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October 18, 2000
Summary of Key Provisions of the Bankruptcy Reform
Conference Report
(H.R. 2415, as passed by the House on
October 12, 2000)
CONSUMER PROVISIONS
Needs-Based Bankruptcy
- Establishes a presumption that a debtor is abusing Chapter 7 when
his monthly income, multiplied by 60, is not less than the lesser of (a)
25% of the debtor’s nonpriority unsecured claims or $6,000 (whichever is
greater); or (b) $10,000.
- Allows a debtor to rebut the presumption of abuse by demonstrating
special circumstances that justify additional expenses or adjustments to
the debtor’s income.
- Allows the debtor to claim applicable monthly expenses under the IRS
National and Local Standards, plus the following: (a) actual monthly
expenses for categories specified by the IRS as Other Necessary
Expenses; (b) reasonably necessary expenses to maintain safety of the
debtor and his family from domestic violence; (c) an additional
allowance (up to 5% of the IRS National Standards) for reasonable and
necessary food and clothing; (d) reasonable and necessary actual
expenses for the care and support of an elderly, chronically ill, or
disabled member of the debtor’s household or immediate family; (e)
actual administrative expenses of a Chapter 13 case (up to 10% of plan
payments) as determined by the Executive Office for United States
Trustees; (f) actual expenses (up to $1,500 per year) for the debtor’s
child to attend a private elementary or secondary school; (g) payments
to secured creditors, plus any additional necessary payments to enable
continued possession of a primary residence, motor vehicle, or other
collateral that is necessary for the support of the debtor and
dependents.
- Creates two debtor safe harbors: (a) Only the judge, U.S. Trustee,
or bankruptcy administrator may seek dismissal of a Chapter 7 for abuse
(as defined above) if the debtor’s income is equal or less than the
applicable state median income; (b) No party may seek dismissal of a
Chapter 7 based on the debtor’s ability to repay debts if the debtor’s
income is equal or less than the applicable state median income.
- Requires the Executive Office for United States Trustees to review
petitions and file motions for dismissal under the needs-based test.
However, this requirement is discretionary if the debtor’s income is
between 100% and 150% of the applicable state median income, and the
debtor’s income does not exceed a specified monetary threshold. The U.S.
Trustee must file the statement of review not later than 10 days after
the first meeting of creditors.
Chapter 13
- Makes the needs-based expense restrictions applicable to a Chapter
13 debtor over the repayment plan’s duration (up to five years) if the
debtor’s income exceeds a specified monetary threshold.
- The court must find that the Chapter 13 was filed in good faith as a
condition of confirmation.
Truth-in-Lending Act Amendments
- Requires consumer lenders to make new disclosures regarding minimum
payments, introductory rates, tax consequences of home equity loans, and
late payment deadlines and penalties; mandates availability of further
information via a toll-free telephone number. Prohibits the imposition
of retroactive finance charges on open-end credit card accounts.
Requires any Internet-based credit card solicitation to be accompanied
by or linked to Federal Trade Commission consumer credit
information.
Secured Loans
- Prohibits any "cramdown" of a debt secured by a purchase money
security interest in a motor vehicle acquired for the debtor’s personal
use if the debt was incurred in the five-year period preceding the
filing. Prohibits "cramdown" of debts secured by other property if
incurred within one year prior to filing.
- Specifies that the value of a claim secured by personal property is
replacement value, without deduction for marketing or sales costs.
- Caps a debtor’s homestead exemption at $100,000 if the homestead was
acquired within two years prior to filing; the cap exempts equity
transferred from a prior principal residence in the same
state.
Reaffirmation Agreements
- Requires debtors to receive extensive, standardized disclosures and
explanations prior to committing to reaffirmation. Establishes a
presumption of undue hardship (requiring judicial disapproval) if debtor
has insufficient income to pay the debt. Exempts debts to credit unions
from these new protections.
Tax Returns
- Requires Chapter 7 or 13 debtors to submit either a tax return or
transcript for the taxable period prior to case filing. Provides
creditors with such documents upon request.
Credit Counseling
- Conditions eligibility to file for bankruptcy on debtor’s
consultation with approved credit counselor within 180 days prior to
filing. Counseling may occur via telephone or the Internet.
Retirement and Education Savings
- IRS-qualified retirement funds are sheltered from creditors.
- Education IRAs and tuition program credits are sheltered from
creditors if for a family member and made at least one year prior to
filing; contributions made between one and two years prior to filing are
subject to a $5,000 cap.
Creditor Representation
- Allows a creditor to be represented by a non-attorney at the first
meeting of creditors.
Nondischargeable Debts
- Debt incurred to pay a state or local tax is nondischargeable (such
debt is nondischargeable for federal taxes under current
law).
Abusive Filings
- Extends time between permissible Chapter 7 filings to eight years
after prior discharge, and five years for Chapter 13 filings.
Anti-Loading Up
- Establishes presumption of nondischargeability for charges for
"luxury goods and services" made within 90 days prior to filing and
exceeding $250, and for cash advances exceeding $750 and made within 70
days prior to filing. "Luxury goods and services" are defined as those
not reasonably necessary for support of the debtor or
dependents.
Secured Lender Protections
- A Chapter 7 debtor is required to reaffirm or redeem a loan secured
by personal property within 45 days of filing, or surrender the
property.
- A secured creditor in Chapter 13 retains its lien on the collateral
until debt payment is completed or the debtor receives a
discharge.
COMMERCIAL PROVISIONS
Shopping Center Leases
- Requires debtor or trustee to assume or reject a non-residential
real property lease within 120 days or the date of plan confirmation,
whichever comes earlier. The court may grant a one-time, 90-day
extension for cause; additional extensions may only be granted with the
lessor’s written consent.
Chapter 12
- Chapter 12 is made permanent. Monetary limits for eligibility are
indexed to the Consumer Price Index going forward.
Exclusivity
- Prevents judge from extending the Chapter 11 exclusivity period
(during which only the debtor may propose a reorganization plan) for
more than 18 months.
Small Business Bankruptcy
- Establishes an expedited form of Chapter 11 reorganization for
businesses with less than $3 million in aggregate debts.
Reclamation
- Establishes a new, expanded federal reclamation right for trade
creditors (shippers of goods) that permits them to take back goods from
a debtor, and enlarges their administrative claim against the estate.
However, goods providing collateral for secured lenders may not be
reclaimed.
Employee Benefits
- Excludes withheld employee benefit and health care contributions
from property of the estate.
Financial Instruments
- Amends the Bankruptcy Code and the Federal Deposit Insurance Act to
ensure that the insolvency of any party to a swap or similar financial
instrument does not disrupt financial markets.
Preferences
- Makes technical improvements to 1994 language overturning the effect
of the Deprizio decision.
Single Asset Real Estate
- Expands protection against abusive commercial realty reorganizations
by striking the $4 million debt cap contained in current
law.
ADMINISTRATIVE PROVISIONS
Direct Appeal
- Allows direct appeal of bankruptcy court decisions to the court of
appeals if the district court fails to act within 30 days of the
appeal’s filing, unless the parties to the case agree that the district
court shall hear the appeal.
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