by JOEL B. WEINBERG
B E W A R E
The new bankruptcy law eliminates the
Bankruptcy Code’s prior presumption in favor
of granting the relief sought by the debtor
he Bankruptcy Abuse Prevention and Consumer The ﬁrst inquiry with regard to the means test is whether the
Protection Act of 20051—signed into law by debtor’s income exceeds a deﬁned state median family income.6 If the
President George W. Bush on April 20, 2005— debtor’s income is at or below the applicable state median family
is an outright overhaul of the Bankruptcy Code income, the means test does not apply and the presumption of abuse
that will have a dramatic impact on consumer and cannot arise. Dismissal (or conversion to chapter 11 or 13 upon con-
business bankruptcy cases.2 It generally will sent of the debtor) could then be sought only by the court, on its own
become effective for bankruptcy cases ﬁled on and motion or on motion of the Office of the United States Trustee, pro-
after October 17, 2005.3 The act’s major changes to the Bankruptcy vided that the dismissal is based on grounds recognized under cur-
Code will place additional burdens on many of the participants in the rent law, such as bad faith or the totality of the circumstances.7
bankruptcy system, including judges, the Office of the United States If the debtor’s income exceeds the deﬁned state median family
Trustee (a branch of the Department of Justice charged with admin- income, then the means test will apply, and any party in interest may
istering bankruptcy cases), bankruptcy trustees, and counsel. bring a motion to dismiss the chapter 7 case under new Section
The act will affect numerous aspects of the law applicable to 707(b). Under the means test, the debtor’s “current monthly income,”
consumer bankruptcy cases.4 The new law eliminates the presump- a newly deﬁned term, is reduced by certain expenditures or deduc-
tion in favor of granting the relief requested by the debtor and
imposes what the act refers to as a “means test” on individual debtors Joel B. Weinberg is a partner in ASK Financial, a law ﬁrm focusing solely on
whose debts are primarily consumer debts.5 Should an individual the prosecution of bankruptcy avoidance power actions. He also is the founder
debtor fail this test, a presumption of an abusive ﬁling arises, and a and a shareholder of Insolvency Services Group, Inc., which provides ﬁduciary
chapter 7 bankruptcy case can be dismissed under new Section support services for insolvency professionals. Weinberg is an adjunct professor
707(b) or, with the debtor’s consent, converted to chapter 11 or 13. of law at Loyola Law School, where he teaches bankruptcy law.
22 Los Angeles Lawyer October 2005
tions to get a “Net Amount.”8 The presumption of abuse arises if the costs of proceeding under each of those chapters; the types of ser-
Net Amount multiplied by 60 is greater than the lesser of 1) 25 per- vices available from credit counseling agencies; and a new form
cent of the debtor’s nonpriority unsecured claims in the case or disclosure that is expressly provided in new Section 527(b). Counsel
$6,000, whichever is greater, or 2) $10,000.9 For example, if the Net must give reasonably sufficient information to an assisted person
Amount is less than $100, there is no presumption of abuse, because regarding completion of the bankruptcy schedules and list of cred-
$100 times 60 months equals $6,000. On the other hand, if the Net itors, how to determine current monthly income and the amounts
Amount is equal to or greater than $166.67, a presumption of abuse speciﬁed in new Section 707(b)(2), and how to determine exempt
is applicable, because $166.67 times 60 exceeds $10,000. If the Net property and its value.21
Amount is greater than $100 but less than $166.67, the presumption Certain marital dissolution and support obligations gain more
of abuse arises depending on whether the debtor’s nonpriority unse- favorable treatment under the new act. Under the law prior to the act,
cured claims are greater than $6,000 but less than $40,000. speciﬁed obligations arising out of marital dissolution proceedings,
In order to administer the means test, the debtor must ﬁle a state- such as support and alimony, were excepted from the debtor’s discharge
ment regarding the debtor’s means test calculation at the time the and thus survived bankruptcy.22 However, there were limited cir-
debtor ﬁles the statement of current income and expenses.10 If a cumstances in which claims relating to nonsupport obligations, such
motion pursuant to new Section 707(b) is granted, a court can sanc- as property settlements, could be discharged.23 The new act eliminates
tion debtor’s counsel if it ﬁnds that counsel’s ﬁling of the case under the exceptions or defenses and essentially renders all debts that are
chapter 7 violated Rule 9011 of the Federal Rules of Bankruptcy incurred in connection with marital separation or dissolution pro-
Procedure.11 Accordingly, the signature of an attorney on the bank- ceedings as nondischargeable.24 Additionally, “domestic support
ruptcy petition constitutes a certiﬁcation that the attorney has made obligations,” a newly deﬁned term under the act, will now have the
an inquiry and has no knowledge that the information in the sched- ﬁrst priority in distribution ahead of other administrative claims.25
ules ﬁled with the petition is incorrect.12 The only notable exception to that priority would be the expenses of
In addition to the means test, the act now requires individual a trustee who administered assets that might otherwise be used to pay
debtors to receive, within 180 days of the bankruptcy ﬁling, an indi- support obligations.26 In chapter 13 cases, the act requires that all
vidual or group brieﬁng from a nonproﬁt budget and credit counseling domestic support obligations that ﬁrst became due after the bankruptcy
agency approved by the Office of the United States Trustee or a ﬁling be paid in order for a plan to be conﬁrmed.27
bankruptcy administrator, under standards set forth in new Section Employees of a debtor also will receive more favorable treatment,
111(a).13 Limited exceptions exist for 1) districts found not to have because the new act increases wage and employee beneﬁt priorities to
adequate credit counseling services, 2) debtors who submit a certiﬁ- $10,000 per employee and lengthens the time frame for incurring those
cation that exigent circumstances required an immediate bankruptcy wages from 90 to 180 days before the bankruptcy petition date.28
ﬁling and, within the ﬁve-day period preceding bankruptcy, sought Consumer ﬁnance and leasing companies will fare better under the
and was unable to obtain credit counseling (although compliance act than they did in prior bankruptcy law. Before the new act, an indi-
within 30 days of the petition date will be required in any event), and vidual debtor who scheduled debts secured by estate property—such
3) debtors who are incapacitated, disabled, or on active military as automobiles, large appliances, and the like—was required to ﬁle a
duty in a combat zone. Failure to comply with the credit counseling statement of intention regarding the proposed disposition of that
provisions could result in a denial of the discharge under chapters 7, property within a speciﬁed time.29 The new law compels the debtor
11, or 13.14 to act no later than 30 days from the date ﬁrst set for the Section 341(a)
meeting of creditors concerning secured debt. Otherwise, failure to
Consumer Disclosure Requirements timely ﬁle the statement of intention or to perform the requisite inten-
All debtors now face more disclosure requirements than they did under tion will result in termination of the automatic stay under Section
prior law. For example, the new act requires debtors to disclose and 362(a).30 The creditor will then be free to enforce its secured claim.
ﬁle with the court 1) copies of all “payment advices” or other evidence Prior to the new act, debtors had four options regarding secured
of payment received within 60 days before the bankruptcy ﬁling claims: 1) surrender the collateral to the secured creditor, 2) redeem
from any employer, 2) a statement of monthly net income, including the property, 3) reaffirm the debt, or 4) merely retain the collateral,
how the amount is calculated, and 3) a statement disclosing any pursuant to applicable case law.31 Retention was a viable and preferred
reasonably anticipated increase in income or expenses over the 12- option if the debtor was otherwise current on the debt. If the debtor
month period following the bankruptcy ﬁling.15 In cases ﬁled under later decided to surrender the collateral postpetition, the potential deﬁ-
chapter 7 or 13, individual debtors must provide the trustee and any ciency claim would have been discharged and the creditor would have
creditor making a timely request with a copy of the debtor’s federal no further in personam claim against the debtor.
income tax return or, at the debtor’s option, a transcript of the return The act removes retention as an option32 and requires full payment
for the period for which the return was most recently due and for of an allowed secured claim at the time of redemption.33 Moreover,
which the debtor ﬁled a return.16 The copy or transcript must be pro- in determining the amount of the secured claim, the new law requires
vided at least seven days prior to the Section 341(a) meeting of cred- the use of replacement value, which for consumer goods is the retail
itors. Failure to ﬁle the information required under new Section price for property of similar age and condition.34 Reaffirmation
521(a)(1) within 45 days of ﬁling the petition results in the dismissal under the act involves extensive disclosures to debtors that were not
of a voluntary chapter 7 or 13 case on the 46th day.17 Any party in required previously under the old law.35
interest may request that the court enter an order to that effect.18 Secured creditors, most particularly creditors holding consensual
In small consumer cases, in which nonexempt assets are less than liens on real property, have been plagued by serial bankruptcy ﬁlings
$150,000, attorneys will have additional disclosure and record-keep- by individual debtors. The new law attempts to modify the automatic
ing requirements. Counsel handling these cases will now be referred stay provisions of Section 362 to address these concerns. If an indi-
to as “debt relief agencies” and their clients as “assisted persons.”19 vidual chapter 7, 11, or 13 case is ﬁled within one year of the dismissal
Failure to meet certain record-keeping and disclosure requirements of a prior bankruptcy (with the exception of a chapter 11 or 13 case
could subject counsel to loss of fees, damages, sanctions, and other reﬁled after a Section 707(b) dismissal), then the automatic stay in
remedies.20 The new disclosure provisions include a brief description the second case terminates 30 days after the ﬁling.36 The debtor, how-
of chapters 7, 11, 12, and 13 and the general purpose, beneﬁts, and ever, can avoid dismissal of the second case if the debtor can demon-
24 Los Angeles Lawyer October 2005
strate that the second case was ﬁled in good faith with respect to the a felony under circumstances that demonstrate that the ﬁling of the
creditors that would be subject to the stay.37 case was an abuse of the Bankruptcy Code or the debtor owes a debt
If a second serial case is ﬁled within a one-year period, the auto- arising from the violation of federal securities law, any criminal act,
matic stay will not go into effect in the latter case and the court, upon or an intentional tort or willful or reckless misconduct that caused
request of a party in interest, must conﬁrm that no stay is in effect.38 serious physical injury or death in the preceding ﬁve years.48
A party in interest can seek reimposition of the automatic stay upon The act will have an impact on discharge. The new law extends
a showing that the case was ﬁled in good faith regarding the credi- the time between receiving a discharge in a subsequent chapter 7 bank-
tors whose claims would be stayed.39 If there are two or more pre- ruptcy and a previous bankruptcy from six to eight years.49 In chap-
vious cases within the one-year period, a rebuttable presumption ter 13 cases, the debtor in a pending chapter 13 case cannot receive
of a lack of good faith a discharge if a case was
arises. Clear and con- filed under chapter 7,
vincing evidence is 11, or 12 during the
required to rebut the four-year period (2
presumption in order to years if the prior case
have the stay imposed was ﬁled under chapter
in the current case.40 13) preceding the entry
The automatic stay date of the order for
has been modified to relief of the current
address a similar issue chapter 13 case.50
relating to multiple The modiﬁcations to
bankruptcy filings af- chapter 13 are numer-
fecting real property. ous. Included among
The new act affords in the changes is the elim-
rem relief to creditors.41 ination, for the most
The stay will be termi- part, of the “super dis-
nated upon request of a charge,” which allowed
party in interest if the debts not dischargeable
court finds that the under chapter 7 to be
bankruptcy petition was discharged under chap-
part of a scheme to ter 13.51 Under the new
delay, hinder, and defraud creditors involving either a transfer of own- act, the discharge in chapter 13 is now almost coequal with the
ership or other interest in real property or multiple bankruptcy ﬁl- chapter 7 discharge. Thus, one of the chief beneﬁts for ﬁling chap-
ings.42 Once recorded in the public records for real property inter- ter 13 no longer exists. Second, the deﬁnition of “disposable income”
ests (the county recorder’s office in the case of California real has been modiﬁed to incorporate the means test. Under a chapter 13
property), an order entered under new Section 362(d)(4) (the “in rem plan, upon the objection of a creditor, the debtor’s disposable income
order”) will be binding on any other case under Title 11 that purports must be contributed to the plan during its minimum term. “Disposable
to affect the real property and is ﬁled within two years after entry of income” is defined as current monthly income, other than child
the in rem order.43 After giving the proper notice, a party can seek support income, that is not necessary to provide for support for the
relief at a hearing from an in rem order based on changed circum- debtor or a dependent of the debtor. For debtors whose income is
stances and for good cause. more than the applicable median, the means test of new Section 707(b)
The new law provides exceptions to the automatic stay for land- will determine their support needs.52 For debtors whose income
lords of residential real property. A landlord seeking an exception must exceeds the applicable median and whose plan does not provide for
serve the debtor and ﬁle with the court a certiﬁcate setting out the the full payment of claims, the minimum plan term is now five
facts pertaining to the exception.44 The exceptions allow the con- years instead of three.53
tinuance of an eviction if the eviction judgment was obtained prior The new law amends several provisions of chapter 11 to conform
to the bankruptcy filing or was based on endangerment of the the treatment of individual chapter 11 cases to those cases filed
demised premises or illegal use of controlled substances. The act pro- under chapter 13.54 Under the new legislation, the property of the
vides a debtor with a limited right to contest the certiﬁcate and seek estate now includes an individual’s earnings from services performed
imposition of the stay.45 by the debtor after the commencement of the case.55 To the extent
The homestead exemption has received considerable attention in necessary for the plan, funding for an individual debtor’s chapter 11
the press in the wake of major corporate scandals like the Enron bank- plan includes future earnings from personal services performed by the
ruptcy as well as unwelcome notoriety in the O. J. Simpson civil pro- debtor. Upon objection of a creditor, the value to be distributed
ceedings. Federal bankruptcy law defers to state law in determining under a chapter 11 plan must include at least the projected dispos-
what property is exempt from attachment and levy by creditors.46 able income of the debtor to be received during the ﬁve-year period
Exemptions vary considerably from state to state, including the beginning on the date the ﬁrst payment is due under the plan or dur-
homestead exemption amount. In some states, such as Texas or ing the period for which the plan provides payment—whichever is
Florida, the state homestead exemption is unlimited in dollar amount longer.56
while in others it is limited to relatively small dollar amounts. The
new law attempts to limit the availability of the exemption by impos- Business Bankruptcies
ing a residency restriction based on the debtor’s domicile for the 730 The new act also will have a major effect on business bankruptcy cases.
days before the ﬁling.47 The act also attempts to limit the homestead Since the advent of the Bankruptcy Code in 1978, a number of
to $125,000 when value is added to the homestead during the 1,215 amendments have targeted Section 365 of the code, which addresses
days preceding the bankruptcy filing. The new law imposes an executory contracts and unexpired leases. The 2005 act is no excep-
absolute cap if the court determines that the debtor was convicted of tion to this focus on Section 365. The act’s amendments to Section
Los Angeles Lawyer October 2005 25
365 will have a particularly dramatic effect would be made regarding which leases had
on the relationship between landlords and value to the debtor’s business operations.
bankruptcy estates in any case in which the That process often takes considerable time in
debtor operates from multiple leased loca- larger cases.
tions, such as large retail chains. To ameliorate some of the harsh effects of
Under prior law, the trustee—or in a chap- this amendment, the act provides for a cap on
ter 11 case, the debtor in possession (DIP)— the administrative rent expense with regard
had 60 days from entry of the order for relief to a nonresidential real property lease that was
to assume or reject an unexpired lease of assumed and subsequently breached or
nonresidential real property.57 Failure to rejected.65 The cap is equal to all monetary
assume or reject within that period resulted obligations due (excluding those arising from
in the lease being deemed rejected and or relating to a failure to operate or a penalty
required the trustee or DIP to immediately provision) for the period of two years fol-
surrender possession, giving rise to a prepe- lowing the later of the rejection date or the
tition damage claim.58 However, that period date of the actual turnover of the premises
could have been extended for cause, pro- (without reduction or setoff except for sums
vided the trustee or DIP made a motion actually received or to be received from any
within the 60-day period. The court was entity other than the debtor). A claim for
free to grant further extensions irrespective the remaining sums due for the balance of the
of the landlord’s consent, provided that cause term of the lease will be characterized as a
was shown. general unsecured claim under Section
The new law alters this framework. First, 502(b)(6).66
the period for assuming or rejecting unexpired In order to assume an executory contract
leases of nonresidential real property is or unexpired lease when there has been a
extended from 60 days to the earlier of 120 default, the trustee or DIP must cure the
days after the order for relief or the date of default or provide adequate assurance that the
entry of an order conﬁrming a plan of reor- default will be promptly cured.67 Under case
ganization.59 However, the court’s discretion law, assumption of executory contracts was
to extend that period has been curtailed. The prohibited following a nonmonetary default
court may extend the 120-day period for up that was incapable of cure, such as a require-
to 90 days on motion of the trustee or DIP ment in a franchise agreement that prohibits
upon a showing of cause. No subsequent the debtor from “going dark.”68 The new
extensions may be granted without the prior act codifies this result for executory con-
written consent of the landlord in each tracts.69 However, in the case of unexpired
instance.60 In the event the landlord refuses real property leases, the act clariﬁes that non-
to consent, 210 days is the maximum possi- monetary defaults need not be cured if it is
ble period for determining whether to reject impossible for the trustee or DIP to do so.70
For more than 26 years, Smith & Carson has provided or assume an unexpired real property lease.61 If the nonmonetary default arises from a fail-
support to America’s top companies and law firms with As a result, the decision to assume or reject ure to operate in accordance with a nonres-
investigative services, litigation support and corporate will have to be made early, if not prema- idential real property lease, then the default
intelligence. With solid experience across industries and
turely, resulting in potentially large adminis- will be cured by performance at and after the
the savvy to examine information from every perspective,
Smith & Carson has produced a strong track record of
trative claims against the estate. time of assumption in accordance with the
helping clients mitigate risk, win cases and protect In this context, it is important to note lease, and pecuniary losses resulting from
valuable assets. that a landlord’s damages differ markedly the default will be subject to compensation.
depending on whether an unexpired lease is For reorganization plans, the new act
Investigative rejected or assumed. Rejection of an unex- amended Section 1124(2) to conform the
Research pired lease gives rise to an unsecured claim concept of impairment of a claim to the
Consulting that is subject to a cap regarding future dam- changes made to Section 365 regarding the
ages.62 The landlord also may be entitled to cure of nonmonetary defaults in executory
an administrative expense (the highest level contracts and unexpired leases.71
Case Management of unsecured priority) for possession from The so-called avoidance powers of a
the bankruptcy petition date until the actual trustee or DIP, pursuant to which they can set
surrender of the premises to the landlord.63 aside prebankruptcy transfers, also received
Assumption, however, binds the bank- some attention in the new legislation. An
For more info: ruptcy estate to the contractual obligations adversary proceeding to recover a preference
www.smithcarson.com under the lease, and any subsequent breach or a nonconsumer debt against a noninsider
or call Lori Olson at (818) 551-5900 gives rise to an administrative expense to in an amount of less than $10,000 or to
the extent of the damages allowed under recover a money judgment or property worth
Atlanta, Dallas, Houston, Jackson, Kansas City, Los Angeles
New York, Orlando, Raleigh and Washington, DC applicable nonbankruptcy law. In that case, less than $1,000 or a consumer debt of less
under prior law, the Section 502(b)(6) cap on than $15,000 must now be commenced in the
future damages did not apply.64 Debtors typ- district in which the defendant resides.72
ically deferred the decision on whether to The preferences contained in Section 547
assume leases until the end of the bank- of the Bankruptcy Code are the focus of sev-
ruptcy case, after which a determination eral of the new act’s signiﬁcant changes. There
26 Los Angeles Lawyer October 2005
is a new minimum threshold for preference standards under old Section 547(c)(2)(C) transfer was made.81
claims under the act. A transfer may not be (now Section 547(c)(2)(B)).77 Consequently, Both prior law and the new act provide
avoided as a preference if the value of all in many cases in which defendants can estab- that unauthorized postpetition transfers can
property that constitutes or is affected by lish that payments were made according to be avoided by a trustee or DIP. The old law
the transfer is less than $5,000.73 Moreover, industry standards, old Section 547(c)(2)(B) provides a good faith exception for a trans-
the burden of establishing the ordinary course and new Section 547(c)(2)(A)—which focus fer of real property for value to a good faith
of business (OCB) defense under Section on historical dealings, the most difficult ele- purchaser without knowledge of the com-
547(c)(2) has been eased under the new leg- ment of the OCB defense to prove—will be mencement of the bankruptcy.82 The new
islation.74 To prevail on the OCB defense irrelevant. Absent any unusual or aggressive law modiﬁes that exception to provide good
under prior law, defendants had to establish collection efforts, this change should eliminate faith protection in connection with a trans-
the following three elements: 1) the transfer many preference claims for payments made fer for value of an interest in real property.83
was in payment of a debt that was incurred to noninsider trade vendors. This modiﬁcation should protect good faith
in the ordinary course of business, 2) the A transfer made within two years (as encumbrancers who, without knowledge of
transfer was ordinary as between the debtor opposed to one year under prior law) of the the bankruptcy case, extend new value.
and the defendant based on their historical petition date can be avoided as a fraudulent A seller’s right to reclaim goods has been
dealings, and 3) the transfer was made accord- transfer under new Section 548.78 Transfers signiﬁcantly expanded under the new legis-
ing to ordinary business terms (construed to made or obligations incurred to insiders under lation.84 First, the period for making the
mean in accordance with standards in the an employment contract and not in the ordi- reclamation demand has been expanded from
defendant’s industry).75 It was the second nary course of business are expressly subject 10 to 45 days after receipt of the goods by the
prong of the defense that often proved the to avoidance as a fraudulent transfer without debtor. If the 45-day period expires after
most problematic for defendants. Under the the need to prove insolvency.79 Also added to commencement of the bankruptcy case, then
new law, to prevail on the OCB defense, the fraudulent transfer law is the avoidance the demand must be made not later than 20
defendants must establish that 1) the trans- of transfers to certain self-settled trusts if the days after the commencement of the case.
fer was for payment of a debt that was transfers were made within 10 years before Second, if the seller complies with the notice
incurred in the ordinary course of business, the bankruptcy petition was ﬁled.80 For a requirements under amended Section 546(c),
and 2) either one of the prior law’s last two transfer to be avoidable, the debtor must it appears that the seller’s reclamation right
conditions.76 have made the transfer to a self-settled trust is absolute, and unlike prior law, the court
This new basis for the OCB defense rep- in which the debtor is also a beneﬁciary, with cannot deny reclamation to the seller.85 Third,
resents a signiﬁcant departure from prior law the actual intent to hinder, delay, or defraud even if the seller fails to give notice, it still may
because case law already has eased dramat- any entity to which the debtor was or would assert rights provided in amended Section
ically the burden of establishing industry become indebted on or after the date that the 503(b)(9) to treat as an administrative expense
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Los Angeles Lawyer October 2005 27
the value of any goods received by the debtor of a debtor who is not a family farmer and on court may determine for cause and order
within 20 days before the date of com- which no substantial business is being con- within the 90-day period), to either 1) ﬁle a
mencement of the bankruptcy case.86 ducted by the debtor other than the business plan of reorganization that has a reasonable
If the red hot real estate market cools and of operating the real property and incidental possibility of being conﬁrmed within a rea-
interest rates continue to rise, changes to the activities.88 This deﬁnition could now include sonable time, or 2) commence monthly pay-
single asset real estate provisions could prove major real estate projects such as a ﬁnancial ments to the consensual lien holders. The
to be one of the more far-reaching changes center office tower. However, if the debtor’s new legislation provides that the debtor may
implemented by the new act. The $4 million project is a hospital or a hotel resort, it may not use rent or other income to make the pay-
cap on the deﬁnition of what constitutes sin- fall within the ambit of single asset real estate. ments irrespective of the restrictions on the use
gle asset real estate has been eliminated.87 If the debtor’s operations constitute single of the rent that existed under prior law.90
“Single asset real estate” is now deﬁned as real asset real estate, special provisions for relief Under the new law, the commencement of
property constituting a single property or from the automatic stay will apply.89 Any payments to creditors can be delayed pend-
project, other than residential real property case involving single asset real estate will ing resolution of whether the single asset
with fewer than four residential units, that require the debtor, within 90 days from entry provisions apply. The amount of those pay-
generates substantially all of the gross income of the order for relief (or a later date that the ments has been clarified to constitute an
amount equal to interest at the previously
applicable nondefault contract rate of inter-
est on the value of the creditor’s interest in the
A number of provisions affecting the plan
process are included in the act. For example,
under prior law, the debtor has the exclusive
right to ﬁle a plan of reorganization during
the ﬁrst 120 days after entry of the order for
relief and has an additional 60 days to con-
ﬁrm that plan. Under the new law, the court
can extend those periods without limitation
for cause.91 The new act does place limits on
the court’s ability to extend the debtor’s exclu-
sive period to ﬁle a plan (18 months from the
petition date) and to obtain conﬁrmation (20
months from the petition date).92
The act contains many other changes that
may be well beyond the interest of most gen-
eral practitioners but worthy of careful con-
sideration by those who practice bankruptcy
law. The new law has completely remodeled
the Bankruptcy Code and may have serious
consequences for those groups that previ-
ously realized advantages under prior law. The
key beneﬁciaries of the new act appear to be
creditors, both secured and unsecured (most
particularly credit card issuers and consumer
finance companies); utilities; holders of
domestic support obligations; and landlords.
Those who may come up short under the
new law are individuals facing medical crises,
loss of employment, or marital dissolution;
consumer bankruptcy practitioners; and small
1 The Bankruptcy Abuse Prevention and Consumer
Protection Act of 2005, S. 256, enacted into law as Pub.
L. No. 109-8.
2 The Bankruptcy Code, 11 U.S.C. §§101 et seq. The
new act also modiﬁes other provisions of the United
States Code, including Title 28.
3 S. 256 §1501.
4 Consumer bankruptcy cases involve individuals whose
debts were incurred primarily for a personal, family,
or household purpose.
5 S. 256 §102(a), new 11 U.S.C. §707(b)(1).
6 S. 256 §§102(a)-(k), new 11 U.S.C. §§101(39A),
707(b)(2)-(7). The debtor’s monthly income multi-
plied by 12 is compared to the median family income
of the applicable state, which is based on the median
28 Los Angeles Lawyer October 2005
family income calculated and reported by the Bureau
of the Census in the most recent year. The Census
Bureau median family income is available at www
7 Id.; see also new 11 U.S.C. §707(b)(3).
8 S. 256 §102(a), (b), new 11 U.S.C. §§101(10),
707(b)(2). The categories of expenditures can generally
be described as:
• Living expenses speciﬁed under Internal Revenue
• Expenses related to protection from family violence.
• Actual expenses paid by the debtor that are reason-
able and necessary for the care of certain dependent
• For a debtor eligible to ﬁle under chapter 13, the
monthly expenses can include certain actual adminis-
trative expenses of a chapter 13 plan.
• Certain actual expenses related to a child’s elemen-
tary or secondary school education up to $1,500 annu-
ally per child.
• Certain additional utility costs in excess of the IRS
standards based on actual costs and a showing that
additional expenses are reasonable and necessary.
• Average monthly payments for secured debts based
on an average over a 60-month period commencing on
the petition date and ending on the 60th month there-
• 1/60th of all priority debt based on the total dollar
amount of all priority debts divided by 60.
IRS guidelines for allowable expenses, available at
.html. For an overview of allowable expense guidelines
issued by the IRS, see www.irs.gov/irm/part5/ch15s01
.html#d0e165762. Allowable living expenses for trans-
portation, available at www.irs.gov/businesses/small
9 S. 256 §102(a), new 11 U.S.C. §707(b)(2)(A).
10 S. 256 §102(a), new 11 U.S.C.§707(b)(2)(C).
11 S. 256 §102(a), new 11 U.S.C.§707(b)(4).
12 S. 256 §102(a), new 11 U.S.C. §§707(b)(4)(C), (D).
13 S. 256 §106(a), new 11 U.S.C. §109(h).
14 S. 256 §106(b), (c), new 11 U.S.C. §§727(a)(11),
15 S. 256 §315(b), new 11 U.S.C. §§521(a)(iv)-(vi).
16 S. 256 §315(b), new 11 U.S.C. §521(e)(2)(A).
17 S. 256 §316, new 11 U.S.C. §521(i).
18 S. 256 §316, new 11 U.S.C. §521(i)(2).
19 S. 256 §226(a), new 11 U.S.C. §§101(3), (12A).
JACK TRIMARCO & ASSOCIATES
20 S. 256 §§226, 227, 228, new 11 U.S.C. §§101(3),
22 11 U.S.C. §523(a)(5).
23 11 U.S.C. §523(a)(15); In the Matter of Crosswhite,
148 F. 3d 879 (7th Cir. 1998).
24 S. 256 §215, new 11 U.S.C. §§523(a)(5), (15), (c). 9454 Wilshire Blvd.
25 S. 256 §212, new 11 U.S.C. §507(a)(1).
26 S. 256 §212, new 11 U.S.C. §507(a)(1)(C). Sixth Floor
27 New 11 U.S.C. §1325(a)(8).
28 S. 256 §1401, new 11 U.S.C. §§507(a)(4), (5). Beverly Hills, CA 90212
29 11 U.S.C. §521(a)(2).
30 S. 256 §305, new 11 U.S.C. §§362(h), 521(a)(6). (310) 247-2637 TEL
31 Capital Communications Fed. Credit Union v.
Boodrow (In re Boodrow), 126 F. 3d 43 (2d Cir. (760) 777-1836 FAX
32 S. 256 §304, new 11 U.S.C. §521(a)(6).
Jack Trimarco - President
Former Polygraph Unit Chief
34 S. 256 §327, new 11 U.S.C. §506(a). However, in
Los Angeles F.B.I. (1990-1998)
a chapter 13 case, a debtor’s ability to modify purchase email: email@example.com
money secured claims, such as automobile loans, by CA. P.I. # 20970 www.jacktrimarco.com
stripping down the amount of the claim to the value
of the collateral has been severely limited. S. 256 Member Society of Former Special Agents Former Inspector General
§306(b), new 11 U.S.C. §1325(a)(9). Federal Bureau of Investigation Polygraph Program
35 S. 256 §203, new 11 U.S.C. §524(k).
U.S. Department of Energy
36 S. 256 §302, new 11 U.S.C. §362(c)(3).
38 S. 256 §302, new 11 U.S.C. §362(c)(4).
Los Angeles Lawyer October 2005 29
39 S. 256 §302, new 11 U.S.C. §362(c)(3).
YES, you can win Power Volvo South Bay 41 S. 256 §303, new 11 U.S.C. §§362(b)(20), (d)(4).
42 S. 256 §303(a), new 11 U.S.C. §362(d)(4).
challenging Lowest prices in town.
43 S. 256 §303(b), new 11 U.S.C. §362(b)(20).
44 S. 256 §311, new 11 U.S.C. §§362(b)(22), (23).
MED-MAL cases. Scheduled maintenance for
45 S. 256 §311, new 11 U.S.C. §§362(l), (m).
46 11 U.S.C. §522(b)(2).
36 months/36,000 miles FREE 47 S. 256 §307, new 11 U.S.C. §522(b)(3).
Form a Team with a Physician-Attorney
on new 2005’s. 48 S. 256 §322, new 11 U.S.C. §§522(p), (q).
Gunther R. Bauer, M.D., J.D. 49 S. 256 §312, new 11 U.S.C. §727(a)(8).
FREE AIRFARE FOR 50 S. 256 §312, new 11 U.S.C. §1328(f).
EURO DELIVERY! 51 S. 256 §§314, 707, new 11 U.S.C. §1328(a).
www.bauermdmedmallaw.com 52 S. 256 §102(h), new 11 U.S.C. §1325(b).
Call John Sonne at (310) 325-3255 53 S. 256 §318, new 11 U.S.C. §1325(b).
310.377.5557 s 310.251.0106 cell for details and to schedule a 54 S. 256 §321, new 11 U.S.C. §§1115, 1123(a)(8),
Compension only if recovery test drive. 1129(a)(15).
55 S. 256 §321(a), new 11 U.S.C. §1115.
56 S. 256 §321(b), (c), new 11 U.S.C. §1123(a)(8),
57 11 U.S.C. §364(d)(4).
58 11 U.S.C. §§365(d)(4), 365(g), 502(g).
59 S. 256 §404, new 11 U.S.C. §365(d)(4).
62 11 U.S.C. §§365(g), 502(b)(6), 502(g).
63 11 U.S.C. §503(b)(1)(A); In re Dant & Russell, Inc.,
853 F. 2d 700 (9th Cir. 1988).
64 Nostas Assocs. v. Costich (In re Klein Sleep Prods.,
Inc.), 78 F. 3d 18 (2d Cir. 1996).
65 S. 256 §405, new 11 U.S.C. §503(b)(7).
67 11 U.S.C. §365(b)(1)(A).
68 Worthington v. General Motors Corp. (In re
Claremont Acquisition Corp.), 113 F. 3d 1029 (9th Cir.
69 S. 256 §328(a), new 11 U.S.C. §365(b)(2)(D). How-
ever, the trustee or DIP is not required to cure a penalty
rate or penalty provision relating to the failure to per-
form a nonmonetary default.
Quo Jure Corporation 1-800-843-0660 70 S. 256 §328(a), new 11 U.S.C. §365(b)(1)(A).
www.quojure.com 71 S. 256 §328(b), new 11 U.S.C. §§1124(2)(A), (D).
LAWYERS’ WRITING & RESEARCH firstname.lastname@example.org 72 S. 256 §410, new 28 U.S.C. §1409(b).
73 S. 256 §409, new 11 U.S.C. §547(c)(9).
74 S. 256 §409, new 11 U.S.C. §547(c)(2).
When you can’t do it yourself, but you still need a brief or 75 11 U.S.C. §547(c)(2).
memo done—and done well, by experienced attorneys who 76 Nostas Assocs. v. Costich (In re Klein Sleep Prods.,
are skilled writers—turn to Quo Jure Corporation. Inc.), 78 F. 3d 18 (2d Cir. 1996).
77 See In re Tolona Pizza Prods. Corp., 3 F. 3d 1029
Quo Jure provides premium legal writing and research services (7th Cir. 1993); Ganis Credit Corp. v. Karl T. Anderson
(In re Jan Weilert RV, Inc.), 315 F. 3d 1192 (9th Cir.
to practicing attorneys. Our work has contributed to million-
dollar settlements and judgments. Oppositions to motions for 78 S. 256 §1402, new 11 U.S.C. §548(a)(1). However,
summary judgment are our specialty. Call for a free analysis this amendment will not take effect until more than one
and estimate. The Winning EdgeTM year after the date of enactment of the new act and will
be applicable only to bankruptcy cases commenced at
that same time. S. 256 §1406.
80 S. 256 §1402, new 11 U.S.C. §548(e).
A unique opportunity like this happens just once a year!
82 11 U.S.C. §549(c).
83 S. 256 §§1201, 1211, new 11 U.S.C. §§54(D),
84 S. 256 §1227; compare old 11 U.S.C. §546(c) with
amended 11 U.S.C. §546(c).
85 S. 256 §1227 (striking prior 11 U.S.C. §546(c)(2),
which gave the court the power to deny reclamation).
86 S. 256 §1227, new 11 U.S.C. §§503(b)(9), 546(c).
YOU ARE INVITED to participate in the Los Angeles County Bar Association’s
87 S. 256 §1201, new 11 U.S.C. §101(51B).
prestigious Southern California Directory of Experts & Consultants in the
Lawyer-to-Lawyer (L2L) Consultants Network Section.
89 S.256 §444, new 11 U.S.C. §363(d)(3); 11 U.S.C.
REGISTER NOW! Deadline: October 15 §362(d)(3).
SPECIAL PROMOTIONS FOR EARLY REGISTRATION! 90 See 11 U.S.C. §363(c)(2) and new 11 U.S.C.
Call for forms: (213) 896-6470 • Email for forms: email@example.com §362(d)(3)(B).
Download forms at www.lacba.org/directories 91 11 U.S.C. §§1121(b), (c).
30 Los Angeles Lawyer October 2005