The Bankruptcy Lawyers Blog

BARF is a competition between creditors trying to get a leg up on other creditors, and to get the last dime out of the consumer. Just look at the tension between the IRS/child support as priority creditors, car dealers getting the full benefit of the bargain, and the feeble attempt by the other unsecured creditors to get more money by tinkering with the homestead exemptions, 10 year lookback period, etc.

Let's face it, we only have BK because creditors fight among themselves to be first in line. As has been said BK, is an ORDERLY method to get debtors to pay as much as they can---while BARF may have started out by general unsecureds to get more money it wound up as a big fight between pesky creditors to be first in line, i.e., the pecking order was readjusted. Car dealers just got in front of general unsecureds with the 910 day rule. The IRS just got in front of general unsecureds by doing away with the super discharge. DMPs got in front of general unsecured creditors by making those pre-petition payments non-avoidable as a preference. Child support got in front of everyone.

The general unsecureds would then have gotten less than they were getting, so BARF had to generate more revenue, since the above greedy creditors just cut themselves a bigger piece of the existing pie, and they all needed to work together to get BARF passed. Thus we have the emphasis on exemptions/documentation, one tv, one vcr, one computer, the 10 year "lookback" period, the 1215 day homestead rule, the 730 day homestead rule, the IRS guidelines, etc. While these are the most onerous provisions of BARF, they are really just bones tossed to the general unsecureds who toted the freight to pass BARF.

The amount of money general unsecureds will get under BARF may actually wind up being less than they got before BARF. I mean just how much money is a used tv going to generate, and any lost homestead will probably get eaten up by taxes, car payments, etc.

These folks need to call a spade a spade. BARF is the best the creditors could do playing leap frog.

Written by Kathy Cruz - Hot Springs Arkansas

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Although I agree that there is a need to have a method whereby attorneys can easily facilitate credit counseling over the internet, I am concerned about some of the anxiety that some folks are causing by over-emphasizing the role credit counseling agencies will play in diverting bankruptcy clients to Debt Management Programs. A couple things I would like to point out in order to balance out what I consider to be an effort to alarm lawyers:

How many clients come to an attorney and say, "I really, really want to file bankruptcy, but tell me a bit about a debt management program"? My point being, that once a debtor is consulting with a bankruptcy lawyer, he has likely already consulted with a credit counseling agency or debt settlement company who has told the him that debt management and/or debt settlement is not a viable option. And, the client is usually only coming to a bankruptcy lawyer as a last resort.

Once the client has paid a lawyer for an initial retainer and possibly a credit report and the briefing, the client is unlikely to abandon the case. Lawyers can even have clients complete paying the entire fee and then have the client take the briefing, further reducing any concern. Or, have the client take the briefing in the lawyer's office with a paralegal sitting close by to answer any preliminary questions.

By credit counselors own admission, less than 3% of those debtors being sent to them for the briefing would even qualify for DMP. By my estimates, even at $30 a piece, assuming a 20% drop in filings in the next 12 months, the new law has carved out a $36 MILLION dollar revenue stream for the credit counseling industry. I don't think the credit counseling agencies are going to want to jeopardize getting as big a piece of that market as possible by sifting off 3% of cases into DMPs. And, if the briefing is completely online, the margin for the counseling agency is almost 100% (minus development and small other overhead costs).

So, my point is, let's not all get alarmed about clients getting stolen by DMPs. And, for the few and far between that go into DMPs, 80% of them fail anyway and the client will likely be coming back to finish the case.

Just some food for thought.

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Quite a few people have been asking around as to what the story is with a Bankruptcy Relief Bill for Katrina victims. There has been much speculation and a hefty dose of rumors.

The bill that comes closest to the mark (at least from a consumer and a consumer advocates' perspective) is titled the "Hurricane Katrina Bankruptcy Relief and Community Protection Act of 2005" and has been put forth by Feingold, Landrieu, Lieberman, Obama, Boxer and Feinstein and H. Clinton (among others).

It is currently scheduled to be "marked up" by the Senate Judiciary Committee next week, however, as mentioned in an earlier post, it may never get officially 'heard'.

For what it's worth - I've posted it for you here. Download file

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PILGRIM: New bankruptcy laws take effect on October 17th. If people earn more than the median income in their state and declare bankruptcy, they'll be forced to repay their debt. So the escape hatch for many of these families, Lou, is closing very fast.

DOBBS: Yes, this is utterly an assault on the middle class right now. It is absolutely unconscionable what Congress did with the bankruptcy law. Is it a travesty by any standard.

And the idiots at the U.S. Treasury Department suggesting raising minimum payments on credit cards at this point when so many families are strapped in this country is utterly, utterly mindless.

PILGRIM: Many of the debt experts are saying this is the perfect storm. This is a disaster for middle America.

DOBBS: It's just imperfect leadership on the part of our elected officials, storm or not. Thank you very much.

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What is it going to take for Congress to provide Katrina victims some relief - without lawmakers, so completely out of touch with the survivors, blocking the effort?

--"I don't know why some of my colleagues are actually encouraging people..to file for bankruptcy, because it's a stigma that wrecks your credit record for at least eight years." - House Judiciary Committee Chairman F. James Sensenbrenner

(Crafting law for the most advanced nation on the planet and he can't find a way to give these people credit?)

--"For someone who is genuinely poor and down and out and doesn't have the ability to repay their debts, there is no change at all," - Sensenbrenner

("No change"?? What about putting these people through the Bankruptcy Means Test, Debtor Education and Credit Counseling Certification? What about hiring an attorney who has to sort through 500 pages of new requirements? What about the additional expense?)

--Sensenbrenner stated that he would NOT hold hearings for relief from bankruptcy for Katrina survivors.

(Why not lend a helping hand here? Well we can only guess - although it's hard not to suspect that there is more here than meets the eye - after all Sensenbrenner holds nearly $250,000 in credit card stock and has received approximately $92,000 in donations from credit card company PAC's.)

I don't know how many Katrina victims can fall back on a quarter of a million in stock, but my guess is, not many.

How can anyone with that kind of financial backing, sitting dry, on Capitol Hill, even begin to understand the plight of a catastrophe refugee? We're talking about people who have been huddled in a shelter trying to reconstruct their financial records on scrap paper - people who don't even know if their old job will resurface by 2006. People whose attention is on vitals like, clean water and clothes, disease prevention and finding family members. And the Chairman has the gall to say, effectively, 'we're not going to talk about it anymore'!?

Going through a few extra hurdles isn't a problem? Come on, get in touch. Here's a little help >> Google Video

Also see:
Consumer Affairs: Congress Ponders Katrina Bankruptcy Relief
Vitter-Landrieu Lousiana Katrina Reconstruction Bill (pdf)

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Amidst all the concern about the death of Chapter 7 under BAPCPA, an article in the New York Times discussing the additional bankruptcy hurdles faced by victims of Hurricanes Katrina and Rita does note that all is not completely lost under the new law.

In the article, Todd J. Zywicki, a law professor at George Mason University, says that "the new legislation is perfectly suited to deal with circumstances such as this [individuals who have been affected by the hurricanes]." According to Zywicki, Section 707 gives bankruptcy judges the discretion to identify victims of "special circumstances" like hurricanes, and to let them use Chapter 7 even if they don't qualify under the means test. Although professor Zywicki is probably being a little overly optimistic here, practitioners should remember that Section 707 does allow debtors to avoid the harsh effects of the means test if they can establish "special circumstances." However, as Section 707 does not define the term "special circumstances," and only sets out a few non-exhaustive examples of what qualifies as a special circumstance (such as a serious medical condition or a call to active duty in the armed forces), good and creative lawyering will be necessary to help hardship debtors who can't satisfy the means test to proceed under Chapter 7.

Our Start Fresh Today bankruptcy filing tools were architected to take the requirements into account and give the attorneys clear answers when filing after the law changes.

The purpose behind our online Means Test and Due Diligence package is to let you quickly evaluate whether your clients satisfy the means test, and if they don't, gather information that may help you establish a special circumstance. You need all the help you can get!

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See Amy Crane's - Yahoo Finance article, "New bankruptcy law requires credit counseling"

Of particular interest to bankruptcy attorneys is that, "Provisions in the new bankruptcy law mandate credit counseling before a bankruptcy can be filed and a personal financial management seminar (debtor education )before a bankruptcy is complete."

"Federal agencies, courts, attorneys and credit counseling agencies are scrambling to comply with the many changes in this new law" - Amy Crane

I'm speaking with Bankruptcy Attorneys across the country, on a daily basis, who are saying, "I don't see how I could manage filing for a client once the law changes, without...(hiring more staff, hiring a tax attorney, etc)". Attorneys are coming to grips with what is ahead and are realizing that it will be a daunting proposition just to weed through the tax forms to calculate the means test, much less to determine where to send their client for credit counseling.

When building StartFreshToday's new online filing tools, we foresaw that this rapid change would be a headache for those in the court system as well as the attorneys, which is why we have created an interface for the attorneys AND the trustees to co-manage and preview client filings in an effort to keep the whole process under the BAPCPA regulations as seamless as possible.

StartFreshToday's tools handle the bankruptcy means test, credit counseling certification, debtor education and an attorney's due diligence requirements all in one secure place. And all through a simple walkthrough format that lets attorneys save as they go, return as often as necessary, track filing status and navigate the new law without sifting for answers amidst a stack of the latest version of Federal BAPCPA documents.

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The United States Trustee has compiled a list of approved credit counseling agencies pursuant to 11 U.S.C. §111. Available on its website at U.S.Trustee Program/Dept. of Justice, the list provides contact information (including website addresses) for all approved credit counseling agencies in each U.S. judicial district. StartFreshToday.com has developed a 90-minute online briefing that it is providing to a number of credit counseling agencies to facilitate administration of their briefings.
Since StartFreshToday is not a not-profit credit counseling agency, StartFreshToday will not be on the UST list, but StartFreshToday will facilitate the relationship between your client and the credit counseling agency. You can order a briefing on the site, the client can take the online briefing on the site and the certificate of completion will be posted on StartFreshToday.

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With a new law that spans 500+ pages, how can attorneys possibly be expected to continue to offer quality service to ailing individuals given the huge undertaking that will be required to get a filing completed?

A few quick searches online revealed some sentiments that I'm sure many Bankruptcy Attorneys are feeling right now:

-"attorneys and other bankruptcy specialists say the new law that goes into effect Oct. 17 is complicated and they are not sure of all the consequences."

-Camille Hope, (a Chapter 13 Trustee in Georgia) commented that, "I'm concerned that people who need help won't be able to get it," she said, "or a lawyer who makes a small mistake will not be able to get it corrected, and that's not going to help anybody."

-"Attorneys are not going to be able to offer a service this complicated for some small amount of money," Hope said. "(Attorneys) are not going to be able to put them in a Chapter 13. They will have to put them in a Chapter 7, or they will just have to let them go."

-- Above quotes taken from The Macon Telegraph

Bankruptcy Lawyers will not be able to keep a thriving practice without automating the process, there are simply too many ins and outs required to file that can't be managed quickly and efficiently anymore. Hence the reason we've spent the last 6 months developing software to simplify the means test, debtor education, credit certification and due diligence requirements.

StartFreshToday.com launches in time for bankruptcy attorneys to make a smooth transition to filing under BAPCPA requirements on October 17th. Take a quick look around and let us answer any questions you have about how the tools will handle your post-reform filings.

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If a debtor makes more than the median income and, therefore, The Means Test
applies, the amount of priority tax debt has to be evaluated to 1) determine
how much to claim as an average monthly priority debt payment, and 2)
resolve whether disposable income will provide for payment of the lesser of
$10,000 or 25% to unsecured creditors over 60 months. In the past, an
attorney may have recommended to a client to diminish cash assets by paying
down priority tax debts. The trustee would have been unlikely to bring a
preference action against the IRS as the IRS would have been paid first out
of the proceeds of the preference action. So, rather than letting the cash
asset be liquidated, better to use that asset to pay down non-dischargeable
tax debt.

Under the BAPCPA, an attorney may have to tread a bit more lightly. If the
client pays off priority IRS debt, it will serve to 1) reduce the average
monthly priority debt payment and 2) reduce the total amount of unsecured
debt. In the post Bankruptcy Reform Act world, you may want to think twice
about advising your client to pay down the priority tax debt as you may need
the additional priority debt payment to reduce disposable income and to keep
unsecured debt at a high level so that disposable income will not afford the
ability to pay $10,000 or 25% to unsecured creditors.

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I found an interesting pdf report, regarding bankruptcy filing projections, put together by the Executive Office for U.S. Trustees way back in early 2001. Surprisingly enough their estimates were close enough to the mark for this to be worth a good read considering where bankruptcy reform is today. Obviously their projection for 'when' reform would be signed into law was a few years off, nonetheless, if you're contemplating what your bankruptcy practice will look like come 2006, this is for you.

See the bankruptcy filing projections document.

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"Fighting Back - Helping Debtors Survive the New Bankruptcy Law"

The conference here in Orlando is buzzing with energy, bankruptcy attorneys that we are speaking with are feeling good about adapting to the new law change by leveraging with the latest technology.

We hope that you will take a minute to come by the Start Fresh Today booth and introduce yourself!

Also of note - if you want to stay ahead of the curve, Google launched a new tool this week that allows you to search blogs. Do a search for "bankruptcy reform" and keep yourself in the know.

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Associated Press reports some Katrina victims having no other option but to turn to credit card debt to survive. Read the interview on MSNBC Hurricane Victims Piling up Credit Card Debt

Note that Helen Salazar-Realini - a Miami financial planner, comments that "people in such a dilemma should seek consumer credit counseling".

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Excerpt from an email sent from the American Bankruptcy Institute that continues the Katrina bankruptcy conversation.

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"HURRICANE KATRINA AFTERMATH

Fifth Circuit Extends Emergency Order

The U.S. Court of Appeals for the Fifth Circuit has issued an emergency order detailing its operations in the immediate future. The court system has been closed since Aug. 26 due to Hurricane Katrina.

All bankruptcy filing deadlines are extended until Oct. 10, 2005. Trial and hearing dates will be rescheduled at a later date.

For questions regarding the local U.S. Trustees Office, go to www.usdoj.gov/ust/r05 . For information about local chapter 13 cases, check the Web site for S.J. Beaulieu Jr., the chapter 13 trustee, at www.13network.com/trustees/nor/norhome.asp .

Congress Considers Katrina Bankruptcy Relief Legislation

House Judiciary Committee Ranking Member Rep. John Conyers (D-Mich.) and 27 additional Democratic co-sponsors introduced legislation on Sept. 8 to provide bankruptcy relief for victims of Hurricane Katrina. H.R. 3697, the "Hurricane Katrina Bankruptcy Relief and Community Protections Act of 2005," is designed to provide flexibility in BAPCPA for victims of natural disasters. Senator Russ Feingold (D-Wis.) and 14 other Democratic senators, introduced similar legislation in the Senate. Because provisions in existing law already allow courts to grant exceptions for "special circumstances," congressional action is uncertain.

The new bills would provide a one-year grace period for hurricane victims. Cases filed within one year of the effective date of the new law by people who live in the natural disaster area declared by the President will be handled under the law in effect on Aug. 29, 2005-- the date of the hurricane.

While focusing on the problems of individual debtors, the bill gives the courts additional flexibility to extend the deadlines for small business seeking to reorganize under chapter 11.

Find Disaster Relief Links on ABI's Katrina Page

The ABI World homepage contains links to ways that members can assist victims of Hurricane Katrina [http://www.abiworld.org/katrina.html]. Listed are local legal charitable organizations, offers of office space donations, court links and messages from ABI members in the region. The site is updated daily.

Banking and Credit Unions Testify on Katrina Relief Tomorrow

Banking and credit union industry representatives from Louisiana and Mississippi are scheduled to testify tomorrow at a House subcommittee hearing on efforts to improve hurricane victims' access to financial resources, CongressDaily reported today. Lawmakers, regulators and banking industry groups have noted that many hurricane evacuees have lost their personal identification and financial records. "While regulatory agencies and financial institutions are working together to ensure victims' cash and credit are readily accessible, we in Congress must immediately provide the tools these institutions need to continue this vital effort," Financial Services Financial Institutions Subcommittee Chairman Spencer Bachus (R-Ala.) said today. Bachu's panel is considering several legislative ideas for helping victims of Katrina, such as increasing deposit insurance coverage limits, easing prompt corrective action requirements for financial institutions whose capit al levels have temporarily dropped because of the hurricane, and providing indemnity for institutions that accept checks from consumers with limited identification." - American Bankruptcy Institute

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Buffalo reporting a record number of filings as the new law approaches. I'm hearing the same story from attorneys all over the country.

This appears to be shaping up as the busiest time in many of the attorneys careers I've spoken with.

Keep your chin up all!

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StartFreshToday has added a quick means test to our application. It allows you quickly assess if your client is a candidate for bankruptcy.

Create a free account at StartFreshToday.com to use it. It is free!

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Under the old bankruptcy law, the trustee could bring a 707(b) motion alleging abuse based on a debtor's ability to repay debt with expendable income. Under BARF 707(b)(2), the judge, trustee or creditor can all bring a 707(b) motion to dismiss if the debtor's household has more than the median income for a household of that size. Logic dictates that, under the same provision, neither a creditor, nor the judge, nor the trustee has a right to bring a motion to dismiss no matter how much expendable income the debtor has so long as the debtor's household has less than the median income for a household of that size.

So, in some situations under BARF, this bright line median income test will help debtors escape 707(b) objections. Of course, the judge or trustee can still bring a motion based on 707(b)(3) alleging that the case was not filed in good faith, but, certainly, no presumption of abuse exists.

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Much of the country is oblivious to the impoverished state of much of New Orleans and only perceives our great Crescent City as the place to go for great jazz, crawfish and Mardi Gras.

If you have ever driven through New Orleans, however, the level of poverty is striking. Hurricane Katrina will only aggravate that state of affairs. Undoubtedly, many local folks, who could have greatly benefited from filing bankruptcy prior to the law change, now have to worry more about saving their own lives and health than getting out of disaster-debt under a fair set of laws. Earlier this year, movie stars, Americans as a whole and our President stepped to the plate for Tsunami victims.

Stars, time to raise money. Americans, time to lend a helping hand. President, how about a stay on the bankruptcy law change for Hurricane Katrina victims. Law with a twist of reality would be nice, for once.

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A basic reality of bankruptcy practice is that debtor income can and does change rapidly. In the BAPCPA environment, an attorney has to be ready to respond to a debtor's change in circumstances. Under BAPCPA 101(10)(A), debtor's income is determined by taking the total income over the last six months and dividing by six (the average monthly income).

If your client notifies you of a sudden increase in income, a quick filing may be in your client's best interest. If you wait two months after the income change, the six-month average may increase by enough to bring your client above the median income for the debtor's household, triggering application of the means test. You may want to file quickly. Of course, keep in mind that you also have to file a disclosure of reasonably anticipated increases and could draw an objection based on a bad faith filing.

Conversely, if your client has a sudden decrease in income, before filing, you should reassess whether the means test applies. By waiting a month to three months, the debtor's six-month average income may decrease by enough to eliminate the application of the means test. Remember that, in any event, the debtor's income has to be reassessed the day before filing to determine an accurate income figure. Any time the means test applies, examine if the debtor will experience a change in circumstances that could affect your advice about when to file the bankruptcy case.

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