The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 is enormously complicated and presents numerous challenges to lawyers representing consumer debtors in both Oregon and Washington. Consumer bankruptcy lawyers cannot afford to be only dimly aware of these new requirements and to learn the new law in stages. Rather, they must be vigilant in educating themselves and in mastering the law now. One mistake can lead to dismissal of a client’s petition.
Below are the top seven mistakes to avoid:
1. Failing To Receive Credit Counseling Before Filing Bankruptcy
Perhaps the biggest mistake a debtor’s attorney can make is to fail to ensure that the debtor has received a credit counseling before ﬁling for bankruptcy. Under the new laws, an individual debtor must have received, during the 180-day period preceding the ﬁling, a brieﬁng from an approved credit counseling agency. The debtor must ﬁle a certiﬁcate from the agency that the debtor received the required brieﬁng with the court. In the years since the Act’s effective date, many individual debtors have seen their petitions dismissed for this reason; some courts have been particularly insistent in enforcing the requirement and in narrowly interpreting its “exigent circumstances” exception. Thankfully, the briefings are available across both Oregon and Washington and can be completed online.
2. Failing To Investigate Prior Bankruptcies
There are a number of new restrictions on repeat bankruptcies. In order to ascertain whether a new ﬁling is in the best interests of the debtor and will result in the desired bankruptcy protection, the debtor’s attorney must investigate whether and when the debtor has previously ﬁled for bankruptcy as well as the outcome of those ﬁlings.
First, if the debtor has been granted a discharge under chapter 7 in a case commenced within eight years before the date of the ﬁling of the bankruptcy petition, a debtor will be denied a chapter 7 discharge. Second, if the debtor received a discharge in a chapter 7, 11 or 12 case that was ﬁled during the four years before the ﬁling of the chapter 13 case, the debtor cannot receive a chapter 13 discharge. This provision, prevents a debtor from receiving a discharge in a chapter 13 case ﬁled soon after a chapter 7 case but does not. Third, if a case is ﬁled by a debtor under any chapter and the debtor has had two or more prior cases dismissed within the preceding one-year period, the automatic stay will not go into affect.
3. Debtor Failing To Complete A Financial Education Course
Subject to certain exceptions, most individual debtors in chapter 7 and 13 cases are now required to complete an approved ﬁnancial management course before they can obtain a bankruptcy discharge. Obviously, such a course must be provided after the petition is ﬁled and before a discharge is sought. In a chapter 7 case, the window for obtaining the course is narrow, and the Interim Bankruptcy Rules, adopted as local rules in every district, require the course certiﬁcate to be ﬁled within 45 days after the meeting of creditors. In a chapter 13 case, the course could occur early or late in the case. The debtor’s attorney who does not ensure that the debtor completes an approved ﬁnancial management course commits a grave error, for without a discharge, the purpose of the bankruptcy ﬁling will have been largely negated.
4. Failing To Check Residency For Past 2 Or 2.5 Years
The 2005 legislation considerably lengthened the domicile requirement that a debtor must satisfy before availing himself of either Oregon or Washington law. This change is an apparent attempt to discourage certain debtors from moving to states with more generous exemption rights in contemplation of ﬁling bankruptcy. If a debtor elects exemptions under state law, the debtor’s exemptions are now determined based upon the law of the state where the debtor has been domiciled for the 730 days before the petition. Previously the period used for determining the debtor’s domicile was 180 days before the petition or the longest portion of that 180 days. If the debtor has not been domiciled in the same state for 730 days, exemptions are determined based upon the state where the debtor was domiciled for the 180 days before that period or for the longest portion of that 180 days. If the effect of this provision is to render the debtor ineligible for any state’s exemption, the debtor may use the federal exemptions, notwithstanding that the state of the debtor’s domicile is an opt-out state. The combined effect of the longer 730-day period (plus the additional 180-day period) for determining the applicable exemption law and the unchanged 180-day period for determining venue is that the law of the debtor’s domicile, for purposes of section 522, may be different from the law of the forum, as when the debtor’s place of residence or business is in one state and the domicile is in another. In such cases, the court must give effect to those exemptions allowed by the law of the state of domicile, and it makes no difference where the property is situated or where the petition is ﬁled, so long as the property is exempt under
5. Failing To Obtain Tax Transcript Or Returns
At the request of the court, the United States trustee, or a party in interest, an individual debtor must ﬁle with the court the following documents:
· a copy of the federal income tax return (or transcript) for a tax year ending during the time the case is pending, at the same time it is ﬁled with the taxing authority;
· a copy of any tax return (or transcript thereof) ﬁled for a tax year ending in the three years before the petition, at the time it is ﬁled with the taxing authority; and
· a copy of any amendments to such returns. In addition, at least seven days before the section 341 meeting, the debtor must provide to the trustee a copy of the federal income tax return required under applicable law for the most recent tax year ending immediately before the commencement of the case and for which a federal income tax return was ﬁled, or a tax transcript of the return. The transcript or return must also be provided to any creditor that requests it at that time. If the debtor does not provide a required return or transcript to the trustee or to a creditor that timely requests it, the case must be dismissed, unless the debtor shows that failure is due to circumstances beyond the debtor’s control.
6. Failing To Review Debtor’s Income Over Past Six Months
The most signiﬁcant change made by the 2005 legislation, and the change most lawyers are aware of, is the introduction of means testing. Under amended section 707, the court can dismiss the debtor’s chapter 7 petition if the debtor is found to have sufﬁcient means to repay creditors. However, it is crucial to note that the means test does not apply to those debtors whose “current monthly income,” multiplied by 12, is equal to or less than the state’s median income. “Current monthly income” is deﬁned as the average of the last six months’ income received from all sources. Assuming that the debtor ﬁles a schedule of current income, the six-month period is the six months ending on the last day of the month before the petition is ﬁled. Thus, waiting until a new month begins may affect the calculation of “current monthly income” of a debtor with irregular income. Sometimes, if a debtor has been unemployed or has otherwise lost or gained income, waiting a month or two may radically change “current monthly income.” Consequently, it will be important for the debtor’s attorney to review recent changes in the debtor’s income and determine whether it would be advantageous to delay ﬁling so as to arrive at a “current monthly income” that is equal to or below the state’s median income.
7. Failing to Provide Bank Statement and Proof Of Income At 341
The 2005 legislation imposes numerous new document production requirements on individual debtors. In addition, new rules adopted by most courts, supplement the statutory requirements, requiring each individual debtor to bring to the section 341 meeting of creditors and make available to the trustee several types of documents. Speciﬁcally, the following items are are required by the Interim Rule: (1) evidence of current income, such as the most recent payment advice; and (2) statements from the debtor’s depository and investment accounts that cover the period during which the petition was ruled. According to the Interim Rule, the latter would include “checking, savings, and money market accounts, mutual funds and brokerage accounts.”