On May 5, 1999, the House of Representatives approved legislation entitled H.R. 833, which, if approved by the Senate and the President, will become known as the Bankruptcy Reform Act of 1999. If enacted, this legislation will significantly expand the rights of creditors. Some highlights of the reforms are as follows:
- The Bankruptcy Code will include a "means test" to determine eligibility to file a Chapter 7 liquidation bankruptcy case. The test employed by the Bankruptcy Code would track the IRS's standard calculations to determine "net income" available for distribution to creditors, and debtors whose income exceeds the national median net income would be ineligible to file under Chapter 7. The wrongful filing of a Chapter 7 petition would subject both the debtor and the debtor's attorney to possible sanctions.
- The Bankruptcy Code would require consumer debtors to undergo "credit counseling" before filing a petition in bankruptcy. The counselors would be supervised by the United States Trustee. Negotiations in credit counseling would be subject to special protections, including exemption of a payment negotiated in credit counseling from avoidance as a preferential transfer. If filing bankruptcy under exigent circumstances, the debtor must file a special certificate with the court. In Chapter 13, a debtor must undergo a "personal financial management course."
- In the case of debtors that file consecutive bankruptcy petitions, the automatic stay of collection action against them would terminate 30 days after the filing of the second petition in many cases. The Bankruptcy Code would also permit sanctions against a debtor that used serial bankruptcy filings to "delay, hinder, and defraud creditors."
- Maryland would receive two additional bankruptcy judges, which is especially welcomed because Maryland has the highest ratio of bankruptcy filings per judge in the nation.
- A creditor who repossessed certain types of collateral before a Chapter 13 bankruptcy would not have to return it until the debtor begins making payments.
- The ordinary course of business defense to a preference action would be broadened.
- The debtor's exclusive period to file a plan in a Chapter 11 case would not be extendable beyond 18 months after the Order for Relief.
- The so-called "Anti-Delaware Statute" - An entity would no longer be permitted to file a bankruptcy case in a jurisdiction solely because it was incorporated under the laws of that jurisdiction.
- Chapter 13 plans will be expected to be 5-year plans for debtors whose family income exceeds the national median.
- Congress recommends that the Bankruptcy Rules require that attorneys and debtors, making representations in documents filed with the court or submitted to the trustee, conduct a reasonable inquiry as to the truthfulness of the facts represented.
- An appeal of a bankruptcy court decision can be taken directly to the Court of Appeals, without first being heard by the District Court.
For more information on the pending legislation, please contact Adam Hiller, an associate in the Creditors Rights Department of Tydings & Rosenberg LLP at 410/752-9739 or by e-mail at ahiller@tydingslaw.com.