Debt Help

Debt Consolidation Help can be located at http://www.1-Debt.com

What's Not in Your Credit Score?

FICO scores consider a wide range of information on your credit report. However, they do not consider:

Your race, color, religion, national origin, sex and marital status. US law prohibits credit scoring from considering these facts, as well as any receipt of public assistance, or the exercise of any consumer right under the Consumer Credit Protection Act.

Your age. Other types of scores may consider your age, but FICO scores don't.

Your salary, occupation, title, employer, date employed or employment history. Lenders may consider this information, however, as may other types of scores.

Where you live.

Any interest rate being charged on a particular credit card or other account.

Any items reported as child or family support obligations or rental agreements.

Certain types of inquiries (requests for your credit report). The score does not count consumer-initiated inquiries which are requests you have made for your credit report, in order to check it. It also does not count promotional inquiries which are requests made by lenders in order to make you a pre-approved credit offer or administrative inquiries requests made by lenders to review your account with them. Requests that are marked as coming from employers are not counted either.

Any information not found in your credit report.

Any information that is not proven to be predictive of future credit performance. Whether or not you are participating in a credit counseling of any kind.

http://debt-education.org/whats-not-credit-score.html

Organic Foods Fightback in Store Wars

I'm a bit off topic today, you have to see this! It's both funny and educational at the same time, and the creators are driving home a very important message ... you are what you eat!

Grocery Store Wars is a spoof on the Star Wars theme and it's well done.

You have to check it out and pass on the link to friends because friends don't let friends eat irresponsibly.

Two-Income Trap Equals Bankruptcy Says Harvard Law Professor

Nearly half of all Americans who file for bankruptcy do so because of medical expenses, according to a new study released jointly by researchers at Harvard Law School and Harvard Medical School this week. The study, which is based on surveys of 1,771 individuals filing for bankruptcy, is the first of its kind to gather extensive information on the correlation between medical conditions and expenses and bankruptcy.

"Both doctors and lawyers care about how health care is financed, but it was only when we put our heads together that we could probe further," explained Elizabeth Warren, professor of law and author of "The Two-Income Trap." "We discovered that in 2004 about two million men, women and children were swept through the bankruptcy system in the fallout of a medical problem. Good educations, decent jobs, and health insurance were no guarantee that a person wouldn't be wiped out by an illness or accident. We believe the current policy debates are overlooking a critical problem: A broken health care finance system is bankrupting middle class America."

"Our study is fairly shocking," explained Steffie Woolhandler, associate professor of medicine at Harvard Medical School, in an interview with the Chicago Tribune. "We found that, too often, private health insurance is an umbrella that melts in the rain."

http://debtcompany.org/debt-blog/

There's a new blog on the horizon worth watching. They have Women's Debt Help in the featured list of discussion topics and we like it anytime we see that type of help being posted.

So are you contemplating filing bankruptcy? If you are and don't want to get caught up in the new laws that ARE coming, you'd better contact a bankruptcy attorney today. We hear it's rough going to get an appointment with a bankruptcy lawyer these days because so many people are filing for bankruptcy. Don't wait ... that's our advice for those who have absolutely no way out of their debt situation.

National Endowment for Financial Education

This "action area" of the National Endowment for Financial Education® (NEFE®) was created to provide Americans with practical money-management skills and an introduction to financial planning through course work that covers the fundamentals of money management.

Although not restricted to a particular age group, the Education Programs area has focused largely on increasing financial literacy among the nation's youth. This focus is exemplified by the organization's longest-standing public service effort, the NEFE High School Financial Planning Program® (HSFPP).

This is one of the best resources for debt education and I highly recommend you take some time on this website to educate yourself. http://www.nefe.org/

Fair Credit Reporting Act

The Federal Fair Credit Reporting Act (FCRA) is designed to promote accuracy, fairness, and privacy of information in the files of every consumer reporting agency (CRA).

Most CRAs are credit bureaus that gather and sell information about you (such as if you pay your bills on time or have filed bankruptcy) to creditors, employers, landlords, and other businesses. The FCRA gives you specific rights, as outlined below. You may have additional rights under state law. You may contact a state or local consumer protection agency or a state attorney general to learn those rights.

You must be told if information in your file has been used against you. Anyone who uses information from a CRA to take action against you, such as denying an application for credit, insurance, or employment, must tell you and give you the name, address, and phone number of the CRA that provided the consumer report.

ALso, you can find out for yourself what is in your credit report. The law says that a CRA must be given you if you request it, and also a list of everyone who has requested it recently.

There is no charge for the report if a person has taken action against you because of information supplied by the CRA, but you request the report within 60 days of receiving notice of the action.

You also are entitled to one free report every twelve months upon request if you certify that:

You are unemployed and plan to seek employment within 60 days
You are on welfare
Your report is inaccurate due to fraud.
Otherwise, a CRA may charge you up to eight dollars.

The law gives you the right to dispute inaccurate information with the consumer reporting agency. If you tell a CRA that your file contains inaccurate information, the CRA must investigate the items (usually within 30 days) by presenting to its information source all relevant evidence you submitted; unless your dispute proves to be frivolous.

The source of your compalint must review your evidence and report its findings to the CRA. (The source also must advise national CRAs, to which it has provided the data, of any error.) The CRA must give you a written report of the investigation and a copy of your report if the investigation results in any change. If the CRA's investigation does not resolve the dispute, you may add a brief statement to your file. The CRA must normally include a summary of your statement in future reports. If an item is deleted or a dispute statement is filed, you may ask that anyone who has recently received your report be notified of the change.

Inaccurate information must be corrected or deleted. A CRA must remove or correct inaccurate or unverified information from its files, usually within 30 days after you dispute it. However, the CRA is not required to remove accurate data from your file unless it is outdated or cannot be verified. If your dispute results in any change to your report, the CRA cannot reinsert into your file a disputed item unless the information source verifies its accuracy and completeness. In addition, the CRA must give you a written notice telling you it has reinserted the item. The notice must include the name, address and phone number of the information source of the filing.

You can dispute inaccurate items with the source of the information. If you tell anyone, such as a creditor who reports to a CRA, that you disputed an item, they may not then report the information to a CRA without including a notice of your dispute.

Outdated information may not be reported. In most cases, a CRA may not report negative information that is more than seven years old, and ten years for bankruptcies.

Access to your file is limited. A CRA may provide information about you only to people with a need recognized by the FCRA, usually to consider an application with a creditor, insurer, employer, landlord or other business.

Your consent is required for reports that are provided to employers, or reports that contain medical information. A CRA may not give out information about you to your employer or prospective employer without your written consent. A CRA may not report medical information about you to creditors, insurers or employers without your permission.

You may choose to exclude your name from CRA lists for unsolicited credit and insurance offers. Creditors and insurers may use file information as the basis for sending you unsolicited offers of credit or insurance. Such offers must include a toll-free number for you to call if you want your name and address removed from future lists. If you call, you must be kept off the lists for two years.

You may seek damages from violators. If a CRA, a user or in some cases a provider of CRA data, violates the FCRA, you may sue them in state or federal court.

For more information contact the Federal Trade Commission.

The above information should be understood to be a general discussion of the subject matter and does not constitute a legal opinion about the situation. For further information please consult a qualified attorney.

http://debt-education.org/fcra.html

Bush Signs S.256 - Enacting Bankruptcy Reform Legislation

On April 20, 2005, President Bush signed into law S.256, the "Bankruptcy Abuse Prevention and Consumer Protection Act of 2005" which had been approved by the House of Representatives on April 14, 2005 and previously passed by the Senate on March 10, 2005. The most prominent changes set forth in the new legislation are those that affect individual debtors under the Bankruptcy Code, but this law also contains significant provisions affecting the administration of chapter 11 reorganization cases and international insolvency cases as well. Greater clarity of the treatment of certain financial contracts under the Bankruptcy Code also comprises an important part of the new legislation. Most of the provisions of the law take effect 180 days from its enactment and collectively represent the most sweeping changes to the Bankruptcy Code in many years. This special issue of the Alert highlights many of the key provisions of this legislation.

I. Consumer and Individual Bankruptcy Amendments

Eligibility and Procedural Changes.

Means Testing. The new legislation takes the "Bankruptcy Abuse Prevention" portion of its name from a collection of provisions designed to require consumer debtors to satisfy more stringent criteria as a condition to obtaining a discharge of their indebtedness. These provisions focus on testing whether a consumer debtor has the means to repay a portion of his obligations out of future income. Under the new legislation, the current "substantial abuse" dismissal standard will drop simply to an "abuse" threshold. Such abuse will be presumed if the debtor’s current monthly income less the debtor’s qualifying living expenses, multiplied by 60 months (notably, the maximum term of a Chapter 13 plan) is not less than the lesser of (i) 25% of the debtor’s nonpriority unsecured claims in the case, or $6,000, whichever is greater; or (ii) $10,000. The IRS National Standards will serve as the benchmark for measuring the debtor’s qualifying living expenses. The debtor can challenge the presumption of abuse only under "special circumstances," such as in the case of a major medical condition or a call or order to active military service; and must always certify the nature of the special circumstances and the accuracy of all of the information provided.

Under the new law, any party in interest will be able to move under Section 707(b) of the Bankruptcy Code to dismiss a debtor’s case for abuse or, with the debtor’s consent, to convert the case to a Chapter 11 or Chapter 13 case, which will require the debtor to perform under a payment plan. However, only the judge, the United States Trustee or a bankruptcy administrator will be able to seek dismissal of a Chapter 7 case if the debtor’s income falls below the state median income for a family of similar size.

Mandatory Credit Counseling Education and Debtor Education. To be eligible for any form of bankruptcy relief, an individual must receive credit counseling from an approved nonprofit budget and credit counseling agency. Such counseling can be provided in individual, group, internet or telephone settings, and is to outline the opportunities for credit counseling, as well as to assist the prospective debtor in analyzing his budget. While the court will have the power to waive the pre-filing counseling requirement if the debtor demonstrates exigent circumstances, the debtor must submit to credit counseling within 30 days after the bankruptcy case is commenced. If a debt management plan is developed for the debtor, that debtor must file it with the bankruptcy court. Presumably, it will serve as a benchmark against which to determine whether proceeding under Chapter 7 constitutes abuse, and whether a Chapter 13 payment plan is adequate. The court may deny a discharge to Chapter 7 and Chapter 13 debtors who fail to complete a personal management instructional course.

Notices and Disclosures. The new legislation materially modifies notice requirements on all parties to an individual’s bankruptcy:

Notices to Creditors. Under amended Section 342, notices to a creditor will not be effective unless such notices are served at the address designated by such creditor and contain the current account number used by the creditor with respect to the debtor, provided that such creditor has supplied the debtor with the designated address and current account number in two communications within 90 days before the commencement of a voluntary case. Alternatively, an entity may also file with any bankruptcy court a notice of address to be used by all the bankruptcy courts or by particular bankruptcy courts (as specified by such entity) to provide notice to such entity in all cases under chapters 7 and 13 pending in the courts in which such entity is listed as a creditor.1


Mandatory Disclosure to the Individual Debtor. Amended Section 342 of the Bankruptcy Code also provides that, before the commencement of a bankruptcy case by an individual debtor, the clerk of the bankruptcy court will be required to provide individual debtors with a brief description of chapters 7, 11, 12 and 13 and the general purpose, benefits and costs of relief under each of those chapters. The clerk of the court will also provide descriptions of the services available from credit counseling agencies, which will be a necessary prerequisite for relief. Lastly, the clerk’s notice will also inform an individual debtor that all information supplied by that debtor in connection with the debtor’s case will be subject to examination by the Attorney General of the United States.


Production of Tax Returns and Related Financial Information. At the request of a creditor, the U.S. Trustee or any party in interest, a debtor will be required, under amended Section 521, to file tax returns and in the case of Chapter 13 debtors to identify third parties that are sources of income or support. Certain other information, including any interest a debtor has in an educational or individual retirement account must also be disclosed. Furthermore, amended Section 521(a)(1) will require a debtor to provide an itemized statement of monthly income and a statement disclosing any changes income or expenses reasonably expected to occur in the 12 months following the filing of the petition.
Dischargeability of Debts. Chapter 13 debtors may no longer receive a discharge for trust fund taxes, taxes for which no return was filed (as well as for certain late returns), or taxes for which the debtor filed a fraudulent return. Also excluded from the scope of a Chapter 13 discharge are domestic support payments, student loans, claims resulting from operating a motor vehicle or vessel while intoxicated, claims (including fines and restitutions) arising out of malicious acts causing personal injury or death, debts (i) incurred in connection with a debtor’s fraudulent misrepresentation, (ii) arising out of a debtor’s defalcation as a fiduciary, and (iii) which the debtor failed to schedule. Also, unless his income is below the applicable monetary threshold, he will not receive "discharges" until he has completed a five year payment plan.

The student loan discharge exception has been broadened to include not just governmental loans, but those which are owed to for-profit lenders. Debts of $500 or more owed for luxury goods, and incurred within 90 days before the petition is filed, are presumptively, nondischargeable, as are cash advances

Under the new legislation, the debtor must wait eight (rather than six) years following his discharge to file a new petition under Chapter 7. And, a discharge will not be provided to a Chapter 13 debtor if he had previously received a discharge under any of Chapters 7, 11 or 12 within a four year period prior to filing his subsequent case (or a two year period for a prior Chapter 13 case).

Serial and Other Abusive Filings. In addition to the foregoing constraints upon a debtor’s access to relief, other measures in the new law are intended to discourage serial, bad faith and other "abusive" bankruptcy filings. For example, if an individual debtor’s prior case had been dismissed within one year prior to the commencement of a subsequent case, the automatic stay of debt collection will terminate 30 days after the new case is commenced. While the debtor can seek to demonstrate "good faith" to preserve the stay with respect to affected creditors, there are multiple statutory presumptions against such a finding. A debtor will also lose his right to the automatic stay of real estate foreclosure proceedings if the court finds that the filing of a petition was part of a scheme to delay, hinder or defraud creditors involving either (i) transfer of real estate without creditor consent or court approval, or (ii) multiple bankruptcy filings affecting the same parcel(s) of real property. An order lifting the automatic stay for the benefit of such creditor will be binding on the debtor for two years.

Reaffirmation Agreements. Section 524 of the Bankruptcy Code has been amended in an effort to discourage abuse of reaffirmation agreement practices that had become notorious several years ago. Specifically, once effective, amended Section 524 will require that certain specified disclosures be provided to an individual debtor at or before the time such debtor signs a reaffirmation agreement. These specified disclosures, which must be in writing, will include certain advisories and explanations that are clear and conspicuous. In addition, at the election of the creditor, the disclosure may include a repayment schedule. If the debtor is represented by counsel, counsel will be required to file a certification stating that the debtor has been fully informed of the effect of the agreement, that it represents the voluntary agreement of the debtor, that it does not impose an undue hardship on the debtor or any dependent of the debtor and that debtor’s counsel fully advised the debtor of the legal effect and consequences of such agreement as well as any default thereunder.

To the extent that the amount of the scheduled payments due on the reaffirmed debt exceeds the debtor’s available income, it will be presumed for 60 days from the date on which the reaffirmation agreement is filed with the court that the agreement presents an undue hardship. In that case, the attorney must also certify that, in the attorney’s opinion, the debtor is able to make the payments required under the reaffirmation agreement. If a presumption that an undue hardship exists, the court must review the reaffirmation agreement and disclosure. The presumption can be rebutted by a debtor by a written statement explaining the additional sources of funds that would enable the debtor to make the required payments on the reaffirmed debt. If the presumption is not rebutted to the satisfaction of the court, the court may disapprove the reaffirmation agreement. No reaffirmation agreement may be disapproved without notice and hearing to the debtor and the creditor. Federal criminal enforcement provisions with respect to such agreements have also been explicitly strengthened.

Domestic Support Obligations. Under the new law, domestic support obligations2 will be accorded an administrative expense priority, subject to the costs incurred by the bankruptcy trustee to administer the assets available for payment of domestic support. Moreover, the automatic stay against enforcement of prepetition claims will not apply to the payment of domestic support obligations from assets that are not property of the estate, or to enforcement of wage withholding orders. If a debtor does not remain current on his support obligations, his case may be dismissed. Furthermore, the debtor will be required to remain current on his support payments in order to confirm a plan under, or receive a discharge under Chapters 11, 12 or 13. Such debts will continue to remain nondischargeable in a Chapter 7 case. The Act also obligates the trustee to provide notice to child support claimants and agencies, including notice to domestic support claimants of their right to use the services of the state child support enforcement agencies.

Regulation of the Players in Individual Debtor Cases. The various amendments have a significant impact on the roles of a number of the players in an individual consumer bankruptcy case.

Attorneys. Pursuant to amended Section 707, an attorney’s signature on a petition, pleading or motion will constitute certification that the attorney will have (1) performed a reasonable investigation into the circumstances giving rise to the petition, pleading or motion, (2) determined that the petition, pleading or motion is well grounded in fact, (3) determined that the petition, pleading or motion is warranted by existing law or a good faith extension, modification or reversal of existing law, (4) concluded that the petition does not constitute an abuse, and (5) affirmed that he has no knowledge, after an inquiry, that any of the information contained in the schedules filed with the petition is incorrect. The court may grant a trustee reasonable costs, including attorney fees, or may assess civil penalties payable to the U.S. Trustee if the court finds that the debtor’s attorney violated Rule 9011. Critics of the new law have asserted that this new standard in particular will cause bankruptcy fees to "skyrocket," as bankruptcy attorneys will be forced to invest far more time and effort to verify the information provided to them by their clients.


Bankruptcy Petition Preparers. Pursuant to amended Section 110, a Bankruptcy Petition Preparer (a "BPP") will be prohibited from giving a debtor legal advice. A BPP must advise the debtor of maximum fees permitted3 before accepting any payment or preparing any documents, file a declaration with the petition under penalty of perjury stating the total fees received in the 12 months preceding the filing and, if maximum fees have been set, a certification that the fees do not exceed the maximum. The court must disallow any fees in excess of the value of the services or the maximum amount established. Amended Section 110 also includes sanctions for violations by a BPP, including that a court may enjoin a BPP that has violated a previous order sua sponte or upon the motion of the trustee or U.S. Trustee. Moreover, a BPP may be fined $500 for each violation of the prohibitions imposed upon a BPP pursuant to Section 110. Fines may be tripled under certain circumstances.


Debt Relief Agencies. The new amendments will also provide direct regulation of debt relief agencies.4 Each debt relief agency will be required to provide individuals that have sought its assistance, not later than 5 days after the first date on which it provides bankruptcy assistance services to a particular client, to execute a written contract with such individual. Each contract must specify clearly and conspicuously the services the agency will provide, the basis on which fees will be charged for such services, and the terms of payment. In addition, a debt relief agency will be required to provide an individual that has sought its advice with the notice required to be sent by the bankruptcy court pursuant to section 342 plus a notice providing that (1) all information the individual person provides in connection with the case must be complete, accurate and truthful, all assets and liabilities must be completely and accurately disclosed in the documents filed to commence the case, (2) the current monthly income, monthly expenses and, in a chapter 13 case, disposable income must be stated after reasonable inquiry, and (3) the information an individual provides may be audited and that the failure to provide such information may result in the dismissal of the case or other sanction including, in some instances, criminal sanctions. Waivers regarding these prohibitions will be unenforceable.
Changes in the Composition of Assets of the Individual Debtor’s Estate

Exemptions of Property from an Individual’s Estate. The new law places greater limitations on an individual debtor’s ability to exempt property from that debtor’s estate and to keep it out of the hands of creditors. The two key provisions in this regard are the new Section 522(b)(3) governing the application of state and local law exemptions and the new Section 1115 which governs post-petition earnings of an individual debtor in a chapter 11 case.

State and Local Law Exemptions. Under the Bankruptcy Code, an individual debtor has the option to elect either state and local property exemptions, on the one hand, or the federal exemptions set forth in Section 522(b) of the Code on the other hand to protect certain limited assets from distribution to creditors. The broad coverage offered under certain state exemption schemes, most notably the homestead exemptions in Florida and Texas, has resulted in actual and perceived pre-bankruptcy planning by debtors to shield substantial assets from creditors. New Section 522(b)(3) specifies that the state or governing law for application of the exemption is the law of the place of the debtor’s domicile for the 730 days before filing. Moreover, to the extent that the debtor did not maintain a domicile in a single state during that time, then it is the law of the place of the debtor’s domicile for the majority of the 180-day period prior to the 730 days before filing. This long look-back is clearly intended to prevent debtors from manipulating the state exemption differences to the debtor’s advantage and consequently shield assets from creditors. Additional value and timing limitations are placed on the debtor’s use of a state law homestead exemption as well.


Post-Petition Earnings. A thorny issue in individual chapter 11 cases has been the status of a debtor’s post-petition earnings. A new Section 1115 will define property of the estate of an individual debtor to include property acquired post-petition. Related provisions in new Section 1123(a)(8) will provide for funding of a plan from an individual’s future earnings and require a best efforts test in connection with confirmation of a debtor’s plan under new Section 1129(a)(15). As a result of these changes in the aggregate, an individual debtor’s chapter 11 case will more closely resemble an individual’s case under chapter 13.


Retirement Funds. While the United States Supreme Court has recently ruled on the exclusion of certain individual retirement accounts from property of an individual debtor’s estate, the newly enacted legislation should clarify any historical ambiguities. Subject to certain limitations, retirement funds covered under Sections 401, 403, 408, 408A 414, 457 or 501(a) of the Internal Revenue Code are exempt from property of the estate regardless of whether state or federal exemption laws are applied. Likewise, direct transfers from one such type of account to another will also be protected.
Recovery of Certain Transfers. Like the limitations to be placed on the use of state law property exemption statutes, new Section 348(e) allows a trustee to avoid any transfer by the debtor to a self-settled trust or similar device made as far back as 10 years before the date of the commencement of the bankruptcy case, provided that the trustee can show that the transfer was made (like a fraudulent conveyance) with "actual intent to hinder delay or defraud" certain creditors. The trustee must show, however, that the transfer was made to avoid a particular claim not merely as a general asset protection measure.

Exclusions of Property from the Estate. New Section 541(b)(5) will exclude from a debtor’s estate funds placed in an educational individual retirement account qualified under Section 530(b)(1) more than one year prior to the bankruptcy case and similarly, new subsection (b)(6) protects funds contributed to a state tuition program qualified under Section 529(b) of the Internal Revenue Code more than one year prior to the bankruptcy case. In each case, there are certain limitations including a maximum exclusion of up to $5,000 per beneficiary for the period between 365 to 720 days prior to the commencement of the individual debtor’s bankruptcy case.

Contracts and Leases under Section 365. The new legislation amends Section 365 governing executory contracts and unexpired leases to provide that if a lease of personal property is not rejected or not assumed by the debtor (or trustee) in a timely manner, such property is no longer property of the estate and the automatic stay under section 362 of the Bankruptcy Code with respect to such property is terminated. In a chapter 11 or 13 case where the debtor is an individual lessee of personal property and the lease is not assumed in the confirmed plan, the lease is deemed rejected as of the conclusion of the confirmation hearing. If the lease is rejected, the automatic stay under section 362 (as well as the co-debtor stay pursuant to Section 1301) are automatically terminated with respect to such property.

II. Significant Chapter 11 [Business Bankruptcy], Claims Priority and General Administrative Amendments

While the primary focus of the new bill is consumer bankruptcy, there are many changes that affect all cases and those that relate directly or indirectly to business bankruptcy cases under Chapter 11. The new time limits imposed on debtors in the Chapter 11 process and the favorable treatment afforded to many creditor groups under the new law will make reorganization more difficult and could be expected to result in more liquidations. The bill includes new procedures for small business debtors, restrictions on management compensation and other important amendments.

The Appointment of Chapter 11 Trustees. The new law apparently encourages the appointment of Chapter 11 trustees in some cases which had typically been reserved for cases in which gross mismanagement or willful misconduct was found. Cause under amended Section 1104(a)(3) has been expanded to include failure to pay post petition tax or to maintain insurance or the unauthorized use of cash collateral.5 New Section 1104(e) provides that the United States Trustee may move for the appointment of a trustee if there is misconduct by management. While trustees have generally been compensated on an hourly basis, the percentages contained in Section 326 are now treated as a commission for the chapter 11 trustee under new Section 330(a)(7).

New Time Limits Affecting Chapter 11 Cases. The modifications in the amendments to existing time limits set forth in the Code are expected to have a significant impact on the chapter 11 process.

Exclusivity. The debtor’s exclusive right to propose a plan of reorganization under amended Section 1121 will no longer be extended beyond 18 months. This limit will change the dynamics and timing of complex cases and increase the pressure on debtors in the largest and most complex cases.


Assumption/Rejection of Leases. In addition, under the amendments to Section 365(d)(4), nonresidential real property leases must be assumed or rejected within a maximum of 210 days.
The standard period will be 120 days subject to a 90 day extension "for cause." Thereafter, the landlord must consent to any extension.

Small Business Debtors under Chapter 11. New provisions may subject Chapter 11 debtors with secured and unsecured debts not exceeding $2,000,000 to special procedures intended to expedite the administration of these cases provided that the United States Trustee does not appoint a creditors committee. Under modified 1125(f), qualifying debtors may (i) file a combined plan and disclosure statement, (ii) use a standard form disclosure statement or (iii) combine approval of the disclosure statement with confirmation. While these debtors will have an exclusive period of 180 days to file a plan, they will be required to file within 300 days under Section 1121(c). The court must confirm the plan within 45 days under Section 1129(g).

Treatment of Tax Claims Under a Chapter 11 Plan. The new law amends Section 1129(a)(9)(c) to require that deferred payments to taxing authorities be paid in regular cash payments over a period not exceeding 5 years with an interest rate that preserves the value of the claim on the effective date of the plan.

Administrative Expense Priority Claims. The new legislation has a number of provisions which raise the priority of certain claims or expand the category of claims allowable as administrative expenses improving the prospects for recovery for certain holders of these claims. For example, new Section 507(b)(9) created an administrative expense priority for claims arising from all goods received by a debtor in the ordinary course of business for a period of 20 days prior to commencement of the proceeding. Similarly, under amended Section 546(c) the period for reclamation claims will be expanded from 10 to 45 days after receipt of goods (or 20 days after commencement of the proceeding).

Some claims will receive higher priority treatment indirectly through the operation of other provisions. The new deadlines imposed by amended Section 365(d)(4) in respect of the assumption or rejection of nonresidential real property leases will likely lead to the increase of protective assumptions of such leases, elevating landlord claims for cure and deficiencies to administrative expense priority status. As an offset and acknowledgment of the likely effect of the amendment to Section 365(d)(4), the administrative expense claim for leases assumed during the proceeding and later rejected will be limited under Section 505(h)(7) to two years rent.

Indeed, in at least one instance, existing administrative expense priority status is apparently no longer enough for certain creditors. Specifically, granting administrative expense priority to the claims of utilities will no longer be considered as adequate assurance of payment. Amended Section 366 will require a debtor to post additional security in the form of cash or other collateral to continue utility service post-petition.

Management Retention Bonuses. An area of administrative expenses priority claims that will affect the administration of large chapter 11 cases are the amendments relating to the practice of granting retention bonuses and severance pay to management. Under amended Section 503(c), authorization of such retention bonuses and management severance will be subject to increased scrutiny and limitations. On a related note, payments under employment contracts to insiders may constitute fraudulent conveyances under the new law unless made in the ordinary course of business under Section 548(a).

Retention of Investment Bankers. In a change that is expected to have a profound impact on the professional restructuring community, investment banking firms will no longer required to satisfy the "disinterested" standard set forth in Section 101(14). Historically, an investment banking firm could not satisfy the disinterestedness test if it had served as the investment banker for an outstanding security of the debtor or if within three years of the commencement of a case, it had served as investment banker with respect to an offering sale or issuance of a security of the debtor. Presumably, the large investment banking firms that had been locked out of these restructuring opportunities will now have the chance to compete in this market against the boutique firms that have dominated the restructuring market for years.

Healthcare Proceedings. In light of the spate of bankruptcy cases of certain health care providers over recent years, certain protections will be added to protect patients rights. In particular, new Section 333 will require the Court to appoint a "patient care ombudsman" to facilitate the protection of patient’s rights including the monitoring of the quality of patient care by the debtor facility. In addition, new procedures are established under Section 351 for disposition of patient records in these cases. The expenses associated with the patient care ombudsman and the disposition of patient records will be entitled additional administrative expense priority, along with the cost of moving patient to another facility under Section 503(b)(8).

Exceptions to the Application of the Automatic Stay. With each piece of bankruptcy reform legislation, it seems that the number of exceptions to the application of the automatic stay continues to grow. The current legislation appears to be no different. New exceptions have been added for landlords seeking to evict tenants and enforce judgments of possession, for recovery of personal property collateral upon an individual debtor’s failure to comply with his statement of intent with respect to such property, for prosecution of proceedings before the Tax Court, for expanded rights to close out and offset certain financial contracts, for the repayment of loans from pensions plans and for the enforcement actions by securities self regulatory organizations.

III. International Insolvency Amendments

The new chapter 15 to the Bankruptcy Code incorporates the Model Law on Cross-Border Insolvency completed by the United Nations Commission on International Trade Law in 1997. The new legislation encourages cooperation between the United States and foreign countries with respect to transnational insolvency cases. Insofar as possible, chapter 15 follows the language, section numbering and general structure of the Model Law to promote uniformity in its adoption and application.

Eligibility. Debtors who would be eligible for relief under section 109 of the Code will also be eligible under chapter 15. Foreign banks will not be eligible if they have a branch or agency in the United States; however, foreign insurance companies doing business in the United States will be eligible for relief. They were added at the request of the insurance industry to reflect the common practice of invoking ancillary proceedings in the United States as part of the wind up of multi-national insurers. Insurance regulators can ask the relevant United States bankruptcy court to abstain from exercising jurisdiction over a foreign insurance company under Code section 305 in an appropriate case.

Nature of Foreign Proceeding. New chapter 15 divides "incoming" foreign proceedings into foreign main proceedings, which are pending in the country where the debtor has its center of main interests, and foreign non-main proceedings, which are themselves ancillary proceedings. A case under chapter 15 will be commenced by a petition filed by a "foreign representative" as defined in amended Section 101(23) of a "foreign proceeding" as defined in amended Section 101(24), accompanied by documents evidencing the foreign proceeding and the appointment and authority of the foreign representative. The order granting "recognition" of the foreign proceeding will specify if the foreign proceeding is main or non-main. Pending recognition, a foreign representative will be entitled to seek "provisional" or temporary relief if urgently needed.

Relief under Chapter 15. Unlike section 304, where all relief has been dependant on court approval based on satisfaction of a statutory list of criteria, chapter 15 provides that upon recognition of a foreign main proceeding, the automatic stay and selected other provisions of the Bankruptcy Code will take effect subject to the existing exceptions and protections in the Code. In addition, a foreign representative of a foreign main proceeding will be authorized to continue operation of a debtor’s business in the ordinary course.

The recognition procedure will be the sole entry point for access by a foreign representative to the state and federal court systems in the United States (except for the limited purpose of collecting the debtor’s accounts receivable). Venue will also be narrowed to a single entry point where the debtor has its principal place of business; if none, where litigation is pending against the debtor; if none, where venue will be consistent with interests of justice and the convenience of the parties, having regard to the relief sought (28. U.S.C. section 1410). If recognition is denied, the foreign representative will not be able to proceed in another court. If recognition is granted, the foreign representative can seek additional relief from the bankruptcy court or any other state or federal court, including commencing a full (as opposed to ancillary) case under the Code; if the foreign representative is acting on behalf of a foreign main proceeding, it may commence a voluntary proceeding under Section 301 or 302; otherwise it can only commence an involuntary case under Section 303 of the Code.

Communications and Coordination among Courts and Representatives. Chapter 15 also codifies the Model Law’s provisions for cooperation and communication among courts and representatives, for coordination of multiple proceedings and for untangling chapter 15 cases from cases which involve the same debtor and which have been commenced under other chapters. Under both the Model Law and Section 1525, courts and estate representatives in the enacting country must "cooperate to the maximum extent possible" with foreign courts and foreign representatives. The law entitles courts to "communicate directly with, or to request information or assistance directly from, foreign courts or foreign representatives."

The court will be able to implement such cooperation by "any appropriate means" including the appointment of persons to act at the direction of the court, coordination of administration and supervision of the debtor’s assets and affairs and use of coordination agreements or protocols. Following the Model Law, chapter 15, also promotes the coordination of concurrent proceedings involving the same debtor, including both coordination between a local proceeding and a foreign proceeding and coordination when foreign representatives more than one foreign proceeding seek recognition and relief.

IV. Financial Contract Amendments

Prior Law. Several provisions of the Bankruptcy Code, mostly added in 1997, walled-off financial market transactions from the effects of the automatic stay. The collapse of several large securities dealers shortly after the adoption of the Bankruptcy Code in 1979 raised concerns that the failure of one participant in the financial markets might have a ripple or domino effect causing wide-spread damage in the financial markets and led to changes in insolvency laws giving certain financial market participants broader rights to exercise contract remedies upon the bankruptcy or insolvency of a counterparty to a financial contract. Designed to protect the market from disruption in the event that a participant became bankrupt, the provisions permitted liquidation of certain types of financial contracts based upon insolvency of a party, even if that party was bankrupt.

Purpose and Scope of Amendments. The amendments update and expand the financial contract provisions to allow termination, close-out, setoff and netting across a broader range of financial market participants and products.

Specific Changes. The financial contract provisions in the new legislation amend various provisions of the Bankruptcy Code, the Federal Deposit Insurance Act ("FDIA"), the Federal Credit Union Act ("FCUA"), the Federal Deposit Insurance Corporation Improvement Act ("FDICIA") and the Securities Protection Act ("SIPA") governing the rights and remedies of financial market participants under commodity contracts, forward contracts, securities contracts, repurchase agreements, swaps and netting agreements (collectively, "Financial Contracts"). Previous measures were enacted somewhat randomly in statutes, regulation and policy statements as Congress, the FDIC, and the Securities Investor Protection Corporation ("SIPC") reacted to concerns and problems. The amendments will clarify uncertainties in existing law, harmonize the laws affecting different types of debtors and provide a more coherent scheme for treatment of financial contracts in insolvency proceedings.

The amendments expand the definitions in the Bankruptcy Code, the FDIA and FCUA of "securities contract," "commodity contract," "forward contract," "repurchase agreement," and "swap agreement." The revised definition of "securities contract" now expressly covers margin loans and also makes clear that agreements for the sale and repurchase of securities are included in the definition of "securities contract." The definition of "swap agreement" is expanded to pick up additional swap transactions such as total return swaps, credit swaps and weather swaps and will permit expanded coverage as the swap market develops by including transactions which presently, or in the future, become "the subject of recurrent dealings in the swap markets." The definition of "repurchase agreement" in the Bankruptcy Code will now harmonize with the definition under the FDIA and FCUA to include mortgage related securities, mortgage loans and interests in mortgage loans. The definitions will expressly include any related security agreement or credit enhancement.

The parties eligible to take advantage of these special provisions presently are limited to commodity brokers, forward contract merchants, stock brokers, financial institutions or securities clearing agencies. The amendments add significant market players, defined as "financial participants," who satisfy specific tests for dollar volume of activity in the financial markets. Netting contracts between financial institutions which are enforceable under FIDCIA will no longer need to be governed by the laws of the United States or a particular state. Cross product netting agreements between certain parties will be enforceable in bankruptcy proceedings to the extent the underlying financial contracts could be closed out by the particular counterparty.

V. Overview of the Rules Governing Administration of Financial Contracts in Insolvency Proceedings.

Application of these rules which vary with the type of debtor, the type of insolvency proceeding, the type of Financial Contract and the identity of the counterparty. The following is a brief overview of these rules to facilitate analysis of the foregoing amendments.

Business debtor bankruptcy proceedings. Commodity brokers, forward contract merchants, stockbrokers, financial institutions, financial participants and securities clearing agencies may close out and enforce security for commodity contracts, forward contracts, securities contracts (including margin loans and agreement for the sale and repurchase of securities) and related master netting agreements, notwithstanding the automatic stay and may not be enjoined from enforcing default provisions based on the occurrence of a bankruptcy or the financial condition of a party (commonly called "ipso facto" provisions) or from enforcing other remedies under such contracts.

Counterparties to repurchase agreements and swap agreements may close out and enforce security for repurchase agreements, swap agreements and related master netting agreements notwithstanding the automatic stay and may not be enjoined from enforcing ipso facto provisions or other remedies.

Prepetition margin payments or settlement payments made by the debtor with respect to any such Financial Contracts may not be recovered as preferences or fraudulent transfers, except in the case of transfer made with actual intent to hinder, delay or defraud creditors.

Stockbroker Liquidation Proceedings under SIPA. Creditors may liquidate, terminate or accelerate securities contracts, commodity contracts, forward contracts, repurchase agreements, swap agreements or master netting agreements and foreclose on any cash collateral pledged by the debtor, notwithstanding the automatic stay or any order or decree obtained by SIPC in a stockbroker liquidation proceeding. However, SIPC may obtain an injunction prohibiting creditors from foreclosing on, or disposing of, securities pledged by the debtor, sold by the debtor under a repurchase agreement or lent by a debtor under a securities lending agreement. In the past, SIPC has routinely sought and obtained injunctions against the close out of securities contracts and repurchase agreements, but in a series of policy letters has made clear that following receipt from a counterparty of an affidavit as to the absence of SIPC fraud and the existence of a perfected security interest in any collateral or underlying securities, SIPC would consent (and would urge the trustee to consent) to the counterparty’s obtaining relief from the injunction provided that the collateral or underlying securities were not needed to satisfy customer claims in the liquidation proceeding. In the event SIPC and the trustee determined that the collateral or underlying securities were needed to satisfy customer claims, the trustee would perform the debtor’s obligation or pay the counterparty for the collateral or underlying securities.

Prepetition margin payments and settlement payments would be afforded the same protection as in a regular bankruptcy proceeding, as discussed above.

FDIC-insured Depository Institution Conservatorship or Receivership Proceedings. Counterparties to securities contracts, commodity contracts, forward contracts, repurchase agreements and swap agreements (referred to collectively in the FDIA as "qualified financial contracts") with the insured depository institution may close out such qualified financial contracts, subject to certain limitations and the right of the FDIC to transfer such qualified financial contracts. The FDIC as conservator or receiver of an insured depository institution has the right to transfer to another financial institution all qualified financial contracts between the insured depository institution and any one counterparty or its affiliates. The conservator or receiver is required to notify the counterparty of the transfer by 5:00 p.m. on the business day following the date of appointment of the receiver or the business day following the transfer in the case of a conservatorship.

After 5:00 p.m. on the business day following the appointment of the FDIC as receiver, provided that the counterparty has received no notice that the receiver has made a transfer of the qualified financial contracts to another financial institution, the counterparty may enforce, and may not be enjoined from enforcing, any default based on the appointment of the FDIC as receiver and may terminate, liquidate or accelerate any qualified financial contract with the insured depository institution, foreclose on any security agreement securing such qualified financial contract and enforce any master agreement for the netting of obligations with respect to such qualified financial contracts.

In the case of an FDIC conservatorship, a counterparty to a qualified financial contract with the insured depository institution may enforce, and may not be enjoined from enforcing, any default under a qualified financial contract which is enforceable under applicable non-insolvency law and may terminate, liquidate or accelerate any qualified financial contract with the insured depository institution, foreclose on any security agreement securing such qualified financial contract and enforce any master agreement for the netting of obligations with respect to such qualified financial contracts. However, the counterparty may not enforce an ipso facto provision or default based on the appointment of the FDIC as conservator for the insured depository institution.

Any transfers of money or property by an insured depository institution may not be recovered as a preference or fraudulent transfer, except in the case of transfers made with actual intent on the part of the transferee to hinder delay or defraud creditors.

VI. Conclusion

Although versions of this bill have circulated for many years in Congress, the newly enacted S. 256 represents perhaps the most sweeping changes to the Bankruptcy Code since its enactment. Indeed, many of the amendments represent changes in not only the mechanical workings of the Bankruptcy Code, but also, with respect to at least individual debtors, its underlying philosophy. The amendments affecting chapter 11 cases should also have a material impact on the administration of chapter 11 and as a result, the debtor-creditor negotiating dynamics could be altered dramatically. Lastly, the new chapter 15 represents the culmination of many years of work by international insolvency practitioners and experts in their efforts to harmonize cross-border proceedings.

Footnotes

1 It should also be noted that, unless the creditor has received effective notice under these new provisions, the court may not impose any monetary penalty for the violation of the automatic stay or the provisions relating to the turnover of property (Sections 542 and 543 of the Bankruptcy Code) by such creditor. exceeding $750 within 70 days before filing. And, a debt incurred to pay a nondischargeable tax claim will not be dischargeable.

2 A "domestic support obligation" is a debt that accrues pre- or postpetition that is recoverable by a spouse, child, other family member, or by the government on behalf of such people. It must be in the nature of alimony, maintenance or support pursuant to a separation agreement, divorce decree or property settlement, a court order or a determination by a governmental unit.

3 The maximum amount of fees that may be charged by a BPP will most likely be set in the Federal Rules of Bankruptcy Procedure or by guidelines promulgated by the Judicial Conference of the U.S. (JCUS).

4 Pursuant to new Section 101(12A), a Debt Relief Agency is defined as any "person who provides any bankruptcy assistance to an assisted person" for compensation except (1) an officer, director, employee of agent of the person who provides assistance, a non-profit organization exempt under IRC Section 501(c)(3), (3) a creditor of the assisted person to the extent that creditor is assisting the person in restructuring a debtor owed to the creditor, (4) a depositary institution or credit union, (5) author, publisher, or distributor of works subject to copyright protection.

5 These new grounds also constitute cause for the conversion or dismissal of a Chapter 11 proceeding under Section 1112.