsored by Utah Sen. Orrin Hatch, the bill was in response to a New York bankruptcy judge's ruling in August that tithes to a church were not allowed for an upper income couple filing for bankruptcy until they had repaid all of their other creditors, which was expected to take five years.

Until then, the additional money would be paid to the couple's creditors.

"As a rule, I do not like impromptu legislative responses to judicial decisions," Hatch said in a statement. "But the religious practices and beliefs of individuals should not be subject to the whims of judicial interpretation. This bill ensures those who tithe can continue to live their faith while in bankruptcy."

The bill, passed by the Senate working through Friday night into the early hours of Saturday, was co-sponsored by Sen. Barack Obama, D-Ill., and seeks to clarify that Congress did not mean to prohibit tithes or charitable contributions when it passed bankruptcy-reform legislation last year.

For full story

_______________________

[Following item reported to us by Jonathan C. Becker, Attorney at Law, Lawrence, KS]

HEADS UP!

U.S. TRUSTEE AUDITS ARE COMING IN OCTOBER

The audits are coming! The audits are coming from the redwood forest to New York island!

Effective 10/17/2006, pursuant to BAPCPA § 603, at least one out of every 250 cases will be audited. The audit notification letter will come out of the UST office. In jurisdictions with electronic filing, you can expect some kind of virtual record in the bankrutpcy file that will tell you the letter is coming.

You will have 21 days to produce the four categories of documents: (1) the six months of income (no problem because you have that from your calculation of CMI), (2) bank statements (reports are saying either 6 months or 12 months; don't know if you have to produce checks and deposit slips), (3) divorce decree, and (4) a packet of documents like 2-4 years of tax returns, titles to cars and deeds. As soon as we have the form letter we will post it. We recommended that it be posted on the UST web site.

Once these docs are submitted, the audit will be done by one of two auditing firms. The completion of the audit will result in another virtual docket entry. Either (1) audit completed, no discrepancy; (2) audit completed, discrepancy; or (3) audit incompleted. If (1), then UST cannot do anything about discharge. If (2) or (3), UST can file a motion to deny discharge.

This audit procedure will be national and arose out of the 'sense of the Congress' direction to the UST. Historically, it was supposed to start 6 months ago, but UST Region 20 Trustee, Mary May, the chair of the UST committee spearheading the development of the audit program died from chonic leukemia/cancer last March, so the program got delayed 6 months.

[says Mr. Becker" "A lot of attorneys are going to get caught by this. It may also result in disgorgement motions."]

Sept. 29 2006

SURVEY RESULTS: EFFECT OF BAPCPA ON CHAPTER 13 FEES:

The Bankruptcy Letter's survey of consumer bankruptcy attorneys and their views on how the Reform Act of 2005 is affecting fee practice and fee rates in chapter 13 cases is summarized ...

CLICK HERE FOR SUMMARY OF RESULTS

__________________________

Sept. 29, 2006

COURT ELIMINATES "NO LOOK" RETAINER FEE IN CHAPTER 13: DEBTOR'S ATTORNEY FREE TO CHARGE MARKET RATE

On September 26, 2006 the United States Bankruptcy Court for the Northern District of Georgia entered General Order No. 6-2006 regarding the compensation of attorneys in Chapter 13 Cases. The Order recognized that, under the changes brought about by BAPCPA, issues presented in Chapter 13 cases vary and debtor's counsel is in the best position to evaluate each case and to determine the legal services required and the fees that are appropriate for the performance of those services.‚Äö"While not intending to establish a particular fee or method of payment, attorney compensation will not be determined by the "no-look fee‚Äö" as was the previous practice.

The Order requires full disclosure of the fee arraignment in the Plan and Rule 2016 disclosure statement which will allow all interested parties the opportunity to review and respond to the arrangement prior to confirmation of the plan. Possible fee arraignments could involve a "flat fee" for all services a case may require or a set fee schedule tied to specific tasks, which could result in post-confirmation fee applications. Regardless of the method of payment the attorney would continue to be required to represent the debtor in all matters related to the case unless permitted to withdraw by order of the Court.

Prior to General Order No. 6-2006 the "no-look" fee was $2500.

This item comes to us from Georgia consumer bankruptcy attorneys Carol and Rob Colliersmith. Carol is president of the Metro Atlanta Consumer BK Attys Group and Rob is on the fees committee working w/ the judges who serve on a fee committee for that district.

For full text of order

 

Sept. 24 2006

IRS ISSUES NEW TAX GUIDANCE FOR BANKRUPTCY CASES

Earlier this week the IRS gave tax guidance to bankruptcy filers, their employers, who report payments to these taxpayers, and trustees in bankruptcy cases by issuing In Notice 2006-83, to be published in Internal Revenue Bulletin 2006-40 dated October 2nd.

The IRS notice states that an individual?s bankruptcy estate is considered a separate taxable entity under tax code Section 1398. This means the estate, rather than the debtor, must include in its gross income all of the debtor?s income to which the estate is entitled. Further, the IRS said that income includes the debtor?s gross income from the time the claim is filed, along with any property acquired since the start of bankruptcy proceedings. Income of both employees and self-employed individuals must be included. However, for Chapter 11 cases filed on or after Oct. 17, 2005, when the majority of the bankruptcy law changes became effective, the estate?s gross income also includes gross income from property held by the debtor when the case commenced. This income can be excluded if it is subject to tax or if it is removed from the estate by exemption or abandonment.

Attached is a copy of the notice.

David Goch

Washington Legislative Counsel

Commercial Law League of America

Sept. 23 2006

CREDIT BUREAUS TRYING TO HIJACK CREDIT REPAIR?

The so-called Big 3 credit bureaus are making an end-game play in an effort to immunize themselves from the Credit Repair Organizations Act of 1996. CROA was passed to protect consumers from credit repair doctors, who make false promises that they can fix your credit. As a deterrent, the law prevents companies from collecting fees in advance, before services are performed.

But what if the credit bureaus themselves sell products that falsely claim they can fix your credit? What if the credit bureaus themselves collect money in advance for that service?

For full article

THIS WEB SITE CREATES DIGEST OF PUBLISHED BAPCPA CASES

NEARLY 200 REPORTED CASES

OPINIONS ORGANIZED BY CODE SECTION

As the trickle of published opinions interpreting BAPCPA (Bankruptcy Abuse Prevention & Consumer Protection Act of 2005) starts to become a torrent you'll need a way to get a quick fix on the weight of authority developing for a particular BAPCPA code amendment or key topic.

BankruptcyMedia is developing a compendium of all published opinions mentioning BAPCPA. It also includes a list of scholarly articles on the Reform Act.

Most of the cases appearing on this site have the case cite plus a brief annotation as to the issue and the ruling.

Visit this valuable resource to look up authority. It's free for now. However, it may become necessary to charge a subscription fee in the future to maintain the service. So, take advantage of it while you can.

CLICK HERE TO GO TO KING'S DIGEST OF BAPCPA LAW

 

SENATE BILL TO STOP IRS FROM TURNING TAX COLLECTION OVER TO PRIVATE ENTITIES

Senate Bill Would Bar IRS From Utilizing Private Agencies to Collect Tax Delinquencies

On September 7th, the IRS turned over 12,500 of a projected 2.5 million delinquent debt cases to three of an ultimate 10 private collection companies, despite a House vote to bar such action contained in the fiscal year 2007 Transportation, Treasury, and Housing and Urban Development Appropriations bill (H.R. 5576) that would bar funding for the program for fiscal year 2007, which begins October 1st. Last week, Sen. Dorgan (D-N.D.) and eight Democratic co-sponsors, including Senate Finance Committee member Kerry (D-Mass.), introduced S. 3887, that permanently bars the IRS from outsourcing tax collection.

On September 19th, 8 public interest groups joined the National Treasury Employees Union in calling on the Senate to approve S. 3887. The letter, sent to all senators, was signed by: the Consumer Federation of America, the National Association for the Advancement of Colored People, and the National Active and Retired Federal Employees Association, among others, the groups cited abusive practices by the collection industry (citing FTC reports that the private debt collection industry is the most complained about of any), and called into question security protections put in place by IRS to protect taxpayer privacy. The letter also expressed "strong doubts" about the fiscal soundness of allowing private companies to keep 21 percent to 24 percent of what they collect, and noted that a failed private collection program IRS sponsored in 1996 and 1997 ended up costing the government $17 million. In a related story, Rep. Olver (D-Mass.), ranking member of the House Appropriations Transportation, Treasury Appropriations Subcommittee, recently added his voice to have the IRS abandon its plan.

David Goch

Washington Legislative Counsel

Commercial Law League of America

September 12 2006

ARE CHAPTER 13 TRUSTEES DEBT RELIEF AGENCIES?

We reprint verbatim the following interesting piece from Milton Jone's bankruptcy blog:

Try this idea on for size - if you accept the stretch that debtors' attorneys are DRA's (Debt Relief Agencies), then it is ineluctable that Ch13 Trustees will be caught in the same stretch. Put away your assumptions and take a look at the Law – Section 101 (12A)(C) provides that a "debt relief agency" means any person who provides assistance to any person for the payment of money or other valuable consideration. Remember that 11U.S.C 1302(b)(4) requires the Chapter 13 Trustee to advise debtors in non-legal matters and assist debtors in completion of the Plan. In return the Chapter 13 Trustee shears off a percentage of funds disbursed from the debtor's contribution to the Plan. Look at the plain meaning of the statute and Chapter 13 Trustees as well as debtors' attorneys are DRA's.

Bankruptcy expert Henry Sommer comments, "If attorneys are DRA's, then they (Chapter 13 Trustees) are too."

And for those who "feel it in their bones" that Congress never wanted to make Chapter 13 Trustees DRA's, I give them the language from the Supreme Court in the Lockhart case (December 2005): We disagree."The fact that Congress may not have foreseen all of the consequences of a statutory enactment is not a sufficient reason for refusing to give effect to its plain meaning." Union Bank v. Wolas, 502 U. S. 151, 158 (1991). At page 4 of the Opinion.

Do ya think our U.S. Trustee will entertain this idea? Nah, they will all get Zen-like and say, "Grasshopper, Plain Meaning is just that, unless it is not." But, it's not a deeper meaning – just a double standard.

Visit Jones' bankruptcy blog

BANKRUPTCY FILINGS ON RISE IN SPITE OF NEW RESTRICTIONS

Business First of Buffalo

by Jodi Sokolowski Jack

Even though bankruptcy filings dropped off significantly after the new Bankruptcy Act passed last year, local and national statistics show filings may start to rise again.

For the Buffalo area the figures show a 3.34 percent decrease in filings for the 12-month period ending June 30, 2006 compared to 2005. But statistics also reveal a 68.8 percent increase in filings during the second quarter of 2006 compared to the first quarter of the year.

Nationally, there was a 9.5 percent decrease in filings for the 12-month period ending June 30, 2006 from 1,453,008 in 2006 from 1,604,848 filings in 2005. However, the second quarter of 2006 shows a a 53.5 percent increase in filings, from 55,671 in the first quarter to 85,449 in the second quarter.

For full story -

 

September 7 2006

COURT: CREDIT CARD COMPANIES PUT AHEAD OF CHURCH TITHING BY CONTROVERSIAL 2005 BANKRUPTCY REFORM LAW

FOR IMMEDIATE RELEASE: NACBA STATEMENT

CONTACT: Patrick Mitchell, (703) 276-3266 or pmitchell@hastingsgroup.com.

WASHINGTON, D.C.//September 7, 2006

Thou shalt have no gods before me ... except for MasterCard, Visa and American Express.

That's the way the United States Bankruptcy Court for the Northern District of New York is reluctantly interpreting the controversial U.S. bankruptcy reform law that went into effect last October. The court says those going through bankruptcy may not tithe to their church or make other charitable donations & until after they have paid off credit card companies and other creditors. Before the new law went into effect, bankruptcy court judges were required to permit debtors to tithe a portion of their income on a regular basis.

The 2005 law could have a major impact on the large number of Christians and members of other faiths that are called upon to tithe a portion of their income on a regular basis. More than two million Americans filed for bankruptcy protection in 2005, and hundreds of thousands will do so during 2006.

Henry Sommer, president of the National Association of Consumer Bankruptcy Attorneys (NACBA), said: For religious Americans who find themselves deeply in debt due to job loss, catastrophic medical expenses or other circumstances, the 2005 reform legislation didnt just reword the federal bankruptcy code, it also effectively rewrote Exodus and Deuteronomy. Many who practice their faith and believe that they are bound by creed to tithe a portion of their income will find that Congress effectively decided that what credit cards want is more important than the deeply personal religious practices of Americans.

Sommer added:  Our nations founding fathers who envisioned a separation of church and state never imagined that this division would be used to engorge the profits of moneylenders at the expense of churches.

In the case, the debtors, Frank and Patricia Diagostino, filed chapter 13 bankruptcy on March 1, 2006.   In the paperwork required under the means test, the debtors listed a monthly expense of $100 for continued charitable contributions.  This expense would reduce the disposable income available to pay unsecured creditors from $80,351.25 to $74,351.25 (at the rate of $100 per month for five years).  

The trustee in the Diagostinos case objected to the expense.  The 2005 bankruptcy reform law enumerates several reasonably necessary expenses that are allowed, such as health insurance and disability insurance, but does not mention charitable contributions as such.  According to the IRS guidelines which dictate permissible expenses in bankruptcy, charitable contributions may be included under the category of other expenses only in very limited circumstances, such as being a minister with an employment contract requiring tithing.

In his August 28, 2006 opinion (In re: Diagostino and Diagostino, Case No. 06-10384), U.S. Bankruptcy Judge Robert E. Littlefield, Jr. ruled:  This change [under the 2005 law] effectively closes the door for debtors who are above the median income from deducting charitable contributions as an expense unless they can establish the contributions fall under the IRS guidelines. The court does not agree with this awkward, bifurcated Congressional framework which makes charitable giving easier for some debtors and not others.  Whether tithing is or is not reasonable for a debtor in bankruptcy is for Washington to decide.  However, consistency and logic would demand the same treatment of all debtors & Until Congress amends [the 2005 Act], the courts hands are tied and the tithing principles that this court once applied pre BAPCPA (the Bankruptcy Abuse Prevention and Consumer Protection Act  of 2005) have been effectively mooted.

SOURCE: Maureen Thompson, legislative analyst for National Association of Consumer Bankruptcy Attorneys

September 1 2006

THIS WEB SITE LAUNCHES BLOG

A new feature added this week to BankruptcyMedia.com is our Bankruptcy Media Interactive Blog for consumer bankruptcy professionals.

This blog is interactive in that readers may add their own comments. Comments may be added anonymously or author's name.

Comments by non-professionals will be deleted.

Give it a try -

The Bankruptcy Media Interactive Blog

 

Sept. 2 2006

COURT INTERPRETS 'ORDINARY COURSE' UNDER THE NEW BANKRUPTCY LAW

Myron A. Bloom

The Legal Intelligencer

September 5, 2006

Some of the most oft-discussed changes made by Congress in the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act are the seemingly small, but significant, changes made to §547(c)(2), often referred to as the "ordinary course of business" defense to the general provisions covering the avoidability of preferential transfers. Until now, most of the discussion concerning the changes made to this subsection have been academic; now we have a case opining on the changes.

In Hutson v. Branch Bank & Trust Co. (In re National Gas Distributors LLC), the Chapter 11 trustee sought to avoid transfers aggregating approximately $3.3 million made by the debtor to its bank in the 90-day period immediately preceding the filing of National's bankruptcy case. The bank defended on the basis that the payments were subject to the "ordinary course of business" defense.

More specifically, the bank contended that the payments were made "according to ordinary business terms" and could thus not be avoided by the trustee. In support, it referred to new §547(c)(2)(B), which now provides a defense so long as payments are made according to business terms, regardless of the prior dealings between the parties.

For full story

 

August 31 2006

NIFTY NEW WEB SITE

Found this link on the NACBA listserve. Great resource for finding other state exemptions fast. Also contains cases on exemptions by state.

AssetProtectionBook.com

Aug. 30 2006

IRS SAYS NEW BANKRUPTCY LAW CHANGES DEBTORS' RESPONSIBILITIES REGARDING TAXES

[ed.note: this article was issued Nov. of 2005]

FS-2005-18, November 2005

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) amends the U.S. Bankruptcy Code by adding new responsibilities for debtors.

In general, the new law requires that debtors comply with their tax-filing responsibilities, make available previously-filed tax returns, in many cases, and seek credit counseling services. Most BAPCPA provisions apply to cases filed on or after Oct. 17, 2005.

Tax Returns Must be Filed

Under the new law, if debtors fail to file a return that becomes due after the date of their bankruptcy petition, or fail to file an extension, the IRS may request the Court to order a conversion (change from Chapter 7 to Chapter 11 or from Chapter 11 to Chapter 13, for example) or dismissal of the case. Conversion or dismissal may also be ordered if a Chapter 11 debtor fails to timely pay tax obligations owed after the date of the bankruptcy petition.

For full article

 

Aug. 29 2006

CENSUS BUREAU ISSUES UPDATED MEDIAN INCOME FIGURES

Income - Median Family Income in the Past 12 Months by Family Size

Median Family Income in the Past 12 Months (in 2005 inflation-adjusted dollars) by Family Size - Universe:  FAMILIES

Data Set: 2005 American Community Survey

NOTE. Data are limited to the household population and exclude the population living in institutions, college dormitories, and other group quarters.

For full report

Aug. 28 2006

TRUSTEES CHALLENGE BANKRUPTCY FILING

By Jim McElhatton

THE WASHINGTON TIMES

The president of a Potomac company that arranges trade missions to South Africa failed to disclose several key assets in an ongoing bankruptcy case, according to recent filings by the Executive Office for U.S. Trustees.

The office, the arm of the Justice Department that oversees the bankruptcy courts, said Nomvimbi Meriwether stated that her company's stock was worth $1,000 and that the company, Meticulous Tours Inc., has never turned a profit since its start in 2001.

However, U.S. Trustee W. Clarkson McDow Jr. said in the papers filed July 28 in U.S. Bankruptcy Court in Greenbelt that the company has been profitable. He also said that Meticulous began in the mid-1990s and that Mrs. Meriwether has failed to disclose nearly $100,000 in assets.

Mrs. Meriwether said last week that she was hiring an attorney and could not discuss details of the case.

She called the accusations "completely unfounded," adding: "I will dispute this. It is inaccurate. I won't have a problem disputing it."

For full story

 

August 27 2006

BANKRUPTCY FILING LULL MAY END BY END OF YEAR

By Liz Pulliam Weston

The lull in bankruptcy filings may already be a thing of the past.Consumer bankruptcy cases plunged to a 20-year low in the first three months of 2006, reflecting the passage of a tough new bankruptcy law last year. But the pace of new filings is already on the rise.

Courts now see an average of 2,000 new filings a day -- four times the number that were filed in November 2005 after the bankruptcy law went into effect, according to Chris Lundquist, founder of Lundquist Consulting, which tracks bankruptcy trends.

If filings continue to rise at anything like this rate -- which is not a given, but certainly a possibility -- we could see close to 1 million filings by the end of the year.

For full article

[ed. note: our thanks to bankruptcy attorney Kathleen Donnelly for drawing our attention to this article]

August 26 2006

A YEAR AFTER NEW LAW BANKRUPTCIES CREEP UP

Bill Lascher

Staff Writer, Legal Affairs

Pacific Coast Business Times

Three quarters of a year after re-written bankruptcy laws dramatically slashed filings, new cases are beginning to creep back up.

As of June, bankruptcy filings in the U.S. Bankruptcy Court for the Central District of California have dropped 77.9 percent from 2005 to 2006. But filings have steadily risen since the Bankruptcy Reform Act took effect Oct. 17, 2005. In September and October of the same year, the court recorded 10,353 and 28,699 new filings as filers raced to open their cases before the news took effect. Immediately thereafter, November 2005 filings dropped to 335 new or reopened cases. Since then they have gradually climbed back, with 1,521 filings in June, although that figure is down 71.1 percent from 2005.

Bankruptcy lawyers appear to agree that the surge in cases was due largely to misconceptions about the extent of the new laws, which placed a heavy burden on individual debtors to prove that they did not have the means to avoid bankruptcy and also raised costs for attorneys bringing bankruptcy litigation.

For full story

 

Aug. 25 2006

IRS TO LAUNCH PRIVATE TAX DEBT COLLECTION TO COMMENCE SEPT. 7

The IRS said it expects some 40,000 cases to be assigned to private collection agencies by the year's end. The contract is to retrieve an estimated $1.4 billion in overdue taxes over the next 10 years. The plan is a Bush administration priority to reduce the nearly $300 billion tax gap, a measure of uncollected taxes.

Three private firms won the contract: CBE Group Inc. of Waterloo, Iowa.; Linebarger Goggan Blair & Sampson, LLP of Austin, Texas; and Pioneer Credit Recovery, Inc. of Arcade, N.Y., a unit of SLM Corp. (SLM), or Sallie Mae.

Critics such as Rep. Steven Rothman, D-N.J., contend the IRS can do the job cheaper by hiring more revenue agents. Federal employees can collect the taxes for about 3% of the amount due, Rothman said. The private firms will be paid as much as 24 cents for every dollar collected.

For full story

Related story -

IRS Outlines Taxpayer Protections in Private Debt Collection Program

WASHINGTON – The Internal Revenue Service released legal guidance today outlining the protections in place for the new private debt collection program. The guidance, contained in Announcement 2006-63, describes the limited role private collection agencies (PCAs) may play in collecting back taxes and the legal restrictions and procedures in place to safeguard taxpayer privacy and taxpayer rights.

The IRS will assign delinquent federal tax accounts to three PCAs beginning Sept. 7. An initial 12,500 taxpayers who owe back taxes will be in this group, with the number reaching approximately 40,000 by year's end.

"We're going to implement this program very carefully so we have a good program on sound footing," IRS Commissioner Mark W. Everson said. "We are working hard to protect taxpayer privacy and taxpayer rights."

For full story

 

MIDDLE CLASS INCOME FALLS AS LIVING COSTS RISE

By Carolyn B. Maloney

COMMENTARY

Contra Costa Times

Administration aides couldn't quite figure out why they weren't getting any traction with voters on the economy. The answer is simple: For five straight years, from 2001 through 2005, the real income of the typical working-age household fell by $3,000.

Meanwhile, the costs of energy, health care and a college education have skyrocketed. So, Americans can't buy as much as they could before, even if they are lucky enough to be getting paid a little bit more.

The president says his policies are working to make the economy strong and that all Americans are benefiting, but the facts say otherwise.

For full story: http://www.contracostatimes.com/mld/cctimes/news/opinion/16052101.htm

 

Nov. 3 2006

U.S. TRUSTEE "AUDIT" INFORMATION POSTED

The office of the U.S. Trustee has posted on its administrating web site information about the program for auditing consumer bankruptcy cases that commenced in October. Counsel are advised to be aware of this material, since it is virtually inevitable that, sooner or later, one or more of your cases will be audited. The audit process will include the debtor's providing certain documentation to the auditor. For your convenience the links to the information on the Trustee's web site is included below.

Press release announcing audits of cases prescribed by BAPCPA

Audit procedures

Audit standards

Document request

Notice of audit

 

Nov. 14 2006

PROMINENT BANKRUPTCY ATTORNEY MAX CLINE QUOTED IN ARTICLE ON EFFECT OF THE BANKRUPTCY REFORM ACT

One year after the Bankruptcy Abuse Prevention and Consumer Protection Act was instated, the number of people filing for Chapter 13 bankruptcy has fallen, but there's little evidence that they can better manage their money or deal with a financial crisis, according to the National Foundation of Credit Counseling.

The main reasons for debtor misery are "low savings rates, catastrophic illnesses, loan borrowings and real estate foreclosures," according to Shirley Dean, spokeswoman for Consumer Credit Counseling Services of the East Bay, a division of Money Management International.

"People are being pulled into the real estate market, but they can't handle the ready credit, the interest-only loans and variable rates," Dean said.

Max Cline, an Oakland, California attorney who specializes in bankruptcies, believes the law was directed at the wrong people.

"The new bill was pushed by credit card companies on the theory that bankruptcy was caused by abusers," he said. "But almost all the filers have passed a means test because they are really broke. The typical client doesn't own a house. He has a car on which he owes more than it is worth. He has household goods and apparel and $200 in the bank."

MasterCard Inc. responded that it hopes improvements in the personal bankruptcy law "will reduce irresponsible behavior and abuse of the bankruptcy system while providing protection to those who need it."

One of Cline's clients who requested anonymity is a Brentwood woman who raised two children to adulthood working as a legal secretary. In the past three or four years, she has been laid off a couple of times and has struggled each time to find new employment.

For full article

 

Aug. 25 2006

By Karen E. Klein

HOW TO FIGHT BANKRUPTCY SCAMS

Yikes, a customer who owes you is conspiring to protect his assets. Here's how to do battle—and decide whether it's worth your trouble

My company has a major customer who has always been slow to pay his bills. Now I'm hearing a rumor that this person is planning to transfer his assets to his wife and declare bankruptcy in order to avoid paying his debtors, including my firm. Do I have any recourse?

Unfortunately, this kind of scam occurs all too often, and small businesses sometimes end up victimized as a result, experts say. Even when an outfit declares bankruptcy legitimately, smaller companies like yours are typically listed as unsecured creditors and get low priority when it comes to payment of the debt.

For full article

 

Aug. 20 2006

NEW WEB SITE LAUNCHED DEVOTED TO USING TECHNOLOGY IN BANKRUPTCY PRACTICE

Attorney Jay Fleischman

We're all about helping consumer bankruptcy lawyers find the best way to manage and market their practices. Created by New York consumer and bankruptcy lawyer Jay S. Fleischman, we scour the world - online and off-line - to provide you with the most up-to-date tips, tricks and hacks to make your office more profitable and efficient.

Welcome To Bankruptcy Practice Pro

I started with an idea - to help consumer bankruptcy lawyers in their quest to increase profitability and efficiency without sacrificing qualify client care. A teleseminar was held with Jay Jump, interest rose, and now the project has taken on a life of its own.

This site will help you, the practitioner, gain the insights and competitive advantages you need to make your business grow by leaps and bounds. Technology, marketing, office management and more will be covered here. I'll scour the Internet and off-line world to make sure you get the most current information about how you can get it all done.

For now, I offer you at absolutely no cost an mp3 of the teleseminar that kicked it all off. Just download it here, and enjoy.

 

August 10 2006

FEDERAL RULES COMMITTEE PROPOSES MANY CHANGES TO RULES AND FORMS

The administrative office of the U.S. Courts announced numerous changes in bankruptcy rules of procedure and use of the official forms.

Watch this space for a summary of the changes.

For full details

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JULY 22 2006

CONTROVERSY GROWS OVER 4TH INCREASE IN FILING FEES IN YEAR - NACBA JOINS FIGHT IN OPPOSITION

NACBA JOINS CFA IN OPPOSING 4TH BANKRUPTCY FILING FEE HIKE IN LESS THAN A YEAR

New Jump in Fees Now Before Congress Would Mean a Doubling in Filing Costs in Under 12 Months; Congress Urged to Reallocate Existing Funds to Get Additional Money to Trustees.

WASHINGTON, D.C. July 13, 2006. As it joined the Consumer Federation of America (CFA) in opposing a Capitol Hill proposal for the fourth increase in bankruptcy filing fees in under a year, the National Association of Consumer Bankruptcy Attorneys (NACBA) announced today that it is encouraging all 3,300 of its attorney members to offer free consultation sessions with consumers in order to ensure that bankruptcy remains available and affordable to those in need.

NACBA leaders are taking this voluntary step as part of their response to a measure now being considered by Congress that would result in a cumulative 110 percent increase in bankruptcy filing costs beginning with the date the controversial federal bankruptcy reform law went into effect on October 17, 2005.

Congress is now considering a measure to raise the filing fee for chapter 7 bankruptcy filings by another $40, with the proposed fee increase coming on top of three previous fee increases that already had escalated bankruptcy filing costs by 90 percent. The earlier increases included a hike in the basic filing fee and costs associated with the Congressionally-mandated credit counseling and debtor education requirements imposed on all bankruptcy filers, regardless of the circumstances forcing them into bankruptcy. The purpose of the proposed $40 increase is to raise the compensation level for chapter 7 trustees.

Even before this fourth increase was proposed, the federally mandated cost of bankruptcy filing already had jumped a whopping 90 percent from $209 to $399 since April 2005. Congress increased the cost of filing under the new bankruptcy law passed in April 2005, then further increased the fees in May 2005 under an emergency spending bill, and then did so for a third time in February 2006 in the Budget Deficit Reduction Act (even while reducing taxes on wealthy Americans). The proposed fourth increase in fees would boost the federally required filing costs to $439, a jump of 110 percent from the initial level of $209.

Read full story

July 20 2006

H.R. 5757 Introduced in House

On July 11th, Rep. Brown (D-OH) and Rep. Schiff (D-CA) introduced H.R. 5757 to amend title 11 of the U.S. Code with respect to converting chapter 7 cases of certain debtors who are victims of identity theft. The bill was referred to the Judiciary Committee.

David Goch

Washington Legislative Counsel

Commercial Law League of America

July 16 2006

CREDIT CARD DEBT INCREASING FOR MIDDLE CLASS

The credit card come-ons arrive in bulk at the Camden County mail processing plant. The envelopes, crammed into plastic and cardboard trays, stack 6 feet high on pallets carried by forklifts. Postal workers deliver the credit-card applications across southern New Jersey. Often the shipments arrive twice in a day.

"The banks and companies send them out thousands at a time," said Michael Behringer, a Post Office spokesman.

Nationwide, 5 billion applications went out last year. Many households receive several per week, along with mortgage refinancing and other credit offers. The mailings are so pervasive, even the son of an aide to U.S. Sen. Robert Menendez, D-N.J., received a credit-card offer. The child is 2.

For more story

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FEES SURVEY

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July 13 2006

CONTROVERSY GROWS OVER NEW IRS REQUIREMENT TO PAY 20% OF OFFER WHEN SUBMITTING OFFER-IN-COMPROMISE

WASHINGTON - Under a new federal law, taxpayers submitting new offers in compromise must make a 20 percent nonrefundable, up-front payment in many cases, the Internal Revenue Service announced today.

The recently-enacted Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA) made major changes to the offer in compromise (OIC) program, tightening the rules for lump-sum offers and periodic-payment offers. These changes become effective for all offers received by the IRS starting July 16, 2006.

Under the new law, taxpayers submitting requests for lump-sum OICs must include a payment equal to 20 percent of the offer amount. The payment is nonrefundable, that is, it will not be returned if the OIC request is later rejected. A lump-sum OIC means any offer of payments made in five or fewer installments. 

Taxpayers submitting requests for periodic-payment OICs must include the first proposed installment payment with their application. A periodic payment OIC is any offer of payments made in six or more installments. The taxpayer is required to pay additional installments while the offer is being evaluated by the IRS. All installment payments are nonrefundable.  

HOWEVER, the requirement of paying 20% of the offer, non-refundable, is being opposed by the National Taxpayer Advocate's office.

National Taxpayer Advocate Nina E. Olson today delivered a report to Congress. Among other things, she stated that in the Advocate's view, "will reduce the number of viable offers the IRS receives, increase the number of accounts not resolved, and reduce the amount of revenue collected." 

Her office is working with the IRS and the Treasury Department to implement the requirement, and she intends to make a legislative recommendation to repeal the requirement in her year-end report to Congress.

The complete report to Congress may be found by CLICKING HERE.

The Taxpayer Advocate Service is an IRS program that provides an independent system to assure that tax problems, which have not been resolved through normal channels, are promptly and fairly handled. The National Taxpayer Advocate, Nina Olson, heads the program. Each state and campus has at least one local Taxpayer Advocate, who is independent of the local IRS office and reports directly to the National Taxpayer Advocate. The goals of the Taxpayer Advocate Service are to protect individual and business taxpayer rights and to reduce taxpayer burden. The Taxpayer Advocate independently represents taxpayer's interests and concerns within the IRS.

Full text of IRS story on OIC amendments

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July 11 2006

CLLA FILES AMICUS BRIEF CHALLENGING THE DEBT RELIEF AGENCY PROVISIONS OF THE BAPCPA

On June 9, 2006, the Commercial Law League of America (the "CLLA") filed a brief as amicus curiae (someone who is not a party to the case) in support of the plaintiffs in the case of the Connecticut Bar Association, National Association of Consumer Bankruptcy Attorneys, Charles A. Maglieri, Eugene S. Melchion, Wayne A. Silver, Ira B. Charmoy, Gerald A. Roisman, Brown & Welsh, P.C., and Anita Johnson v. United States of America, Alberto Gonzales (in his official capacity as Attorney General for the United States of America), and Diana G. Adams (in her official capacity as Acting United States Trustee). The action seeks an injunction against the enforcement of sections 526, 527 and 528 of the Bankruptcy Code as amended by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 because the provisions as interpreted by the United States are unconstitutional. The challenged provisions concern debt relief agencies and advice and notices that must be given by debt relief agencies. The case is pending in the United States District Court for the District of Connecticut at Civil Action No. 3:06-cv-00729-CFD.

The CLLA's brief supports the plaintiffs request for relief enjoining enforcement of the provisions of sections 526, 527 and 528 of the Bankruptcy Code. The CLLA's particular interest is whether the provisions of Bankruptcy Code sections 526, 527 and 528, apply to creditors' attorneys.

For full story

________________________

July 11 2006

LAWYERS' INVITED TO PARTICIPATE

HARVARD STUDY ON FORECLOSURE AND BANKRUPTCY NEEDS YOUR HELP

Purpose of this study

You are being invited to be a part of a study about home loans. This study is intended to provide factual information to assist law-makers in understanding whether mortgage companies ask people in bankruptcy to pay more than the company is owed or may collect by law.

Who is conducting this study

Two professors are conducting this study. Katherine Porter is a law professor at the University of Iowa College of Law. Tara Twomey is a clinical instructor at the Harvard Law School. This study is funded only by non-profit institutions. No other organization has an interest in this study.

What you will do in this study

Participating in this study involves two things, survey to be filled out by clients, and information from the attorney about foreclosure cases.

If you have questions about this study, contact Professor Katherine Porter, Iowa College of Law at (319) 335-9034 or Tara Twomey, Hale and Dorr Legal Services Center at (617) 721-5765. If you have questions regarding your rights in this study, contact the Harvard Use of Human Subjects in Research Office at (617) 495-5459.

________________________

BEARD AUDIO CONFERENCES

Homestead Exemptions under BAPCPA

Audio Conference - August 3, 2006

Contact: 240-629-3300; http://www.beardaudioconferences.com 

______________________

REFORM ACT PUTS SQUEEZE ON MIDDLE CLASS

JEFFREY L. WAGONER

Jeffrey L. Wagoner is president of Wagoner Bankruptcy Group in Kansas City. He lives in Overland Park.

For some, bankruptcy is best solution to problems

AS I SEE IT

People are still going to get sick, lose a job, suffer a failed small-business enterprise, go through a divorce. Those are the reasons why despite all the hoopla over the bankruptcy reform law, bankruptcy will always and must remain a safety net that is available to all Americans.

After several months of the dust settling, I reassert that bankruptcy remains the best chance for ordinary Americans to obtain that fresh financial start.

I wrote in this column three years ago about how bankruptcy filings had steadily increased over the years and how women filers had eclipsed all other groups and were then the largest demographic group filing for bankruptcy. Today, research indicates that first quarter 2006 filings are the lowest since 1985. Proponents of the reform law may point to that statistic as indication that the new law has dampened the abuse of bankruptcy law by Americans.

But I see the contrary. I see now that the new law places burdens on those least likely to abuse the system and those least likely to be able to shoulder those burdens — the shrinking and increasingly squeezed middle class.

For full story

___________________________

CONSUMER GROUPS BLAST FED CREDIT CARD REPORT

By Kathy Chu, USA TODAY

A new Federal Reserve report that finds little evidence that card issuers are offering credit to consumers "indiscriminately" has triggered criticism from consumer groups, who say the report is unduly protective of banks.

In its report, the Fed wrote that "as a matter of industry practice ... card issuers do not solicit customers or extend credit to them indiscriminately" without assessing their ability to repay.

The report noted that even though 71% of households had credit cards in 2004, the portion of household income that goes toward required payments on all types of consumer debt has risen only modestly in recent years.

For full story:

_______________________

NACBA NAMES TARA TWOMEY TO HEAD UP AMICUS PROJECT

The NACBA Board has named Tara Twomey as Director of its Amicus Project.

Tara has been responsible for most of the work on NACBA amicus briefs and model briefs under the new law, and also worked on the First Amendment case.

Henceforth, NACBA members can and should communicate directly with Tara about requests for amicus briefs or model briefs, the status of briefs, and advice regarding litigation of hot issues under the new law.

Tara's email is ttwomey@law.harvard.edu

The Amicus Brief Committee, chaired by John Rao, will continue to make the hard decisions regarding which issues should get the highest priority.

Henry J. Sommer

_______________________

AUTOMATIC STAY NOT DEAD YET

from "ABI's BAPCPA Blog"

Rumors of the death of the automatic stay (and of this blog, by the way!) appear to be greatly exaggerated. With one notable exception, that seems to be the consensus of several decisions issued by judges around the country dealing with BAPCPA amendments to 362 of the Bankruptcy Code that restrict the availability of the automatic stay to repeat filers. We have discussed several decisions extensively here earlier -- see "Oh Won't You (362) Stay Just a Little Bit Longer?" Part I, Part II, Part III, and Part IV. Several more recent cases have built on the foundations discussed in those postings, although at least one court seems to have veered off in another direction.

For full story:

Oct. 6, 2003

NUMBER OF PEOPLE WITHOUT HEALTH INSURANCE INCREASES -JOB LOSSES BLAMED

The Labor Department reports that in the entire United States, the number of people without health insurance the entire year rose to 43.6 million people -- an increase of almost 6 percent. It happened as more Americans either lost their jobs, work in jobs that don't provide health insurance or are the victims of state budget cuts.

_________________________

SUPREME COURT TO REVIEW STATE SOVEREIGN IMMUNITY IN BANKRUPTCY DISCHARGE

The issue in this case is whether the Constitution's Bankruptcy Clause, Art I, Section 8, permits Congress to abrogate states‚ sovereign immunity.

Between 1988 and 1990, Pamela L. Hood (Hood) signed promissory notes for educational loans guaranteed by the Tennessee Student Assistance Corporation (TSAC). On February 26, 1999, Hood filed a Chapter 7 bankruptcy petition and was granted discharge on June 4, 1999. Hood, who still owed TSAC money on her student loans, then filed an adversary proceeding requesting discharge from her student loans on the grounds of undue hardship pursuant to 11 U.S.C.S. Section §523. TSAC responded by moving to dismiss the complaint for lack of jurisdiction on grounds of sovereign immunity. The Bankruptcy Court for the Western District of Tennessee denied the motion to dismiss and TSAC filed a timely appeal.

On appeal, the Bankruptcy Appellate Panel (Appellate Panel) unanimously affirmed, ruling that the Constitutional Convention intended that the states cede to Congress their sovereignty over bankruptcy discharge matters. TSAC appealed to the United States Court of Appeals for the Sixth District (Court of Appeals). The Court of Appeals agreed with the Appellate Panel's reasoning that Congress's power to make laws concerning bankruptcy carried with it the power to abrogate the states‚ sovereignty and that Congress clearly exercised its Bankruptcy Clause power in 11 U.S.C.S. Section §106(a).

Hood v. TN Student Assistance Corp.

Certiorari granted: 09/30/03

Court below: 319 F.3d 755 (6th Cir. 2003)

August 25, 2003

PERSONAL BANKRUPTCY FILINGS CONTINUE TO RISE . . .

THE AMERICAN BANKRUPTCY INSTITUTE said Monday that personal bankruptcy filings totaled 1,613,097 &emdash; an all-time high for any 12-month period. The figure was up 10 percent from the 1,466,105 cases filed in the 12-month period that ended June 30, 2002.

"The latest bankruptcy record reflects the continuing hangover from the binge consumer spending and consumption of the late 1990s," Gerdano said in a statement accompanying the figures. "Consumers, aided by historic low interest rates, helped make the last recession a shallow one, but at the cost of adding to already high household debt burdens.

"This can lead borrowers to consider bankruptcy as a solution to their debt problems."

The institute said that business bankruptcy filings fell in the 12 months ended June 30. Business filings totaled 37,182, down more than 5 percent from 39,201 in 2002, it said. Business bankruptcies also had declined in the 12 months ended March 30.

A total of 440,257 bankruptcy petitions were filed in the April-June period, surpassing the previous record of 412,968 cases in the first quarter of 2003.

_____________________

WHAT DO YOU DO WHEN YOU HAVE CHILDREN?

YOU FILE BANKRUPTCY

Parents are in worse economic shape than they've ever been in, when compared with people who don't have children . That view is expressed by Harvard law professor Elizabeth Warren and her daughter Amelia Warren Tyagi in their forthcoming book, "The Two-Income Trap," according to an article in The New Yorker. The authors demonstrate that having a child is now the best indicator of whether someone will end up in "financial collapse." According to their study, married couples with children are twice as likely as childless couples to file for bankruptcy. They are 75 percent more likely to be late paying their bills. And they're also far more likely to face foreclosure on their homes. The study also indicates that most of these people are not, by the usual standards, poor. Rather they are middle-class couples who are in deep financial trouble in large part because they have kids.

_____________________

CREDIT CARD PROFITS SOAR

The nation's three largest issuers reaped nearly $1.5 billion in profits for the three months of April, May, and June of this year. Add in profits from the largest issuer of charge cards and business cards, and the figure handily tops $2 billion for the second quarter. The nation's largest issuer of bank credit cards, Citibank, reported profits of $659.0 million, which includes some credit cards outside the USA. Citibank's second quarter card profits were 9% over the same period one year ago. MBNA, the second largest U.S. issuer of bank credit cards, reported $543.3 million in second quarter profits, a 20% increase over last year. The third largest U.S. issuer of bank credit cards, Bank One, posted $279.0 million in profits, a 2% decline over the second quarter of last year. American Express, the king of charge cards, corporate cards, and with $36 billion in U.S. credit card loans, reported second quarter profits of $634.0 million from its card operations. Based on the second quarter information, the U.S. credit card business is poised to produce more than $12 billion in profits this year.

June 23, 2003

WISCONSIN MAN FACES BANKRUPTCY FRAUD CHARGE

Edward DeBoth, 43, is accused of concealing money to protect it from creditors during a bankruptcy action in May 2001, according to a federal indictment.

Edward and his wife Patricia filed a bankruptcy petition with the U.S. Bankruptcy Court in Wisconsin. On the petition, DeBoth stated he had no cash on hand but in fact had at least $11,500, according to the indictment.

After the discharge, DeBoth and his girlfriend deposited $19,000 in his girlfriend's bank account in small increments, to keep its existence hidden, and then used it as a down payment on a house in Green Bay, the indictment says.

He's charged with bankruptcy fraud and with structuring. Each crime carries a penalty of up to five years in prison.

FEW CONSUMERS HAVE A PLAN TO REDUCE CREDIT CARD DEBT

Almost half of consumers have credit card debt - and only 30% of them have a plan to reduce it.

According to a recent survey from Lawyers.com, an online legal resource, most debtors are content to make their minimum monthly payments. Only 28% transferred credit card balances to cards with lower interest rates and just 13% contacted creditors to negotiate reduced interest rates or payment plans in the past 18 months.

COLLEGE OF BANKRUPTCY RECOGNIZES LEONARD M. ROSEN

The American College of Bankruptcy has bestowed the Distinguished Service Award to Leonard M. Rosen, of Wachtell, Lipton, Rosen & Katz in New York City, in recognition of his significant accomplishments in improving the administration of justice in the insolvency and bankruptcy field.

M. JORDAN DENNING, formerly of Moore & Van Allen in Charleston, SC and Proskauer Rose of New York City, is pleased to announce his recent association with Drummond & Drummond, LLP of Portland, Maine. Mr. Denning will focus on creditor's rights and general bankruptcy matters.

June 9, 2003

WHITE COLLAR UNEMPLOYMENT HITS RECORD LEVEL

Labor Department data show that white-collar unemployment has reached historic levels, 9 percent, an article in The National Law Journal says. The legal profession finds itself with a 1.2 percent unemployment rate, which is the highest since 1997.

U.S. TRUSTEE CITES BANKRUPTCY-RELATED IDENTITY THEFT

In Congressional testimony submitted March 4, 2003, Lawrence Friedman, Director of the Executive Office for U.S. Trustees, listed bankruptcy-related identity theft as one of the "patterns of conduct that appear widespread and deserving of continued intensive pursuit" by the Program.

AUTHOR OF BOOKS ON BANKRUPTCY PLEADS GUILTY

On March 10, 2003, an attorney who authored books on bankruptcy and claimed to be a frequent speaker on the topic pleaded guilty in the Central District of California to two counts of making false statements in bankruptcy. Lloyd M. Segal of Marina Del Rey, Calif., filed bankruptcy in 1998 and 2000 using false SSNs and providing false information about previous filings. In his 2000 filing, he also used a false name. Segal is the author of "Stop Foreclosure Now in California‚" and "Everything You Wanted to Know About Chapter 11 Bankruptcy... But Were Afraid to Ask."

SURVEY SAYS AMERICANS SUPPORT TOUGHER BANKRUPTCY LAWS

Almost three quarters of Americans (73%) are in favor of bankruptcy legislation which would make it much more difficult for debtors to discharge their debts and get a fresh start, according to a Cambridge Consumer Credit Index survey released June 7.

Conversely, 27% are against pending bankruptcy laws. Of those polled, 79% say that if the legislation was enacted, it would deter them from filing for bankruptcy while 21% would be more likely to file for bankruptcy.

June 2, 2003

NEED FOR ADDITIONAL BANKRUPTCY JUDGES AT CRITICAL LEVEL

Citing an unprecedented number of cases filed and pending in the bankruptcy courts and strained judicial resources, a federal judge this week asked Congress to create the first new bankruptcy judgeships since 1992.

Judge Michael J. Melloy of the Court of Appeals for the Eighth Circuit, appeared before the House Judiciary Subcommittee on Commercial and Administrative Law, in his capacity as chair of the Judicial Conference Committee on the Administration of the Bankruptcy System. The Judicial Conference of the United States is the policy-making body of the federal Judiciary.

CREDIT RATE HIKES SPUR CALL FOR CURBS

Jennifer Bayot, New York Times

A provision now built into most credit card agreements allows card companies to reset anyone's interest rate based on the size and status of his other debts. Concerned that consumers have not been sufficiently informed about the practice and that the sharp jumps in rates may be an overreaction, some state and federal legislators are proposing limits.

"Such practices increase the cycle of indebtedness, poison customer relations and spur bankruptcies that hurt borrowers and creditors," said Rep. Carolyn B. Maloney, D-N.Y.

NACBA RECOGNIZES LAWYERS FOR CONTRIBUTIONS TO THE DEBTORS' BAR

The National Association of Consumer Bankruptcy Attorneys (NACBA), at its annual convention held this year in New Orleans, honored a number of its members for their efforts on behalf of NACBA and the debtors' bar.

Among those recognized for significant financial contributions to NACBA's legislative lobbying fund were Ike Shulman (CA), Steven Jacobs (CA), Ronald LeVine (NJ), Richard Mortola/Gary Brenner (CA), Neil O'Toole (NC), Jerry Tanzy & Edgar Borrego (TX), Carol White & David Tilem (CA), J. Thomas Black (TX), Bradford Botes (AL), Jeffrey Jenkins & Eric Clayman (MS), Richard Mayer (TN), Peter Geraci (ILL) and John Orcutt (NC).

Recognized for distinguished service in recognition of outstanding service provided to NACBA and its purposes and goals were Mark Segal (NV, Robert McKenzie (IL), Robert Weed and Morgan King (CA).

May 27, 2003

Poll: EXECS NOT BULLISH ON ECONOMY . . .

Some of the country's top executives -- those making $150,000 per year and more -- are stressed over the economy and the dreary job market, according to a report from Netshare, a subscription-based, executive-job site listing positions and career services for senior executives.

According to a Netshare poll, only 3 percent of respondents say they are confident about the economy as a whole; another 12 percent are confident about prospects in their particular industry or field; and fewer than 30 percent are confident about the future of their own company.

May 5, 2003

RUDE CHAPTER 13 TRUSTEE SUSPENDED

A Chapter 13 trustee (name and district withheld) has been suspended for abusive behavior toward debtors and toward auditors examining the trustee's files.

Among other things, the trustee sent all debtors (including those not represented by counsel) a letter saying they should not attempt to contact him with their bankruptcy problems. Said the report, "Not only did the trustee discourage any contact with him by his threatening behavior, he also told the debtors that it would be foolish to write to the judge or the U.S. Trustee." In so doing, the trustee tried to create an atmosphere where he could act without any checks on his behavior.

SOURCE: Executive Office of U.S. Trustees.

The Third Circuit Court of Appeals has issued the following notice:

U.S. BANKRUPTCY JUDGESHIP VACANCY

Western District of Pennsylvania

Bankruptcy judges are appointed to 14-year terms pursuant to 28 United States Code Section 152.  Current salary is $142,324 per annum.  The position is seated in Erie, PA, with substantial duties in Pittsburgh.  Applicants must be members in good standing of the highest court of at least one state, the District of Columbia, or the Commonwealth of Puerto Rico, and in every other bar of which they are members.

Applicants should have engaged in the active practice of law for at least five years; demonstrate outstanding legal ability and competence, and a commitment to equal justice under the law; and indicate by their demeanor, character and personality that they would exhibit judicial temperament if appointed.

Qualified candidates will be considered equally and without regard to race, sex, age, disability, religious affiliation or national origin.  An extensive background in bankruptcy practice is not required.  The name of the candidate selected for the position will be published for public comment prior to appointment.

To apply, refer to www.ca3.uscourts.gov.  No paper applications or attachments will be accepted. Applications are due by noon, Friday, May 23, 2003. After reviewing the applications, the Selection Committee plans to conduct interviews on selected candidates on or about June 9 and 17, 2003.

Already Tough Enough?

Bankruptcy lawyers say U.S. Trustee's new scrutiny of Ch. 7 filings is so onerous, Congress' means-testing bill isn't needed

Steve Ellman Miami Daily Business Review

With Congress poised to pass legislation to stamp out what the credit industry calls rampant abuse of Chapter 7 consumer bankruptcy protection, South Florida experts say a little-noticed program launched by the U.S. Department of Justice is already doing the job.

Under the Justice Department's 2001 "civil enforcement initiative," bankruptcy trustees in Florida's Southern District are scrutinizing debtors' finances with unprecedented rigor, federal officials and bankruptcy lawyers say.

The initiative is a creation of the Justice Department's Executive Office for U.S. Trustees, which administers the nation's bankruptcy trustees and cases. The department announced the program in October 2001, describing the plan as a "more aggressive use [of] existing civil enforcement methods to curb abuse of the bankruptcy system." The Executive Office says that in its first year, the initiative resulted in 5,800 successful challenges of Chapter 7 filers.

Some experts say the program strikes a reasonable balance between policing abuse and leaving bankruptcy trustees and judges flexibility to evaluate cases on an individual basis. But debtor attorneys complain that the initiative is making it harder for legitimate filers to discharge their debts and that it amounts to a form of means-testing eligibility for Chapter 7 protection.

Currently there is no statutory means test or income cap for people who wish to file a Chapter 7 petition. The U.S. Trustee's office and the U.S. Bankruptcy Court evaluate eligibility based on whether, after comparing a person's income with allowable expenses, the filer has any disposable income to pay his debts.

Under the Trustee's enforcement initiative, the trustee and the court have been taking a harder look at reported income and expenses. The pending legislation would couple that with a relatively low cap on disposable income, blocking many people who currently are eligible for Chapter 7 from filing. Such means testing is one of the most controversial aspects of the bill.

"I never had a single petition inquired about before the [Trustee's enforcement] initiative began," said Bradley Shraiberg, a partner at Boca Raton bankruptcy boutique Furr & Cohen who represents both debtors and creditors. Now, he estimates that more than 70 percent of his debtor-clients are subjected to inquiry.

The chief element of the enforcement initiative is near-universal and intensive review of the income and expense statements of Chapter 7 filers. If the Trustee calculates that the debtor is able to enter a payment schedule with creditors, the petition can be challenged in court and dismissed. The debtor would then have the option of filing for Chapter 13 protection, which, unlike Chapter 7, puts filers on a payment plan for up to five years.

Patricia Dzikowski, a partner at Dzikowski & Walsh in Fort Lauderdale, who has served as a private trustee appointed by the U.S. Trustee's office for more than a decade, said she's seen a "tremendous" increase in the U.S. Trustee's scrutiny of debtor's finances due to the initiative. "Appointed trustees are taking a much bigger role in looking over I and J [income and expense] schedules," Dzikowski said.

Steve Turner, acting assistant trustee for the U.S. Trustee's field office in Miami, said calculating debtor income and expenses is a big part of the initiative, but stressed that the Trustee's office continues to consider individual circumstances.

"There is no benchmark," Turner said. "Sometimes you see on its face that a debtor's expenses are less than their income and they could go to Chapter 13. Sometimes you see a guy driving around in a Mercedes and it doesn't pass the smell test. It depends on the facts of the case."

BILL LIMITS FLEXIBILITY

Critics of the pending legislation in Congress say the success of the U.S. Trustee's initiative lends credence to their argument that there are effective ways to address bankruptcy abuse without eliminating the flexibility of judges and trustees to evaluate cases individually. Under current law, judges and trustees are required to consider the "totality of the circumstances" faced by the debtor, rather than any specific income and expenses criteria, in deciding whether the person is abusing the Chapter 7 process.

"If [the initiative] is implemented fairly, it's an efficient and equitable way to weed out abuse," said Chief Judge Robert Mark of the U.S. Bankruptcy Court for the Southern District of Florida, who has publicly criticized the pending legislation. "A means test would be substantially more expensive and potentially quite unfair."

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2003, which overwhelmingly passed the House on March 19 and is now pending in the Senate, would eliminate much of the judges' and trustees' flexibility in considering Chapter 7 petitions.

The credit card and credit union industries have been pushing for the legislation, citing an increase in Chapter 7 filings involving consumer debt, particularly unsecured credit card debt. Such filings make up the large majority of total bankruptcy filings, which have increased with the downturn of the economy during the past two years.

Nationally, according to the American Bankruptcy Institute, total bankruptcy filings grew from 1,253,444 in 2000 to 1,577,651 in 2002. Chapter 7 filings have constituted two-thirds of the total throughout that period.

Debtors currently can choose freely between Chapter 7 and 13. Debtors usually prefer Chapter 7 because it allows them to liquidate their assets and discharge their debts quickly without losing their house or car. Creditors prefer Chapter 13 because it requires debtors to repay a portion of the money they owe within five years.

The pending legislation in Congress would establish a tough means test that would essentially limit Chapter 7 protection to low-income people and tightly restrict allowable expenses. Under the legislation, anyone who earns in excess of the state median income for a similarly sized family and who has $100 to $167 per month in disposable income, as determined using Internal Revenue Service expense standards, would have to file under Chapter 13 rather than Chapter 7.

The legislation is nearly identical to that which passed both chambers last year but never was reconciled. The measure was held up over a provision relating to the ability of anti-abortion protesters to discharge judgments arising from lawsuits filed by abortion clinics.

The legislation is pending in the Senate Judiciary Committee, whose chairman, Orrin Hatch, R-Utah, "has not yet determined what step to take next," according to committee spokeswoman Margarita Tapia. It's expected that Senate Democrats will try once again to attach the abortion-related provision along with other amendments, including a measure to make it harder for wealthy people to shield unlimited assets in a homestead in Florida, Texas and a few other states. But the Democrats may have a hard time doing so this year because they no longer control the Senate.

The legislation has been widely criticized as draconian by bankruptcy judges, the bankruptcy bar and academic experts since it was originally proposed in 1994. "The premise, fears, and conditions underlying the original perceived need for bankruptcy reform six years ago do not exist," Judith Greenstone Miller, representing the bankruptcy section of the Commercial Law League of America, a creditors' rights group, told Congress last month.

While filings may have increased "incrementally" since 1994, Miller said, the economic climate has worsened since then and Americans are filing for bankruptcy because of life setbacks such as divorce, medical bills, loss of jobs, the Sept. 11 terrorist attacks, displaced military personnel and corporate downsizing, and "not merely to escape one's obligations." She argued that Congress instead should crack down on growing bankruptcy abuse by corporate officers and directors who've been involved in financial misconduct.

Some supporters of the Trustee's enforcement initiative say the program works so well that Congress should drop the statutory means test from the new legislation and rely on the program's rigorous scrutiny of income and expenses to root out fraud and abuse.

But some debtor attorneys say the new enforcement program unfairly makes bankruptcy more difficult and expensive, and constitutes a back-door means test. "I have clients with unexpected reverses in circumstances beyond their control," Shraiberg said. "It seems indecent to deny worthy candidates a fresh start."

TARGETING DEBTOR MISCONDUCT

The Trustee's enforcement initiative has two components, described last month in testimony to Congress by Lawrence A. Friedman, director of the Executive Office for U.S. Trustees. One is directed at "consumer protection ... from unscrupulous bankruptcy petition preparers and attorneys." The other targets "debtor misconduct," including "inaccurate financial disclosure" and "concealment of assets."

Friedman boasted of the initiative's success. He reported that during fiscal year 2002, the U.S. Trustee's field offices overall took more than 50,000 civil enforcement and related actions that yielded about $160 million in debts not discharged. Nationally, he said, the program prevented the Chapter 7 discharge of almost $60 million of debt, led to the denial of a discharge for more than 800 debtors on the grounds of serious misconduct, successfully took action against fraudulent petition preparers in more than 1,500 cases, and launched an audit effort to identify the scope of fraud and abuse.

But he also testified that the fraud and abuse provisions in the House bill would increase the effectiveness of his office's enforcement initiative, particularly the means testing and debtor audit provisions. He said a statutory means test would establish a more objective and consistent basis for defining abuse.

Nailing 5,800 abusive Chapter 7 filers may not seem like much when there were an estimated 1.5 million personal bankruptcy petitions filed in that period. The credit industry contends that the cases are a small percentage of actual abusers. But supporters of the U.S. Trustee's initiative point out that the program is new and has great potential.

The initiative's primary tool for attacking debtor misconduct is Section 707(b) of the U.S. Bankruptcy Code, which allows the court to dismiss petitions when debts "are primarily consumer debts" and their discharge under Chapter 7 would be "a substantial abuse" of the code.

In his testimony, Friedman defined "substantial abuse" as "seek[ing] discharge of debts despite an ability to repay."

But Shraiberg said that Friedman's definition conflicts with case law in the 11th U.S. Circuit Court of Appeals, which has jurisdiction in South Florida. According to Shraiberg, judges there have traditionally interpreted "substantial abuse" in light of "the totality of the circumstances" rather than "ability to repay."

Despite the U.S. Trustee's initiative, several South Florida bankruptcy judges say they've seen few 707(b) challenges. Judge Mark recalled trying just one such action in his 12 years on the bench. U.S. Bankruptcy Judge Steven Friedman in West Palm Beach called them "a rarity" and said he'd seen "no increase." No log of such challenges is kept by the U.S. Trustee's field office in Miami.

The only Section 707(b) dismissal listed on the Internet site for the Southern District of Florida in the last five years is a January 2001 ruling by U.S. Bankruptcy Court Chief Judge Emeritus Judge A. Jay Cristol. He dismissed a Chapter 7 petition filed by a police officer who had debt of $66,000 but who used part of his annual income of $60,000 to care for two retired police horses.

Judge Paul Hyman, who sits in Fort Lauderdale and West Palm Beach, said he's seen "more than 10 but less than 20" 707(b) challenges since the Trustee's initiative began. Hyman said only one led to a petition being dismissed.

UNPRECEDENTED DOCUMENTATION

The rarity of 707(b) dismissals misses the point, according to Shraiberg. He says the Trustee's office and private trustees are wielding their new hammer of tougher scrutiny outside the courtroom.

Shraiberg and other consumer bankruptcy attorneys report a sharp increase in their receipt of letters of inquiry about Chapter 7 petitions from the assistant U.S. Trustee's Miami office and from private trustees appointed by the office. The letters focus on debtors' income and expenses as enumerated under bankruptcy court Schedules I and J. They are demanding exorbitant levels of supporting documentation, Shraiberg said.

The letters contain the "implicit threat" of a court challenge to the petitions, Shraiberg said. That's objectionable, he added, in light of the Section 707(b) language that "there shall be a presumption in favor of granting the relief requested by the debtor."

"It's unfair to individuals already in financial distress," Shraiberg said. "I tell clients upfront that it's going to cost them a minimum of $1,500 to contest a challenge." That's in addition to the $1,500 to $3,000 he said he charges to file for Chapter 7 exclusive of challenges.

Shraiberg said the U.S. Trustee's tougher new income and expense analysis fails to account for debtors' individual circumstances. "They questioned one of my clients over a $100 monthly cell phone bill," he said. "He was a FedEx driver with a serious illness in the family. Was he supposed to spend all day looking for pay phones to call home?" The client won Chapter 7 protection -- but only after demonstrating that his debts were not consumer debts.

Clients who are discouraged from filing for Chapter 7 protection by the prospect of a 707(b) challenge are left with two alternatives, Shraiberg said. Those with no financial resources give up on bankruptcy and resign themselves to living with creditors hounding them. A second group, with greater resources, file for Chapter 13 protection. But Chapter 13 filings cost significantly more in attorney fees and often commit the filer to an onerous repayment schedule, he said.

Fran Sheehy, a Coconut Creek bankruptcy attorney, shares Shraiberg's assessment of the U.S. Trustee's initiative. She said she's experienced a "blizzard of paperwork" under the program.

"It used to be all you had to do in Chapter 7 was file, unless [the debtor's] numbers were really off the wall," she said. Now, "each trustee has their own version of a means test. They're comparing I and J schedules with IRS guidelines, with little regard for the totality of [the debtor's] circumstances."

She said even before the initiative was launched, the U.S. Trustee's office had the necessary tools to weed out abusive filings. In her view, the new program is excessive. "[The initiative] is wasting resources," she said. "It makes the Trustee a collection agency for the credit card companies."