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ees for compiling data and providing Internet access to records pertaining to bankruptcy cases.

Audit Procedures (Section 603). Beginning 18 months after enactment, S. 256 would require that at least one out of every 250 bankruptcy cases under chapter 7 and chapter 13, plus other selected cases under those chapters, be audited by an independent certified public accountant. Based on information from the U.S. Trustees, CBO estimates that less than 1 percent of about 1.6 million cases a year would be subject to potential audits. Each audit would cost roughly $1,000 (in 2005 dollars). CBO also expects that the U.S. Trustees would need about 10 additional analysts and attorneys to support the follow-up work associated with the audits. We estimate that implementing this provision would cost $66 million over the 2006-2010 period.

Additional Judgeships—Support Costs (Section 1223). This provision would extend four temporary bankruptcy judgeships and authorize 28 new temporary bankruptcy judgeships. Based on information from the AOUSC, CBO assumes that about half of the 28 new positions would be filled by the beginning of fiscal year 2006 and the rest would be filled by the start of fiscal year 2007. Also, we anticipate that all four temporary judgeships would be filled by fiscal year 2007. We expect that discretionary expenditures for support costs associated with each judgeship would average about $500,000 annually (in 2005 dollars). CBO estimates that the administrative support of additional bankruptcy judges would cost less than $200,000 in fiscal year 2005 and $76 million over the 2006-2010 period. (Salaries and benefits for the judges are classified as mandatory spending, and those costs are described below.)

Federal Trade Commission Toll-Free Hotline (Section 1301). This section would require the Federal Trade Commission (FTC) to operate a toll-free number for consumers to calculate how long it would take to pay off a credit card debt if they were to make only the minimum monthly payments. Based on information from the FTC about the demand for similar services, CBO expects that the FTC would receive about 20,000 calls each month. CBO estimates that the equipment and personnel necessary to serve this volume of inquires would cost $2 million in 2006 and $6 million over the 2006-2010 period, subject to appropriation of the necessary amounts.

Direct Spending and Revenues

By adding additional judgeships and changing the budgetary classification of bankruptcy filing fees, CBO estimates that enacting S. 256 would increase direct spending by about $45 million over the 2006-2015 period and increase revenues by approximately $140 million over the 2006-2015 period as shown in Table 2.


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TABLE 2. ESTIMATED CHANGES IN DIRECT SPENDING AND REVENUES UNDER S. 256

By Fiscal Year, in Millions of Dollars

CHANGES IN SPENDING SUBJECT TO APPROPRIATION

 

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

20150

CHANGES IN DIRECT SPENDING

Additional Judgeships (Section 1223)

Estimated Budget Authority

*

3

6

6

6

6

6

5

3

3

2

Estimated Outlays

*

3

5

6

6

6

6

5

3

3

2

CHANGES IN REVENUES

Changes in Revenue from Filing Fees

Estimated Revenues

0

-6

-12

30

24

24

16

16

16

16

16

 

 

 

 

Additional Judgeships (Section 1223). CBO estimates that enacting the means-testing provision (section 102) would impose some additional workload on the courts. Section 128 would authorize 28 new temporary bankruptcy judgeships and extend four existing temporary judgeships. Based on information from the AOUSC and other bankruptcy experts, CBO expects that the increase in the number of bankruptcy judges would be sufficient to meet the increased workload. Assuming that the salary and benefits of a bankruptcy judge would average about $177,000 a year (in 2005 dollars), CBO estimates that the mandatory costs associated with the salaries and benefits of those additional judgeships would be less than $100,000 in fiscal year 2005, about $26 million over the 2006-2010 period, and about $45 million over the 2006-2015 period.

Changes in Bankruptcy Filing Fees (Sections 102, 325, and 418). Section 325 would increase the fees charged for filing bankruptcy cases and change the classification of where bankruptcy filing fees are recorded in the budget. Under current law, filing fees are divided between the U.S. Trustee System Fund, the AOUSC, the private trustee assigned to the case, and the remainder are recorded as governmental receipts (i.e., revenues). The percentage of the fees allocated to those different parts of the budget varies by chapter.

During the first 5 years of the new fee structure proposed in S. 256, the increase in the chapter 7, chapter 11, and chapter 13 filing fees above the amounts expected to be collected under current law would be recorded as revenues. During the first 2 years after enactment of S. 256, however, the portion of the fees charged under current law for chapters 7, 13, and 11 that are now recorded as revenues would be recorded as offsetting collections or offsetting receipts. The allocation of those fees would return to the same allocation as under current law after 2 years. In sum, CBO estimates that enacting S. 256 would increase revenues by about $60 million over the 2006-2010 period and by about $144 million over the 2006-2015 period. (The change in offsetting receipts would be matched by additional spending, resulting in no net change in direct spending.)

 

 

 

 

Tax Provisions (Title VII). Title VII of S. 256 would alter several provisions related to tax claims. It would alter the treatment of certain tax liens, disallow the discharge of taxes resulting from fraudulent tax returns under chapter 11 or chapter 13 of the bankruptcy code, require periodic cash payments of priority tax claims, and specify the rate of interest on tax claims. Title VII also would


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change the status of assessment periods for tax claims and would alter various administrative requirements. Based on information from the Internal Revenue Service and the Joint Committee on Taxation, CBO estimates that these provisions would increase revenues, but that any increase would be negligible.

ESTIMATED IMPACT ON STATE, LOCAL, AND TRIBAL GOVERNMENTS

S. 256 contains intergovernmental mandates as defined in UMRA, but CBO estimates that any resulting costs would not be significant and would not exceed the threshold established in UMRA ($62 million in 2005, adjusted annually for inflation). Overall, CBO expects that enacting this act would benefit State and local governments by enhancing their ability to collect outstanding obligations in bankruptcy cases.

Mandates

Section 227 of the act would preempt State laws governing contracts between a debt relief agency and a debtor but only to the extent that those State laws are inconsistent with the Federal requirements set forth in S. 256. Such preemptions are mandates as defined in UMRA. Because the preemption would not require States to take any action, CBO estimates that the costs to comply with this mandate would not be significant.

Section 719 would require State and local income tax procedures to conform to the Internal Revenue Code with regard to dividing tax liabilities and responsibilities between the estate and the debtor, the tax consequences of partnerships and transfers of property, and the taxable period of the debtor. CBO estimates that this provision would increase costs for the administration of State and local tax laws but would not require State and local tax rates to conform to the Federal rates. Such administrative costs would not be significant and would likely be offset by increased collections by State and local governments. 

Other Impacts

The changes to bankruptcy law in the act would affect State and local governments primarily as creditors and holders of claims against debtors for taxes or child support payments. In addition, it would change some of the State statutes that govern which of a debtor's assets are protected from creditors in a bankruptcy proceeding. 

According to the Federation of Tax Administrators, while total bankruptcy filings have increased in the last decade, the proportion of claims collected by States from taxpayers in bankruptcy has remained relatively constant—about 5 percent of claims owed. CBO cannot predict how much more money might be collected under this legislation; however, we think that it is likely that State and local governments would collect a greater share of future claims than they would under current law.

Domestic Support Obligations. S. 256 would enhance a State's ability to collect domestic support obligations, including child support. Domestic support obligations owed to State or local governments would be given priority over all other claims except those same obligations owed to individuals. The act would make those debts nondischargeable (not able to be written-off at the end


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of bankruptcy). The act also would require that filers under chapter 11 and 13 cases pay domestic support obligations owed to government agencies or individuals in order to receive a discharge of outstanding debts. In addition, under S. 256, the automatic stay that is triggered by filing bankruptcy would not apply to domestic support obligations owed by debtors or withheld from regular income as it currently does. The act also would require bankruptcy trustees to notify individuals with domestic support claims of their right to use the services of a State child support enforcement agency and to notify the agency that it has done so. The last known address of the debtor would be a part of the notification.

Exemptions. Although bankruptcy is regulated according to Federal statute, States are allowed to provide debtors with certain exemptions for property, insurance, and other items that are different from those allowed under the Federal bankruptcy code. (Exempt property remains in possession of the debtor and is not available to pay off creditors.) In some States debtors can choose the Federal or State exemption; other States require a debtor to use only the State exemptions. The act would reduce the value of a debtor's homestead exemption under certain circumstances. It also would place a monetary cap on the value of certain property that the debtor may claim as exempt under State or local law. The act would exempt certain types of retirement and education savings as well as contributions to specified employee benefit plans.

These exemption standards would apply regardless of the State policy on exemptions. The new property-value limitations could make more money available to creditors in some cases, while the exemptions on some retirement, education, and other savings generally would make less money available.

Time Limits on Tax Collection. Under some circumstances, a tax claim can qualify for priority status, making it more likely that a State or local government can collect the debt. However, this status is granted only if a tax is assessed within a specific period of time from the date of the bankruptcy filing. If that filing is subsequently dismissed and a new filing is made, the tax claim may lose its priority status. The act would make adjustments to this provision, allowing more time to pass in some circumstances, thus increasing the likelihood that State or local tax claims would maintain their priority status.

Taxes and Administrative Expenses. Under current law, certain expenses and the priority of claims reduce the funds that would otherwise be available to pay tax liens on property. The act would increase the priority of those liens in certain circumstances against certain expenses and claims, thereby making it more likely that funds would remain available to cover tax obligations. The act would allow State and local governments to claim administrative expenses for costs incurred by closing a health care business. The act would provide for a more uniform interest rate on all tax claims and administrative expenses, determined in accordance with applicable nonbankruptcy law rather than at the discretion of a bankruptcy judge.

Tax Return Filing. A number of provisions in the act would require debtors to have filed tax returns before a bankruptcy case may continue. Those provisions would help States identify potential


44

claims in bankruptcy cases where they may be owed delinquent taxes.

Priority of Payments. In some circumstances under current law, debtors have borrowed money or incurred some new obligation that is dischargeable (able to be written-off at the end of bankruptcy) to pay for an obligation that would not be dischargeable. S. 256 would give the new debt the same priority as the underlying debt. If the underlying debt had a priority higher than that of State or local tax liabilities, State and local governments could lose access to some funds. However, it is possible that the underlying debt could be for a tax claim, in which case, the taxing authority would face no loss. Because it is unclear what types of nondischargeable debts are covered by new debt and the degree to which this new provision would discourage such activity, CBO can estimate neither the direction nor the magnitude of the provision's impact on States and localities. 

Municipal Bankruptcy. Title V would clarify regulations governing municipal bankruptcy actions and allow municipalities that have filed for bankruptcy to liquidate certain financial contracts.

Fuel Tax Claims. Under current law, all States owed fuel tax under the International Fuel Tax Agreement must file separate claims against debtors under the bankruptcy code. A provision in title VII would allow a State designated under the agreement to file a single claim on behalf of all States owed the fuel taxes. That provision would simplify the filing process.

Single Asset Cases. Title XII includes a provision that would allow expedited bankruptcy proceedings in certain cases where the debtor's principal asset is some form of real estate. Enacting this provision could benefit State and local governments to the extent that real property is returned to productive tax rolls earlier.

ESTIMATED IMPACT ON THE PRIVATE SECTOR

S. 256 would establish means-testing of individual debtors for determining eligibility for relief under chapter 7 of the bankruptcy code. Under UMRA, duties arising from participation in voluntary Federal programs are not mandates. The bankruptcy process is largely voluntary for debtors, and debtor-initiated bankruptcies are equivalent to participation in a voluntary Federal program. Consequently, new duties imposed by the act on individuals who file as debtors do not meet the definition of private-sector mandates, and additional cost for debtors would not be counted as direct costs for purposes of UMRA.

Mandates

S. 256 would impose private-sector mandates on bankruptcy attorneys, creditors, preparers of bankruptcy petitions, debt-relief agencies, consumer reporting agencies, and credit and charge-card companies. Under the act:

• Consumer bankruptcy attorneys would have to make reasonable inquires to confirm that the information in documents they submit to the court or to the bankruptcy trustee is well-grounded in fact;


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Creditors would have to make disclosures in their agreements with debtors and provide certain notices to the courts and debtors;

Preparers of bankruptcy petitions and debt-relief agencies would also have to provide certain notices to debtors;

• Federal bankruptcy judges would have the authority to prohibit consumer reporting agencies from issuing a report containing any information relating to certain involuntary bankruptcy petitions the court has dismissed; and

• Credit and charge-card companies would have to disclose specified information in monthly billing statements, introductory rate offers for new accounts, Internet-based solicitations, credit extensions secured by a dwelling, and for late payment deadlines and penalties.

In addition, the act would prohibit credit and charge-card companies from terminating a consumer credit account before its expiration date because the consumer has not incurred finance charges. CBO estimates that the direct costs of the mandates in the act would exceed the annual threshold established by UMRA ($123 million in 2005, adjusted annually for inflation). 

 

 

 

 

Requirements For Attorneys. Section 102 of the act would make bankruptcy attorneys liable for misleading statements and inaccuracies in schedules and documents submitted to the court or to the trustee. To avoid sanctions and potential civil penalties, attorneys would need to verify the information given to them by their clients regarding the list of creditors, assets and liabilities, and income and expenditures. Completing a reasonable investigation of debtors' financial affairs and, for chapter 7 cases, computing debtor eligibility, would require attorneys to expend additional effort. Information from the American Bar Association indicates that this requirement would increase attorney costs by $150 to $500 per case. Based on the 1.6 million projected filings under chapter 7 (liquidation) and chapter 13 (rehabilitation), CBO estimates that the direct cost of complying with this mandate would be between $240 million and $800 million in fiscal year 2007, the first full year of implementation, and would remain in that range through fiscal year 2010. CBO expects that some of the additional costs incurred by attorneys would most likely be passed on to their clients.

Notice and Disclosure Requirements. The act would require certain notices to be disclosed as part of the bankruptcy process. Section 203 would require a creditor with an unsecured consumer debt seeking a reaffirmation agreement with a debtor to provide certain disclosures. The agreement reaffirms the debt discharged in bankruptcy between a holder of a claim and the debtor. Those disclosures must be made clearly and conspicuously in writing and include certain advisories and explanations. The required disclosures could be incorporated into existing standard reaffirmation agreements. Section 221 would require preparers of bankruptcy petitions who are not attorneys to give debtors written notice explaining that the preparer may not provide legal advice. Section 228 would require a debt-relief agency providing bankruptcy assistance to give certain written notices to those assisted and to execute written contracts. The act also would require such agencies also to supply certain advisories and explanations regarding the bankruptcy process.


46

Most attorneys and debt-relief counselors currently provide similar information, and CBO estimates that the direct costs of complying with those mandates would be small. 

S. 256 also would require credit lenders to provide additional disclosures to consumers. It would require credit and charge-card companies to include certain disclosures in billing statements with respect to various open-end credit plans regarding the disadvantages of making only the minimum payment. Other disclosures would be required to be included in application and solicitation materials involving introductory rate offers, Internet-based credit card solicitations, credit extensions secured by a dwelling, and for late payment deadlines and penalties. Based on information from credit lenders, CBO estimates that the incremental costs of complying with the additional disclosure requirements would not be substantial.

Prohibition on Consumer Reporting Agencies. Section 332 would give Federal bankruptcy judges the authority to prohibit consumer reporting agencies from issuing a report containing any information relating certain involuntary bankruptcy petitions the court has dismissed. In the event that the court uses such authority, the duty to comply with the prohibition would be considered a private-sector mandate under UMRA. According to industry representatives, the current practice of consumer reporting agencies is to not report any information when a court dismisses an involuntary bankruptcy petition. Therefore, CBO estimates that the cost of complying with such a mandate would be minimal if any.

Requirement for Closing Credit Accounts. In addition, S. 256 would prohibit termination of a credit account before its expiration date because the consumer has not incurred finance charges. According to industry representatives, credit and charge-card companies do not close accounts based solely on the fact that a consumer has not incurred any finance charges. Thus, CBO expects there would be no direct cost to comply with this prohibition.

Other Impacts on the Private Sector

S. 256 also contains many provisions that would benefit creditors. Most significant for creditors are provisions that are expected to shift some debtors from chapter 7 to chapter 13 bankruptcy proceedings and provisions that would expand the types of debts that would be nondischargeable. By expanding the types of debts that are nondischargeable, some creditors would continue to receive payments on debts that would be discharged under current law. Means-testing in the bankruptcy system would likely result in more individuals being required to seek relief under chapter 13 rather than chapter 7. Because chapter 13 requires debtors to develop a plan to repay creditors over a specified period, the total pool of funds available for distribution for creditors would likely increase. As long as the likelihood of repayment by debtors and the pool of funds increases by an amount greater than the cost to creditors of administering the new bankruptcy code, creditors would be made better off under the act.

PREVIOUS CBO ESTIMATE

On February 28, 2005, CBO transmitted a cost estimate for S. 256 as ordered reported by the Senate Committee on the Judiciary


47

on February 17, 2005. The House Committee on the Judiciary approved the same version of S. 256 as passed by the Senate on March 10, 2005. The Senate-passed version of the legislation and the version ordered reported by the Senate Judiciary Committee have different provisions regarding the distribution of bankruptcy filing fees. Our cost estimates reflect those differences.

The private-sector mandates and cost estimates in the two versions of S. 256 are identical, except for the mandate in section 332 of the House Judiciary version. That mandate, prohibiting consumer reporting agencies from issuing a report containing any information relating to certain involuntary bankruptcy petitions the court has dismissed, was not in the previous version. CBO estimates that the aggregate cost of mandates in each version of S. 256 would exceed UMRA's annual threshold for private-sector mandates.

ESTIMATE PREPARED BY:

Federal Spending: Gregory Waring (226-2860)

Federal Revenues: Annabelle Bartsch (226-2720)

Impact on State, Local, and Tribal Governments: Melissa Merrell (225-3220)

Impact on the Private Sector: Paige Piper/Bach (226-2940)

 

ESTIMATE APPROVED BY:

Peter H. Fontaine

Deputy Assistant Director for Budget Analysis

PERFORMANCE GOALS AND OBJECTIVES

The Committee states that pursuant to clause 3(c)(4) of Rule XIII of the Rules of the House of Representatives, S. 256 is intended to improve the bankruptcy system by deterring abuse, setting enhanced standards for bankruptcy professionals, and streamlining case administration. It authorizes the appointment of 28 temporary bankruptcy judgeships to address the 59 percent increase in the caseload of bankruptcy judges since 1992, when additional bankruptcy judgeships were last authorized.

CONSTITUTIONAL AUTHORITY STATEMENT

Pursuant to clause 3(d)(1) of Rule XIII of the Rules of the House of Representatives, the Committee finds the authority for this legislation in Article I, Section 8, Clauses 3 and 4 of the Constitution.

 

SECTION-BY-SECTION ANALYSIS AND DISCUSSION

Sec. 1. Short Title; References; Table of Contents. The short title of this measure is the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ( the "Act").

 

TITLE I. NEEDS-BASED BANKRUPTCY

Sec. 101. Conversion. Under current law, section 706(c) of the Bankruptcy Code provides that a court may not convert a chapter 7 case unless the debtor requests such conversion. Section 101 of the Act amends this provision to allow a chapter 7 case to be converted to a case under chapter 12 or chapter 13 on request or consent of the debtor.


48

Section 102. Dismissal or Conversion. Section 102 implements needs-based debt relief, the legislation's principal consumer bankruptcy reform. Under section 707(b) of the Bankruptcy Code, a chapter 7 case filed by a debtor who is an individual may be dismissed for substantial abuse only on motion of the court or the United States trustee. It specifically prohibits such dismissal at the suggestion of any party in interest.

Section 102 of the Act revises current law in several significant respects. First, it amends section 707(b) of the Bankruptcy Code to permit—in addition to the court and the United States trustee—a trustee, bankruptcy administrator, or a party in interest to seek dismissal or conversion of a chapter 7 case to one under chapter 11 or 13 on consent of the debtor, under certain circumstances. In addition, section 102 of the Act changes the current standard for dismissal from "substantial abuse" to "abuse." Section 102 of the Act also amends Bankruptcy Code section 707(b) to mandate a presumption of abuse if the debtor's current monthly income (reduced by certain specified amounts) when multiplied by 60 is not less than the lesser of 25 percent of the debtor's nonpriority unsecured claims or $6,000 (whichever is greater), or $10,000.

To determine whether the presumption of abuse applies under section 707(b) of the Bankruptcy Code, section 102(a) of the Act specifies certain monthly expense amounts that are to be deducted from the debtor's "current monthly income" (a defined term). These expense items include:

• the applicable monthly expenses for the debtor as well as for the debtor's dependents and spouse in a joint case (if the spouse is not otherwise a dependent) specified under the Internal Revenue Service's National Standards (with provision for an additional five percent for food and clothing if the debtor can demonstrate that such additional amount is reasonable and necessary) and the IRS Local Standards;

• the actual monthly expenses for the debtor, the debtor's dependents, and the debtor's spouse in a joint case (if the spouse is not otherwise a dependent) for the categories specified by the Internal Revenue Service as Other Necessary Expenses;

• reasonably necessary expenses incurred to maintain the safety of the debtor and the debtor's family from family violence as specified in section 309 of the Family Violence Prevention and Services Act or other applicable Federal law, with provision for the confidentiality of these expenses;

• reasonably necessary expenses for health insurance, disability insurance, and health savings account expenditures for the debtor, the debtor's spouse, and dependents of the debtor;

• the debtor's average monthly payments on account of secured debts and priority claims as explained below; and

• if the debtor is eligible to be a debtor under chapter 13, the actual administrative expenses of administering a chapter 13 plan for the district in which the debtor resides, up to 10 percent of projected plan payments, as determined under schedules issued by the Executive Office for United States Trustees.

 

 

 

 

 

 

 

 

 


49

With respect to secured debts, Section 102(a)(2)(C) of the Act specifies that the debtor's average monthly payments on account of secured debts is calculated as the sum of the following divided by 60: (1) all amounts scheduled as contractually due to secured creditors for each month of the 60-month period following filing of the case; and (2) any additional payments necessary, in filing a plan under chapter 13, to maintain possession of the debtor's primary residence, motor vehicle or other property necessary for the support of the debtor and the debtor's dependents, that serves as collateral for secured debts. 

With respect to priority claims, section 102(a)(2)(C) of the Act specifies that the debtor's expenses for payment of such claims (including child support and alimony claims) is calculated as the total of such debts divided by 60.

The provision permits a debtor, if applicable, to deduct from current monthly income the continuation of actual expenses paid by the debtor that are reasonable and necessary for the care and support of an elderly, chronically ill, or disabled household member or member of the debtor's immediate family (providing such individual is unable to pay for these expenses).

Under section 102, a debtor may also deduct the actual expenses for each dependent child of a debtor to attend a private or public elementary or secondary school up to $1,500 per child if the debtor: (1) documents such expenses, and (2) provides a detailed explanation of why such expenses are reasonable and necessary. In addition, the debtor must explain why such expenses are not already accounted for under any of the Internal Revenue Service National and Local Standards, and Other Expenses categories.

Other expenses that a debtor may claim include additional housing and utilities allowances based on the debtor's actual home energy expenses if the debtor documents such expenses and demonstrates that they are reasonable and necessary.

While the Act replaces the current law's presumption in favor of granting relief requested by a chapter 7 debtor with a presumption of abuse (if applicable under the income and expense analysis previously described), it does provide that this presumption may be rebutted under certain circumstances. Section 102(a)(2)(C) of the Act amends Bankruptcy Code section 707(b) to provide that the presumption of abuse may be rebutted only if: (1) the debtor demonstrates special circumstances, such as a serious medical condition or a call or order to active duty in the Armed Forces, to the extent such special circumstances justify additional expenses or adjustments of current monthly income for which there is no reasonable alternative; and (2) the additional expenses or adjustments cause the product of the debtor's current monthly income (reduced by the specified expenses) when multiplied by 60 to be less than the lesser of 25 percent of the debtor's nonpriority unsecured claims, or $6,000 (whichever is greater); or $10,000. In addition, the debtor must itemize and document each additional expense or income adjustment as well as provide a detailed explanation of the special circumstances that make such expense or adjustment necessary and reasonable. Further, the debtor must attest under oath to the accuracy of any information provided to demonstrate that such additional expense or adjustment to income is required.

 

 

 

 

 

 

 

 


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To implement these needs-based reforms, the Act requires the debtor to file, as part of the schedules of current income and current expenditures, a statement of current monthly income. This statement must show: (1) the calculations that determine whether a presumption of abuse arises under section 707(b) (as amended), and (2) how each amount is calculated.

An exception to the needs-based test applies with respect to a debtor who is a disabled veteran whose indebtedness occurred primarily during a period when the individual was on active duty (as defined in 10 U.S.C. Sec. 101(d)(1)) or performing a homeland defense activity (as defined in 32 U.S.C. 901(1)).

In a case where the presumption of abuse does not apply or has been rebutted, section 102(a)(2)(C) of the Act amends Bankruptcy Code section 707(b) to require a court to consider whether: (1) the debtor filed the chapter 7 case in bad faith; or (2) the totality of the circumstances of the debtor's financial situation demonstrates abuse, including whether the debtor wants to reject a personal services contract and the debtor's financial need for such rejection.

Under section 102(a)(2)(C) of the Act, a court may on its own initiative or on motion of a party in interest in accordance with rule 9011 of the Federal Rules of Bankruptcy Procedure, order a debtor's attorney to reimburse the trustee for all reasonable costs incurred in prosecuting a section 707(b) motion if: (1) a trustee files such motion; (2) the motion is granted; and (3) the court finds that the action of the debtor's attorney in filing the case under chapter 7 violated rule 9011. If the court determines that the debtor's attorney violated rule 9011, it may on its own initiative or on motion of a party in interest in accordance with such rule, order the assessment of an appropriate civil penalty against debtor's counsel and the payment of such penalty to the trustee, United States trustee, or bankruptcy administrator. This provision clarifies that a motion for costs or the imposition of a civil penalty must be made by a party in interest or by the court itself in accordance with rule 9011.

Section 102(a)(2)(C) of the Act provides that the signature of an attorney on a petition, pleading or written motion shall constitute a certification that the attorney has: (1) performed a reasonable investigation into the circumstances that gave rise to such document; and (2) determined that such document is well-grounded in fact and warranted by existing law or a good faith argument for the extension, modification, or reversal of existing law and does not constitute an abuse under section 707(b)(1). In addition, such attorney's signature on the petition constitutes a certification that the attorney has no knowledge after an inquiry that the information in the schedules filed with the petition is incorrect.

Section 102(a)(2)(C) of the Act amends section 707(b) of the Bankruptcy Code to permit a court on its own initiative or motion by a party in interest in accordance with rule 9011 of the Federal Rules of Bankruptcy Procedure to award a debtor reasonable costs (including reasonable attorneys' fees) in contesting a section 707(b) motion filed by a party in interest (other than a trustee, United States trustee or bankruptcy administrator) if the court: (1) does not grant the section 707(b) motion; and (2) finds that either the movant violated rule 9011, or the attorney (if any) who filed the motion did not comply with section 707(b)(4)(C) and such was made

 

 

 

 

 

 

 

 


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