Riforma della legge fallimentare in USA

[FaGal]

Quick Pickup on Bankruptcy Reform Act


While President Bush has indicated that he will sign the bankruptcy bill, the exact date on which he signs the bill could be significant. BJ Haynes notes that:

[t]he bill has a 180 day delay in the effective date. If it is signed on or after April 19th, then October 15th would be within the 180 day period. October 15th is significant because it is three years from the extended due date of 2001 tax returns and thus the date on which 2001 tax liabilities would satisfy the three-year-from-due-date rule of Bankruptcy Code Section 507(a)(1).

He advises that:

[i]f you have clients who might benefit from using bankruptcy to discharge their unmanageable tax debts, time is now most definitely running out. It is strongly suggested that you go through your inventory of cases to see whether you have folks who owe large amounts of tax for tax years 2001 and prior. Discharging taxes under the new bill will be much more difficult, but to get the benefit of the existing law the petition must be filed within the 180 day effective date delay period.
http://taxbiz.blogspot.com/

[FaGal]

United States: Are Corporate Family Chapter 11 Filings Governed by a Different Good Faith Standard?
13 April 2005
Article by Mark Douglas

The distinction between recourse to chapter 11 protection as a legitimate means to maximize the value of a company’s assets and/or to restructure its financially troubled yet otherwise viable operations, on the one hand, and clear bankruptcy abuse, on the other, is sometimes murky. A court called upon to make such a distinction is obliged to "get into the debtor’s head" and investigate the board’s motives for commencing a bankruptcy case and, in some cases, to decide whether the debtor’s otherwise permissible use of the powerful provisions of federal bankruptcy law is impermissible because the debtor’s motives are antithetical to the basic purposes of bankruptcy.

The Bankruptcy Code contains a variety of mechanisms that abridge, alter or delay creditor rights and remedies. Among these are the automatic stay, discharge of debts, avoidance of preferential transfers, rejection of unfavorable contracts and limitations on the amount of certain employee and landlord claims. However, it is generally recognized that a debtor can avail itself of these mechanisms only if its decision to seek chapter 11 protection in the first place comports with lawmakers’ intentions in 1978 in enacting the Bankruptcy Code. At the heart of this analysis lurks chapter 11’s "good faith" filing requirement. The "good faith" standard is an integral part of the balancing process between debtor and creditor interests that is manifest in many provisions of the Bankruptcy Code. Unfortunately, caselaw guidance on the concept of "good faith" is highly fact-specific, and as a consequence, abstruse and sometimes contradictory.

A ruling recently handed down by the Texas bankruptcy court overseeing the chapter 11 cases filed by energy supplier and marketing giant Mirant Corporation and its affiliates suggests that the good faith filing standard may be applied differently in cases involving a company that is part of a corporate "family" of chapter 11 debtors.

Chapter 11’s Good Faith Filing Requirement

Chapter 11 of the Bankruptcy Code has been interpreted to create two separate good faith requirements in connection with a debtor’s authority to avail itself of and use the protections of the Bankruptcy Code. First, section 1129(a)(3) expressly provides that every plan of reorganization be "proposed in good faith and not by any means forbidden by law." This provision has been construed to require that a plan be proposed with "honesty and good intentions" and with "a basis for expecting that a reorganization can be effected." In keeping with that mantra, bankruptcy courts are required to determine whether a chapter 11 plan, viewed in light of the "totality of the circumstances," fairly achieves a result consistent with the purposes of the Bankruptcy Code.

However, a bankruptcy court may be called upon to make a good faith ruling well before confirmation of a chapter 11 plan. Bankruptcy Code section 1112 delineates a catalogue of abuses or failures, including continuing loss to or diminution of the estate, the inability to effectuate a plan, or unreasonable delay by the debtor, that can lead to the outright dismissal of a chapter 11 case or its conversion to a liquidation. Courts have consistently found that the prosecution of a chapter 11 case in "bad faith" — although not listed as one of the examples — also constitutes "cause" for dismissal or conversion under section 1112(b).

The good faith filing requirement is designed "to ensure that the hardships imposed on creditors are justified by fulfillment of the statutory objectives." Bad faith generally refers to a chapter 11 filing with the purpose of abusing the judicial process. For instance, a chapter 11 filing for the sole purpose of fending off litigation ( e.g., foreclosure) if the debtor has g. no real prospect of reorganizing its business is often found to qualify as the kind of abuse that rises to the level of bad faith. Similarly, a filing by a solvent debtor merely to obtain a tactical litigation advantage has also been found to be abusive. When challenged, the debtor bears the burden of demonstrating that its bankruptcy petition was filed in good faith. The courts must make that determination on a caseby- case basis, undertaking an examination of the totality of the circumstances to decide where "a petition falls along the spectrum ranging from the clearly acceptable to the patently abusive."

The basic thrust of the good faith inquiry has traditionally been whether the debtor needs chapter 11 relief. "Need" is informed by the Supreme Court’s identification of two of the basic purposes of chapter 11 protection as "preserving going concerns" and "maximizing property available to satisfy creditors." Thus, where a chapter 11 filing is motivated by something other than a desire to rehabilitate a financially distressed yet viable entity or to preserve or maximize asset values for the creditor-beneficiaries of an orderly liquidation, a court will dismiss the case as having been filed in bad faith.

The debtor’s solvency may be relevant to the analysis, but it does not end the inquiry — the Bankruptcy Code does not establish insolvency as a prerequisite to filing for chapter 11 (or any form of bankruptcy relief). If the debtor is insolvent, a "good faith" ruling is fairly assured because the filing "implements Congress’ scheme of debt priorities and the policy of equal distribution among creditors with the same priority."

The analysis becomes more difficult if the debtor is solvent or otherwise financially healthy. Here, many courts find that the only bankruptcy policy implicated is avoidance of piecemeal liquidation that destroys going concern value. Absent circumstances surrounding the filing that pose this risk, these courts rule that a chapter 11 petition was not filed in good faith.

The Mirant Corporate Family Chapter 11 Filings

Mirant Mid-Atlantic, LLC ("MRMA") was formed in 2000 as part of a sale by Potomac Electric Power Company ("Pepco") of its power generation assets to Mirant Corporation ("Mirant") for nearly $3 billion under an asset sale and purchase agreement (the "sale agreement"). To finance the acquisition, Mirant caused MRMA to enter into a complex series of sale leaseback transactions involving two Maryland power plants. By means of these transactions, the lessors provided approximately $300 million of the purchase price directly and borrowed an additional $1.2 billion from public noteholders. The sale leaseback transactions were memorialized in a facility lease agreement, a participation agreement and a pass-through trust agreement (collectively referred to as the "leaseback agreements").

As part of the sale agreement, two other Mirant subsidiaries acquired power plants from Pepco with financing provided in part by MRMA. Mirant was obligated under a capital contribution agreement to contribute to MRMA’s capital the cash flow produced by those power plants. Failure to do so was an event of default under the leaseback agreements. MRMA had contractual relationships with various other Mirant subsidiaries that enabled it to operate, purchase fuel and market power.

Although the assets purchased from Pepco remained profitable, Mirant and its affiliates encountered other problems. Mirant’s efforts to restructure bank loans and bond debt in early 2003 failed. As a consequence, Mirant and 74 of its affiliates, including MRMA, sought chapter 11 protection in July of that year. The filings triggered defaults under the sale agreement, the leaseback agreements and the capital contribution agreement. At the time that it filed for bankruptcy, MRMA was solvent and, subject to the potential consequences of crossdefaults under various agreements, had no difficulties meeting its obligations as they matured.

MRMA and various other Mirant affiliates sued in the bankruptcy court for a determination that the sale leaseback transactions should be recharacterized as loans. The lessors and the indenture trustee for the public bonds responded by seeking dismissal of MRMA’s chapter 11 case under section 1112(b) as having been filed in bad faith.

The Texas bankruptcy court denied the motion. At the outset, the court observed that it is "appropriate to provide a different standard from that applied to good faith dismissal in a single debtor case to that of a key operating affiliate placed in chapter 11 in conjunction with necessary filings by its family of affiliates." According to the court, MRMA’s solvency and ability to pay its obligations as they matured did not warrant a finding of bad faith.

MRMA was one of the largest pieces of Mirant’s enterprise. Had it not filed for chapter 11 relief, the court emphasized, MRMA would almost certainly have been forced into bankruptcy by creditors concerned about leaving so large a part of the parent company’s business and assets beyond court supervision. Noting that MRMA would have been subject to repercussions from the filings of its affiliates, the court concluded that "[w]here, as here, the need for rehabilitation of the corporate family enterprise is obvious, it is clearly a valid use of chapter 11 to address that need."

Even so, the court ruled that dismissal of MRMA’s case also was not warranted under the good faith test applied in standalone chapter 11 cases. It elected to make that determination by examining whether MRMA’s chapter 11 served a "valid bankruptcy purpose." The court characterized as "justifiable" management’s decision to file for bankruptcy because of potential contractual defaults under the leaseback and sale agreements, and concerns about MRMA’s ability to operate outside of chapter 11:

In sum, in mid-July of 2003, [MRMA] faced defaults in various contracts, complications in its interaction with chapter 11 debtor affiliates and other potential consequences from the filings of those affiliates. [MRMA’s] Board of Managers determined it was more prudent to place [MRMA] in chapter 11 than face these risks out of court. Their purpose was valid: to protect [MRMA’s] ability to continue as a going concern as part of the corporate family enterprise. Perhaps [MRMA] could have taken alternative precautions, could have protected itself through negotiated agreements with its contract parties. That is not the issue. . . . The question is whether [MRMA’s] Board of Managers could properly conclude that chapter 11 was an appropriate way to address possible tough times ahead.

Finally, the court held that MRMA’s chapter 11 filing was not tactical or intended for a "nefarious" purpose. It rejected the contention that MRMA filed for chapter 11 to gain an advantage in seeking to have the leaseback transactions recharacterized as loans. According to the court, the evidence clearly showed that MRMA first began exploring the possibility of recharacterizing the transactions six months after it filed for bankruptcy. Moreover, it explained, the company did not need to file for chapter 11 to seek a remedy that could have been granted by a non-bankruptcy court.

Where Do We Go From Here?

Chapter 11 is an invaluable tool for companies attempting to find a workable solution to a wide range of financial, operational and market problems. Still, a company must be suffering from financial distress that can be remedied by a bankruptcy filing before it can rely on the safe haven of chapter 11 and all of its attendant benefits. In the absence of financial distress, a chapter 11 debtor will be hard-pressed to withstand a motion to dismiss the case on bad faith grounds, even if the debtor would clearly benefit from the substantive entitlements created under federal bankruptcy law, such as the ability to reject burdensome contracts, to limit claims for damages flowing from rejection, or to sell assets without having to pay certain transfer taxes normally levied on such transactions. In a very real sense, the good faith test acts as the gatekeeper to chapter 11.

In Mirant, the Texas bankruptcy court suggests that the Mirant good faith of a "corporate family" chapter 11 filing should be judged according to a different standard than that by which stand-alone cases are gauged — but query whether it really is different. Notwithstanding the court’s reliance on other decisions characterizing as "irrelevant" a corporate family member’s ability to demonstrate good faith on a stand-alone basis, the court’s good faith finding was clearly based on the potential ramifications of the corporate family filing on the financial well-being of any member that might not otherwise have filed for chapter 11.

Most courts examine the totality of the circumstances surrounding a chapter 11 filing to ascertain whether a company’s recourse to chapter 11 is legitimate under the good faith test. That is precisely what the court did in Mirant. Had there not Mirant been cross-default provisions in key agreements giving rise to potential exposure, MRMA’s decision to file for chapter 11 would probably not have passed muster under the good faith standard, whether or not the company was part of a corporate family. If Mirant can be said to articulate a caveat to the good faith rule in the context of corporate family filings, it should be that members of a corporate family may be subject to different kinds of financial distress than stand-alone businesses by reason of their affiliations with other companies.

In re Mirant Corporation, No. 03-46590 (Bankr. N.D. Tex. Jan. Corporation 26, 2005) (unpublished memorandum opinion and order).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

[FaGal]

http://thomas.loc.gov/cgi-bin/bdquer...:@@@L&summ2=m&

testo

[FaGal]

President signs bankruptcy law
www.boston.com - By Nedra Pickler, Associated Press - April 21, 2005

Erasing of debt made tougher


WASHINGTON - President Bush signed the biggest rewrite of US bankruptcy law in a quarter-century yesterday, making it harder for debt-ridden Americans to wipe out their obligations.

''Bankruptcy should always be a last resort in our legal system," Bush said. ''If someone does not pay his or her debts, the rest of society ends up paying them."

Many debtors will have to work out repayment plans instead of having their obligations erased in bankruptcy court under the law, which will go into effect in six months. The 500-page legislation won final congressional approval last week after being pushed for eight years by banks and credit card companies.

The measure would require people with incomes above a certain level to pay some or all of their credit-card charges, medical bills, and other obligations under a court-ordered bankruptcy plan.

Bush said the new law makes the financial system fairer for debtors and creditors.

''The act of Congress I sign today will protect those who legitimately need help, stop those who try to commit fraud, and bring greater stability and fairness to our financial system," Bush said.

Those who fought the bill said the change will fall especially hard on low-income workers, single mothers, minorities, and the elderly and will remove a safety net for those who have lost their jobs or face hefty medical bills.

The financial services industry argued that bankruptcy frequently is the last refuge of gamblers, impulsive shoppers, divorced or separated fathers avoiding child support, and multimillionaires who buy mansions in states with liberal homestead exemptions to shelter assets from creditors.

''In recent years too many people have abused the bankruptcy laws," Bush said. ''They walked away from debts even when they had the ability to repay them."

Between 30,000 and 210,000 people -- from about 4 percent to 20 percent of those who dissolve their debts in bankruptcy each year in exchange for forfeiting some assets -- would be disqualified from doing so under the legislation, according to the American Bankruptcy Institute.

[FaGal]

The Bankruptcy Law and Basel II
www.cfo.com - Ed Zwirn, CFO.com - May 31, 2005

One set of provisions in the new law enables cross-product netting of derivative products, but companies may still run afoul of Basel regulators.


The effects of the recently passed bankruptcy law on individuals have received widespread publicity; corporate provisions of the new law have been largely overlooked. One set of provisions in the new law — the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, to be enacted October 17 — enables companies to net out transactions between counterparties and across derivative product lines.

Indeed, it modernizes U.S. commercial law by defining derivative products that didn't exist when the relevant laws were last updated, in the early 1990s. The definitions, contained in Title IX of the act, affect products including repurchase agreements, credit derivatives, energy derivatives, and interest-rate swaps.

"Financial institutions are subject to capital requirement that are often based on the amount of their customers' obligations to them," says Marjorie Gross, senior vice president and senior regulatory counsel at the Bond Market Association. The ability to "net all the IOUs and 'UO Me's' so that there's just one number" on which to base capital requirements can free up enormous amounts of cash, she observes.

Take the instance of the reserves a bank must hold in case a counterparty goes belly-up; the counterparty owes the bank a total of $100 million for various derivatives, while the bank owes the counterparty $60 million. Since under current law the definitions of many of these derivatives are, at best, hazy, the bank's legal department opines that the bank has no solid legal basis to net out the obligations, and so the bank must hold some percentage of the $100 million in reserve. Under the new law the bank will be able to net out the $60 million against the $100 million, so it will need to reserve only some percentage of the remaining $40 — almost certainly a much smaller amount.

To be sure, smaller revisions have been inserted into the bankruptcy laws in the recent past. However, just as commercial law has redefined itself slowly in the face of rapid technological innovations during the past 10 or 15 years, bankruptcy law has also lagged behind the products and practices developed by finance professionals.

While the definitions in the new law will arguably free up capital by allowing U.S. financial institutions to proceed with cross-product netting, this effect runs counter to the provisions of the Basel II Capital Accord. Basel II — an international attempt to update banking regulations and, in the process, align capital-reserve requirements more closely with risk — would reward banks that use an "advanced approach" to risk measurement by lowering their capital-reserve requirements. (Earlier this month the four U.S. banking agencies announced that they will delay the publication of new rules related to Basel II.)

Basel II's lower capital-reserve requirements, however, are attainable only in the face of a much more restrictive approach to netting. Regulators from the Basel group and from the International Organization of Securities Commissions would impose a slew of requirements — concerning written netting agreements, prohibitions on walkaway clauses, and alignment with historical industry practices — that may create insurmountable hurdles to the practice, according to critics.

"In the new environment we all want to operate using the provisions of cross-product netting," said Sharmini Mahendran, executive director of Morgan Stanley's law division, at a seminar held last week by the Bond Market Association and the International Securities Dealers Association. "It's not up to these regulators to be telling us from Mount Olympus" to restrict cross-product netting when "under the new bankruptcy law in the U.S. we have the means to do it."


Looking ahead this week:

• The Financial Accounting Standards Board will again take up the question of whether credit standing and derivative liabilities should be included in the accounting treatment of derivatives under FAS 133 (see "Should FAS 133 Be 'Marked to Market'?"). Should the board formally add this project, it will also discuss whether its guidance should be in the form of a FASB staff position.

• The board will discuss whether to consider the effect of changes in a debtor's creditworthiness in reporting liabilities at fair value when the fair-value option has been elected.

• FASB will continue its discussion of the Fair Value Measurement exposure draft and is expected to clarify certain earlier decisions regarding blocks and disclosures.

[FaGal]

articolo sulla riforma

[FaGal]

Submitted: 11:14 PM, Wednesday, May 4, 2005
US - Faegre + Benson - April 2005
By Michael R. Stewart & Chrystal M. Donnell

On April 20, 2005, President Bush signed into law a controversial bankruptcy reform bill. The new law had been stalled in Congress for years, partly because it has been viewed as pitting the credit card industry against down-on-their-luck American families. The new legislation will make it more difficult for individuals to discharge their debts by filing for Chapter 7 liquidation, but makes other significant changes for businesses and creditors. Most of the bill will become effective six months after enactment, but, as indicated below, some provisions are effective immediately. Here are the highlights:

Individual Bankruptcy Changes


Means Test: Are too many debtors walking away from their debts in bankruptcy when they could pay at least part of their obligations? The new means test will determine whether those seeking bankruptcy protection must repay a portion of their debts under a Chapter 13 plan of adjustment, or may have their debts discharged under a Chapter 7 liquidation. The bankruptcy trustee or any party in interest can challenge a debtor’s eligibility to file Chapter 7 if the debtor’s current monthly income, excluding allowed deductions and payment of secured debt, is large enough that the debtor could pay approximately $100 to $160 per month to creditors over five years. The means test does not apply if the debtor’s income is equal to or below the state’s median income.

Mandatory Credit Counseling: The new law adds other hurdles before a debtor can file bankruptcy. An individual generally may not file for Chapter 7 unless an approved nonprofit credit counseling agency briefs the debtor on opportunities for available credit counseling, and assists the debtor in performing a budget analysis, no more than 180 days prior to filing. The debtor also may not obtain a discharge until he or she completes a personal financial management course.

Alternative Dispute Resolution: Creditors will need to watch out for claims that they acted unreasonably in pre-bankruptcy negotiations with debtors. The bankruptcy court may reduce a creditor’s claim for unsecured consumer debt by 20% if the bankruptcy court finds that the creditor “unreasonably” refused to negotiate an alternative repayment schedule, proposed by a nonprofit budget and credit counseling agency, that provides repayment of at least 60% of the debt over time. The new law does not define the term “unreasonably,” although the burden is on the debtor to prove the creditor acted unreasonably.

Reaffirmation Agreements: Creditors have sometimes been accused of heavy-handed tactics in encouraging debtors to reaffirm their debts. Accordingly, creditors are now subject to enhanced requirements for court approval of debt reaffirmation agreements by unrepresented debtors. Creditors must provide detailed disclosures and explanations for such agreements. Credit unions are exempt from the requirements. Additionally, the U.S. Attorney and FBI must investigate abusive reaffirmation practices.

Lien Stripping Against Consumer Goods: The new law limits a controversial debtor technique for reducing secured claims. In certain circumstances, Chapter 13 debtors will no longer be permitted to divide a creditor’s claim into secured and unsecured portions, with the secured portion of the claim limited to the value of the collateral and the unsecured portion discharged. If (1) the creditor has a purchase money security interest; (2) the collateral for the debt consists of a personal automobile, purchased within two and one half years before the filing of the bankruptcy petition; or (3) the collateral for the debt consists of other consumer goods purchased within one year of the filing of the bankruptcy petition, then the debtor will be stuck with paying the debt in full or giving the collateral back.

Homestead Exemption: Tired of hearing about rich deadbeats fleeing to Florida, buying a mansion and then filing bankruptcy? The new law disallows the debtor’s homestead exemption if the house was acquired within 3.3 years of filing the petition. In-state purchases where the debtor rolls the equity from his or her other previous homestead to a new homestead remain exempt, but the debtor cannot increase his equity in the homestead by more than $125,000 in the 3.3-year period. Such changes are effective for cases filed on or after April 20, 2005.

Discharge Restrictions: Because of concerns that some debtors were taking advantage of bankruptcy too frequently, the new law provides that Chapter 7 debtors who receive a discharge may not receive another for 8 years. Under the prior version, the limit was 6 years.

Attorney Liability: Lawyers are sweating their increased exposure in representing debtors. The signature of the debtor’s attorney on the bankruptcy petition certifies that: (1) the attorney reasonably investigated the circumstances that gave rise to the petition; (2) the petition is grounded in fact and warranted by law; (3) after inquiry, the attorney has no knowledge that the information in the debtor’s schedules is incorrect. The debtor’s attorney may be liable for fees, costs and sanctions if the attorney certifications are false.

IRA Exemption: Congress acted to fix a nagging problem: some bankruptcy courts were giving away the debtor’s IRAs to the creditors. Now, if an IRA is tax exempt, it’s also exempt from the debtor’s bankruptcy estate, up to $1,000,000 plus eligible rollover amounts. This exemption amount may be increased “if the interests of justice so require.”

Business Bankruptcy Changes


Executive Pay: Congress has been scrutinizing executive pay recently, and the new bankruptcy law continues the trend. If an employer files bankruptcy, an insider may have to give back some or all of what he or she received under an employment contract during the two years before the bankruptcy if the contract was not in the ordinary course of the employer’s business and the employer did not receive reasonably equivalent value. This change applies to cases filed on or after April 20, 2005. In addition, the new law restricts the ability of Chapter 11 companies to pay retention bonuses to keep key employees on board during the bankruptcy.

Avoidable preferences: Creditors don’t like it when they are sued to give back payments they received during the 90 days before a debtor’s bankruptcy. Congress has strengthened the creditors’ ability to keep ordinary course of business payments. Moreover, if the debtor’s debts are not primarily consumer debts, the new law creates a new preference exception for aggregate transfers totaling less than $5,000.
Venue: Non-debtors hate it when a debtor sues them in a far-flung forum. The new law requires that a debtor’s action to collect a consumer debt of less than $15,000, or any other debt of less than $10,000 where the defendant is not an insider, must be brought in the district where the defendant resides.

Executory Contracts/Unexpired Leases: Landlords complain when bankruptcy courts give debtors limitless extensions of time to assume or reject their leases. The new law provides that unexpired leases of nonresidential real property under which the debtor is a lessee are deemed rejected, and must be immediately surrendered to the lessor if they are not assumed or rejected by the earlier of: (1) 120 days after the commencement of the case; or (2) the date the court confirms the plan. The court, prior to the expiration of the 120-day period, may extend such period 90 days for cause. After the expiration of the 120-day period, an extension may only be granted upon the written consent of the lessor.

Trade Creditors and Administrative Expenses: Under the new law, if a debtor buys goods on credit in the ordinary course of business within 20 days of the bankruptcy, the seller will have an administrative expense priority for the value of the goods. This is a boon for trade creditors, because administrative expenses are paid before general unsecured claims, and must be paid in full in cash upon confirmation of a Chapter 11 plan.

Investment Bankers: Good news for investment bankers looking for more work. The new law permits a debtor to hire its pre-bankruptcy investment bankers, unless such persons hold interests that are materially adverse to the estate, creditors or equity security holders. The old law, in some circumstances, prohibited such persons from continuing advisory services during the debtor’s bankruptcy.

Creditors Committees: Creditors Committees are normally made up of creditors with the largest claims. Under the new law, the court may order the U.S. Trustee to adjust the number and makeup of committee members to ensure adequate representation of creditors. Creditors that are deemed small businesses may be added if their claims are disproportionately large in comparison to their annual gross revenue. Additionally, Creditors Committees now have an affirmative duty to be more responsive to creditors. The Committee must now “provide access to information” for, and solicit and receive comments from, creditors. Because Committees usually have access to confidential information of the debtor, some of which could not be disclosed under securities laws, this provision could lead to mischief.

Expanded Statute of Limitations for Fraudulent Transfers: This will be a surprise to some. The new law provides that the bankruptcy trustee or the debtor may set aside fraudulent transfers that occurred two years prior to the date of filing the bankruptcy petition (“Look Back Period”). Under the prior version of the Bankruptcy Code, the Look Back Period was only one year. This change only applies to cases filed 1 year after April 20, 2005.

Exclusive Period to File Plan: Creditors and competitors are miffed when companies languish in bankruptcy for years. The new law provides that the debtor’s exclusive period to file a plan may not be extended beyond 18 months. Under the prior law, there was no absolute limit on the court’s power to extend the exclusive period.
Small Business Bankruptcy: Chapter 11 bankruptcy has never worked very well for small businesses. It’s too expensive, and the delays and administrative burdens of Chapter 11 have killed plenty of small businesses. It’s not clear if the new law will change things. The new law defines a small business for chapter 11 purposes as one with debts under $2,000,000, excluding debts owed to one or more affiliates or insiders. Only the debtor may file a plan within 180 days after the date of the order for relief, unless the Bankruptcy Court orders otherwise. A plan and disclosure statement must be filed with the Bankruptcy Court not later than 300 days after the date of filing the bankruptcy petition, and the plan must be confirmed by the Bankruptcy Court not later than 45 days after the plan is filed, unless the Bankruptcy Court extends the deadline. If the debtor does not have a confirmable plan before the passage of such deadlines, the case can be converted or dismissed.

Increased Employee Wage/Benefit Priority: High-priority claims (claims that must be paid prior to the claims of general unsecured creditors) are increased for employee wages/benefits from $4,925 earned within 90 days of filing the bankruptcy petition, to $10,000 earned within 180 days of filing. Such changes become effective for cases filed after April 20, 2005.

Other Business Bankruptcy Changes: The new law is loaded with changes that have not been reported in the popular press. Among other things, the new law makes changes related to single asset real estate bankruptcies, revises some avoidable transfer rules, limits the availability of the automatic stay in certain small business cases, allows the exercise of certain rights under master netting and other financial derivative agreements, changes the rules related to conversion and dismissal of cases, requires the U.S. Trustee to move for the appointment of a Chapter 11 trustee if there are reasonable grounds to suspect that current members of the governing body of the debtor committed actual fraud, dishonesty or criminal conduct, and adopts provisions dealing with cross border insolvencies.

Family Farmer Bankruptcy Change

Chapter 12: The new law makes Chapter 12, which applies to family farmers, permanent. Previously, the law had a sunset provision which Congress had extended several times. This provision becomes effective July 1, 2005.
http://www.lawfuel.com/index.php?pag...licationid=856

[FaGal]

August 21, 2005
Debtors in Rush to Bankruptcy as Change Nears
By TIMOTHY EGAN
BOISE, Idaho - Rushing to beat an October deadline when the biggest overhaul of the bankruptcy law in a quarter century goes into effect, rising numbers of Americans have filed for protection in the four months since the law was changed, seeking to have their debts erased.

Since President Bush signed the new law in April, bankruptcy filings have jumped, particularly in the heartland. Filings in the four months through July are up 17 percent this year over last in Cleveland, 14 percent in Milwaukee and 22 percent in northern Iowa, according to court filings, matching similar patterns in the Midwest and parts of the South and rural West.

Nationwide, bankruptcy filings for April, May and June were up by 12 percent over the same period last year, according to LexisNexis, the data collection service, which tracks filings ahead of the quarterly reporting done by the federal courts. The rise is coming after bankruptcy had leveled off and even started a slight decline last year.

Under the revised law, debtors who earn more than the median income in their state and who can repay at least $6,000 of their debt over five years will no longer be able to have their debts wiped out for a fresh start under the more generous provisions of Chapter 7 of the bankruptcy code. Instead, they will have to seek protection under Chapter 13, which requires a repayment schedule. In addition, under the new provisions, they will have to enroll in a court-supervised financial counseling program.

The rise, which lawyers and bankruptcy experts say is driven in large part by people who say they fear that it will become much more difficult to escape debt and seek a clean slate under the new law, appears to have caught some bankers and lawyers by surprise.

When the new bankruptcy bill was passed by Congress last spring, bankers predicted it would turn many people away from the protection of the courts by making it harder to extinguish debt. That may still turn out to be the case. But thus far, it has been a rush to the courts in many places.

Here in Idaho, the soundless wave of Americans going broke washes up at the clerk's office in bankruptcy court, with nearly 20 fresh declarations of desperation every working day.

There is the Moore family of Boise, Kevin and Linda, listing a $10 cat and a $5 toaster among their meager assets against a medical bill of more than $18,000. There is Delores Hawks, going into debt to learn a skill, and never getting out because of endless credit card interest on the self-loan that once looked so manageable.

"Someday, I think we'll eventually get ahead," said Linda Moore, a 41-year-old part-time school bus driver who said she did not know of her husband's medical bills when she married him. "I don't know when that day will be."

Bankruptcy filings rose eightfold over the last 30 years, from 200,000 in 1978 to 1.6 million last year. Although filings vary from month to month, the pace for this year, if it holds up, projects to about 1.8 million bankruptcies. The overwhelming majority of them are personal, not business.

Economists say bankruptcy has become more likely as household debt has continued to rise while the savings rate has fallen precipitously. The Federal Reserve reported that household debt hit a record high last year, relative to disposable income.

"Bankruptcies historically have risen with debt, and a lot more people are now living near the edge," said Henry J. Sommer, president of the National Association of Consumer Bankruptcy Attorneys. "What we're seeing now is a rush to get in before October. After that, a certain amount of people will be priced out of bankruptcy."

Courts in Indiana, Nebraska, Ohio, Tennessee, Texas and Wisconsin, among other places, report that people are hurrying into bankruptcy in numbers rarely seen.

"I'm probably about four times more busy than normal," said Merv Waage, a bankruptcy lawyer in Denton, Tex. "People are saying, 'Honey, we can't pay our bill. We have no choice. We can't live under the stringent new rules. Let's file now before it's too late.' "

Idaho, a state with an otherwise prosperous sheen to its economy, is among the per capita leaders in a category that no state will brag about. Filings were up 11 percent for July over the same period last year - on a record pace for the year.

Gordon Barry, a bankruptcy lawyer in Toledo, Ohio, where filings are up 21 percent this year, said: "We've been busier than ever. People are running in, trying to beat the deadline."

The new requirements are an incentive to seek protection now, perhaps the last chance for a relatively hassle-free bankruptcy, some of the newly bankrupt say.

Certainly that was case of Ms. Hawks, who is 56, and lives in Ontario, Ore., just over the Idaho state line. After years of odd jobs, she took out loans on credit cards to go to business school and learn office skills. Once out of school, she found she had a rare nerve disease that she said kept her from holding a job. The debts piled up, even after she got rid of her credit cards.

She paid just enough to satisfy the credit card minimum payment, she said, but never advanced out of the loop of perennial debt on the interest.

"I was paying interest on the interest," Ms. Hawks said, "it was $5,000, and I never got ahead of it. Month after month after month. Finally, I just got tired of it. I said, 'I've had enough.' "

She had heard enough about the changes in the bankruptcy law to feel that it was important to file this summer rather than wait until all provisions of the new law took effect in October, she said. "I had to do something," said Ms. Hawks, who now lives on $656 a month in Social Security disability. "I decided to do it now rather than later."

Families with children are three times more likely to file as those without, according to studies done by Elizabeth Warren of Harvard Law School and others, and more than 80 percent of them cite job loss, medical problems or family breakup as the reason.

Ms. Moore, an Air Force veteran of the Persian Gulf war who married a carpenter and inherited his outstanding medical bills, said those old debts forced the couple into bankruptcy. Both Ms. Moore and her husband had been divorced before.

But she admits that they brought on some of the problem themselves.

"My husband, he's the kind of guy who when he gets a bill that he can't pay, he just puts it aside," Ms. Moore said.

The monthly math of the Moore family budget leaves little room for unplanned events. Mr. Moore makes about $1,200 a month as a carpenter. Ms. Moore, a mother of three children, drives a school bus part time, and makes $11 an hour. She also receives $300 a month in alimony. Their rent is $700 a month. Their food costs are $400 a month. Their cars, insurance and upkeep are $200 more.

Most months, they barely break even, she said. But what pushed them into bankruptcy were bills from the past, which kept growing with interest - a mountain that finally turned into an avalanche. They detailed the bills in their court filings.

The biggest was an $18,000 medical bill, for Mr. Moore, from a severe knee injury. He also owed $2,469 to a hospital where he went for care during a bout of depression. There was a $205 bill to DirecTV, and a $600 bill to Money Tree and a $615 debt to Capitol One - both lending services. And he owed child support, for $542.

Ms. Moore said she did not know about most of her new husband's debts until she started getting her wages garnished from her bus-driving job. She has health insurance from her Air Force days, but it has not been enough to keep them out of bankruptcy.

"My husband's old medical bills - that's what killed us," she said. Bankruptcy was a chance to start clean, she said. Bankers say the surge in filings is driven in part by misinformation about how the new law will work. They say it will force only the small percentage of people who abuse the system into regular payment schedules, while keeping an open door of debt forgiveness to the vast majority of bankruptcy filers, who are individuals rather than businesses.

"I would hope that consumers are not getting the rush-rush because they're afraid they won't have the same protection in a few months," said Wayne Abernathy, an executive at the American Bankers Association, which lobbied heavily for the new law.

Consumer groups say the law will only make matters worse for the large number of families who are not abusing the system. They say families will be stuck in "debtor's prison without walls," as the Consumer Federation of America, which fought the new bill, calls it.

Many economists and legal experts say that once all provisions of the law take effect in October, bankruptcies should fall again. And some experts say people will be caught in an endless cycle of debt repayment.

Ms. Hawks, who said that she declared Chapter 7 bankruptcy last month to get out of the endless interest payments on credit cards she had long given up, is puzzled by the financial industry's continued interest in her.

"Couple of times a week, I get a phone call or something in the mail trying to get me to accept a new credit card," she said. "I don't get it - because I'm broke."

Maureen Balleza contributed reporting for this article from Houston.

NYTIMES