The Bankruptcy Lawyers Blog

Jonathan Ginsberg raises the issue of defining "family size" for median income determinations on his bankruptcy blog. Ginsberg's experience with a dependent child in a non-custodial relationship seems to only scratch the surface of possible variations that might impact the definition of "family size": joint legal custody, split physical custody, college-aged children who live away from home during the school year...

Ginsberg suggests that there are no authoritative answers to these questions at present, leaving this one more area where BAPCPA invites complications, litigation, and inconsistency of application.

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Although a bankruptcy petitioner hoping to discharge student loan debts is required to commence an adversary proceeding to demonstrate undue hardship, both the 9th and 10th circuits rules in 1999 that--in specific cases, at least--creditors could not upset a confirmed plan if they'd failed to take timely action to protect their interests. In both of those cases, the debtor had failed to initiate an adversary proceeding, but had included discharge of student loan balances in the plan, along with a declaratory statement of undue hardship.

Over the past few years, though, other circuits have been chipping away--and sometimes directly contradicting--those rulings. Since 2002, the 4th, 6th, and 7th circuits have ruled that the creditor's due process rights require notice, and even heightening the notice requirement. Both the 9th and 10th circuits have altered their positions in later rulings as well, with the 10th circuit referring to its own prior case as "wrongly decided".

The 6th circuit, in ruling that a purported "discharge by declaration" was both invalid and void (and therefore subject to being set aside), noted that "astute attorneys now insert student loan discharge language...hoping to achieve preclusive effect" notwithstanding the requirements of a finding of undue hardship, the specific requirement of an adversary proceeding, and lack of notice.

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A notice in the Federal Register on Wednesday requested that comments relating to new fair credit reporting guidelines be submitted to a variety of governmental agencies. These guidelines and rules will implement the provisions of the FACT Act, which amended the Fair Credit Reporting Act in 2003. These guidelines are intended to ensure the accuracy and integrity of information provided to consumer reporting agencies and issue regulations regarding re-investigation of certain disputes to the accuracy of information contained in consumer reports.

Each of the various agencies has separate guidelines and procedures for submitting comments, which can be found at:

Federal eRulemaking Portal

OCC Website

FDIC Website

NCUA Website

FTC Website

Complete text of the Federal Register Notice

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The March American Bankruptcy Institute Journal includes an interesting analysis of the way BAPCPA may be hurting the very industry that fought so long to see it passed. Henry E. Hildebrand, III, a Chapter 13 Trustee from Tennessee, points out that while more consumers may be filing under Chapter 13 (as the law's proponents intended), those Chapter 13 filings are often not translating into any payments at all to secured creditors.

That's because the new system for determining disposable income is dependent on a formulaic application that doesn't necessarily have a basis in reality. For instance, because "current monthly income" is not, in fact, current monthly income, but rather based on income over a six month period, it is possible that the debtor's actual income is significantly higher than the "current monthly income" on which the Chapter 13 calculations are based. And then, of course, the debtor may also have additional income that is statutorily excluded, such as child support and social security income.

Additionally, since the old system wherein the Trustee could examine expenses for reasonableness on a case-by-case basis has given way to statutorily permitted expenses, many debtors end up with no disposable income-on paper, anyway.

Hildebrand suggests that the consumer credit industry, after years of lobbying for this kind of reform, may turn out to be BAPCPA's biggest victims.

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Two recent cases from the Western District of Pennsylvania clarify the distinction between the pre-filing credit counseling requirement and the pre-discharge "financial management course." In In re Granada and In re Skarbek, the court ruled on identical issues: in both cases, the debtor had completed credit counseling prior to filing and later submitted "Debtor's Certification of Completion of Instructional Course Concerning Personal Financial Management," referencing the pre-filing counseling.

In both cases, the court ruled that the financial management course requirement had not been met and directed the debtor to comlete a course on financial management and file an amended certification. In so ruling, the court specifically stated, "The credit counseling requirement must be completed prior to the bankruptcy filing in order for an individual to be eligible to file a bankruptcy petition. The financial management course must be completed 'after filing the petition.'"

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The 6th U.S. Circuit Court of Appeals recently held that debt-collection attorneys who file affidavits to obtain garnishments can be sued under the Fair Debt Collection Practices Act.

The court ruled that the immunity that typically applies to witnesses in judicial proceedings did not extend to attorneys filing garnishment affidavits.

Consumer attorneys report that such affidavits are regularly filed without any supporting documentation. Whether that's due to fraud or simple carelessness, those attorneys have a lot more at risk following the 6th Circuit decision in Todd v. Weltman, Weinberg & Reis Co., No. 04-4109 (6th Cir.).

This is good news for debtors, who have had little recourse when attorneys filed false affidavits and obtained garnishment orders. Not surprisingly, however, collection firms are taking quite a different position, and there appear to be some viable grounds for challenging the ruling, and a motion for rehearing has already been filed.

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when we read in the American Bankruptcy Institute update last week that David L. Rosendorf's blog is "the only blog devoted solely to the new law."

Rosendorf's blog is an excellent source of up-to-date BAPCPA discussion, and we're glad to include it among our relevant links. Still, he's not out there alone. Our blog and our entire bank of resources and products at Start Fresh Today were created in response to BAPCPA.

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