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Contents

Volume 1

CD-Rom Contents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xxxv

Chapter 1 About This Manual

1.1 Bankruptcy As a Remedy for Consumer Debtors. . . . . . . . . . . . . . . . . . . . . . . . 1

1.1.1 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

1.1.2 The Bankruptcy Reform Act and Subsequent Amendments. . . . . . . . . . . . . 1

1.1.2.1 Passage of the Bankruptcy Reform Act. . . . . . . . . . . . . . . . . . . . . 11.1.2.2 Consumer Bankruptcy Amendments of 1984 . . . . . . . . . . . . . . . . . 2

1.1.2.3 Bankruptcy Judges, United States Trustees, and Family Farmer

Bankruptcy Act of 1986. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

1.1.2.4 The Bankruptcy Reform Act of 1994 . . . . . . . . . . . . . . . . . . . . . . 2

1.1.2.5 The 2005 Bankruptcy Amendments . . . . . . . . . . . . . . . . . . . . . . . 3

1.1.2.6 Other Amendments to the Code. . . . . . . . . . . . . . . . . . . . . . . . . . 5

1.1.3 Bankruptcys Past As Neglected Remedy. . . . . . . . . . . . . . . . . . . . . . . . . 5

1.1.4 Making Bankruptcy Available to Consumer Clients . . . . . . . . . . . . . . . . . . 5

1.2 The Focus of This ManualBankruptcy Practice for Consumer Debtors and

Family Farmers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

1.3 How to Use This Manual. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

1.3.1 Purpose of the Manual . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

1.3.2 Organization of the Manual . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

1.3.3 Using This Manual As a Research Tool. . . . . . . . . . . . . . . . . . . . . . . . . . 8

1.3.3.1 This Manual Does Not Contain Citations to Every Relevant Case. . . 8

1.3.3.2 NCLC Case Consulting and Other NCLC Manuals. . . . . . . . . . . . . 8

1.4 The Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

1.4.1 Statutory Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

1.4.1.1 The Bankruptcy Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

1.4.1.2 Other Relevant Statutes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

1.4.2 The Federal Rules of Bankruptcy Procedure and Interim Bankruptcy

Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

1.4.3 The Official Bankruptcy Forms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

1.4.4 Other Issues Concerning Sources of Law . . . . . . . . . . . . . . . . . . . . . . . . 11

1.4.4.1 Pending Legislation and Amendments to the Rules . . . . . . . . . . . . 111.4.4.2 Local Bankruptcy Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

1.4.4.3 Case Law Under the Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

1.5 Other Resources for Practicing Under the Bankruptcy Code . . . . . . . . . . . . . . . 12

1.5.1 Legislative History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

1.5.1.1 The Bankruptcy Reform Act of 1978 . . . . . . . . . . . . . . . . . . . . . 12

1.5.1.2 The 1984 Amendments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

1.5.1.3 The 1986 Amendments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

1.5.1.4 The Bankruptcy Reform Act of 1994 . . . . . . . . . . . . . . . . . . . . . 13

1.5.1.5 The 2005 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

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1.5.2 Rules Advisory Committee Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

1.5.3 Treatises and Texts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

1.5.4 Reporting Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

1.5.5 Periodicals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

1.5.6 Citator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

1.5.7 Computer Assisted Legal Research . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Chapter 2 What Is Bankruptcy? Some General Concepts

2.1 A Definition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

2.2 Relief Available in Bankruptcy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

2.3 Purposes of Bankruptcy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

2.4 The Bankruptcy Court . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

2.4.1 Status Under the Bankruptcy Reform Act As Amended in 1984. . . . . . . . . 20

2.4.2 Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

2.4.3 Appeals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

2.5 The Bankruptcy Estate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

2.5.1 Contents of the Estate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

2.5.2 Pensions and Spendthrift Trusts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

2.5.3 Education Savings Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

2.5.4 Pawned Personal Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

2.5.5 Tax Refunds and the Earned Income Tax Credit . . . . . . . . . . . . . . . . . . . 29

2.6 The Bankruptcy Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

2.7 The United States Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

Chapter 3 Chapter 7 Bankruptcy (Straight Bankruptcy): The Basic Steps

3.1 General Explanation of Chapter 7 Bankruptcy . . . . . . . . . . . . . . . . . . . . . . . . . 35

3.2 Commencement of the Case . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

3.2.1 Who May File? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

3.2.1.1 General Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

3.2.1.2 Effect of Prior Bankruptcy Cases on Eligibility to File . . . . . . . . . 36

3.2.1.3 Eligibility to File a Case Does Not Assure Discharge of Debts . . . . 373.2.2 The Initial Forms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

3.2.3 Proper Venue for Bankruptcy Case . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

3.3 First Steps After Filing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

3.4 The Section 341(a) Meeting (Meeting of Creditors) . . . . . . . . . . . . . . . . . . . . . 40

3.5 After the Meeting of Creditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

3.5.1 Exempt and Encumbered Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

3.5.2 Liquidation of Nonexempt Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

3.5.3 Filing and Allowance of Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

3.5.4 Distribution of Property to Creditors . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

3.6 The Discharge and Discharge Hearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

Chapter 4 Chapter 13 Bankruptcy: The Basic Steps4.1 General Explanation of Chapter 13 Bankruptcy . . . . . . . . . . . . . . . . . . . . . . . . 47

4.2 Commencement of the Case . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

4.2.1 Who May File? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

4.2.2 The Initial Forms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

4.2.3 Conversion from Chapter 7 Proceedings . . . . . . . . . . . . . . . . . . . . . . . . 49

4.3 First Steps After Filing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

4.4 The Meeting of Creditors and Other Pre-Confirmation Activities . . . . . . . . . . . . 51

4.5 The Confirmation Hearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

4.6 Modification of the Plan and Postpetition Transactions . . . . . . . . . . . . . . . . . . . 53

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4.7 Options in the Event of Failure to Complete the Plan . . . . . . . . . . . . . . . . . . . . 54

4.7.1 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54

4.7.2 Hardship Discharge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54

4.7.3 Modification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54

4.7.4 Conversion to Chapter 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

4.7.5 Dismissal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

4.8 Discharge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

Chapter 5 Getting All the Necessary Facts

5.1 Introduction to the Manuals Second Part . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59

5.1.1 Purpose of These Four Chapters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59

5.1.2 Roles for Non-Attorneys . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59

5.1.3 Use of the Materials in the Manual. . . . . . . . . . . . . . . . . . . . . . . . . . . . 59

5.2 The Importance of Getting All the Facts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59

5.3 Methods of Gathering Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

5.3.1 The Initial Interview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

5.3.2 Filling in the Complete Picture. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

5.3.3 Frequently Missed Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61

5.3.3.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61

5.3.3.2 Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61

5.3.3.3 Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62

5.3.3.4 Other Aspects of Financial Affairs . . . . . . . . . . . . . . . . . . . . . . . 63

5.3.4 Other Sources of Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63

5.4 Impressing upon Clients the Need for Full and Accurate Information . . . . . . . . . 64

Chapter 6 Counseling the Consumer Debtor: Does Bankruptcy Provide the Best

Solution and, If So, How and When?

6.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65

6.1.1 Explaining the Options to Clients . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65

6.1.2 Methods of Explaining Bankruptcy . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65

6.2 Advantages and Disadvantages of Bankruptcy . . . . . . . . . . . . . . . . . . . . . . . . . 666.2.1 Advantages: The Uses of Bankruptcy . . . . . . . . . . . . . . . . . . . . . . . . . . 66

6.2.1.1 Discharge of Most Debts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66

6.2.1.2 Protection of Property and Income from Unsecured Creditors. . . . . 66

6.2.1.3 Tools for Eliminating or Modifying Secured Debts . . . . . . . . . . . . 67

6.2.1.4 Automatic Stay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67

6.2.1.5 Other Protections Available Through Bankruptcy . . . . . . . . . . . . . 67

6.2.1.6 Litigation Advantages of the Bankruptcy Forum . . . . . . . . . . . . . . 67

6.2.2 Disadvantages: Reasons for Not Filing a Bankruptcy Case . . . . . . . . . . . . 68

6.2.2.1 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68

6.2.2.2 Loss of Property in Bankruptcy . . . . . . . . . . . . . . . . . . . . . . . . . 68

6.2.2.3 Effect on Credit and Reputation. . . . . . . . . . . . . . . . . . . . . . . . . 68

6.2.2.4 Possible Discrimination After Bankruptcy . . . . . . . . . . . . . . . . . . 69

6.2.2.4.1 The available protections. . . . . . . . . . . . . . . . . . . . . . . 69

6.2.2.4.2 Medical debts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69

6.2.2.5 Clients Feelings of Moral Obligation . . . . . . . . . . . . . . . . . . . . . 70

6.2.2.6 Cost of Filing a Bankruptcy Petition. . . . . . . . . . . . . . . . . . . . . . 70

6.2.2.7 Is Bankruptcy Necessary?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70

6.2.2.8 When Bankruptcy Offers No Help or Is Unavailable . . . . . . . . . . . 71

6.2.2.8.1 When bankruptcy will not help . . . . . . . . . . . . . . . . . . 71

6.2.2.8.2 Clients who have filed prior bankruptcy cases . . . . . . . . 71

6.3 Choosing the Type of Bankruptcy Case to File . . . . . . . . . . . . . . . . . . . . . . . . 72

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6.3.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72

6.3.2 Considerations Favoring Chapter 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72

6.3.3 Considerations Favoring Chapter 13 . . . . . . . . . . . . . . . . . . . . . . . . . . . 73

6.3.4 Use of Chapter 11 by Consumer Debtors . . . . . . . . . . . . . . . . . . . . . . . . 74

6.4 Should Both Spouses File?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74

6.5 Considerations of Timing and Events Prior to Filing . . . . . . . . . . . . . . . . . . . . 75

6.5.1 Reasons to File Quickly . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75

6.5.2 The Effects of Prebankruptcy Transfers or Other Actions . . . . . . . . . . . . . 766.5.2.1 Fraudulent Acts, Conveyances, and Preferences . . . . . . . . . . . . . . 76

6.5.2.2 Exemption Time Periods and Exemption Planning . . . . . . . . . . . . 77

6.5.3 Other Reasons for Delaying a Petition . . . . . . . . . . . . . . . . . . . . . . . . . . 79

6.5.3.1 Anticipation of Further Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . 79

6.5.3.2 Paying Favored Creditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79

6.5.3.3 Delay of a Petition As a Strategy to Forestall Harm to Clients . . . . 79

6.5.3.4 Tax Reach Back Periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79

6.5.3.5 Delay to Obtain More Favorable Treatment of Certain Secured

Debts in Chapter 13. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80

6.5.3.6 Timing the Petition to Avoid a Presumption of Abuse in Chapter

7 or to Lower Disposable Income in Chapter 13 . . . . . . . . . . . . . 80

6.5.3.7 Timing the Petition to Avoid Automatic Stay Limitations . . . . . . . . 80

6.5.3.8 Less Common Reasons for Delaying a Petition . . . . . . . . . . . . . . 80

Chapter 7 Preparing and Filing the Papers

7.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81

7.1.1 Some General Principles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81

7.1.2 Obtaining the Forms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81

7.1.3 Computer Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82

7.1.4 Electronic Filing of Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82

7.2 The Papers Necessary to Start a Case . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83

7.2.1 Forms Usually Filed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83

7.2.2 The Emergency Bankruptcy, or How to Prepare a Bankruptcy Case in

Under One Hour . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 847.2.3 Timing the Filing of Multiple Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . 85

7.3 Forms at the Outset of the Case . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85

7.3.1 Official and Unofficial Forms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85

7.3.2 The Bankruptcy Petition (Official Form 1) . . . . . . . . . . . . . . . . . . . . . . . 86

7.3.3 Statement of Social Security Number (Official Form 21) . . . . . . . . . . . . . 87

7.3.4 List of Creditors, Codebtors, and Parties to Executory Contracts . . . . . . . . 87

7.3.5 Credit Counseling Statement, Certificate from Counseling Agency, and

Debt Management Plan (If Any). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87

7.3.6 Notice of Chapters Under Which Relief Is Available and Other

Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88

7.3.7 The Bankruptcy Schedules (Official Form 6) . . . . . . . . . . . . . . . . . . . . . 88

7.3.7.1 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88

7.3.7.2 Schedules A, B, and C: The Debtors Property. . . . . . . . . . . . . . . 88

7.3.7.2.1 Schedule Areal property. . . . . . . . . . . . . . . . . . . . . . 88

7.3.7.2.2 Schedule Bpersonal property . . . . . . . . . . . . . . . . . . 89

7.3.7.2.3 Schedule Cproperty claimed as exempt . . . . . . . . . . . 91

7.3.7.3 Schedules D, E, and F: Information About Creditors . . . . . . . . . . . 93

7.3.7.3.1 In general . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93

7.3.7.3.2 Schedule Dsecured debts . . . . . . . . . . . . . . . . . . . . . 94

7.3.7.3.3 Schedule Epriority debts . . . . . . . . . . . . . . . . . . . . . 94

7.3.7.3.4 Schedule Fgeneral unsecured debts . . . . . . . . . . . . . . 95

7.3.7.4 Schedule G: Unexpired Leases and Executory Contracts . . . . . . . . 95


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7.3.7.5 Schedule H: Codebtors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96

7.3.7.6 Schedules I and J: Income and Expenses. . . . . . . . . . . . . . . . . . . 96

7.3.7.7 Declaration Concerning Debtors Schedules . . . . . . . . . . . . . . . . . 97

7.3.7.8 The Summary of Schedules and Statistical Summary of Certain

Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97

7.3.8 The Statement of Financial Affairs (Official Form 7) . . . . . . . . . . . . . . . . 98

7.3.9 Statement of Current Monthly Income, Means Test, and Chapter 13

Calculations (Official Forms 22A and 22C) . . . . . . . . . . . . . . . . . . . . . 1007.3.10 Filing Debtor Payment Advices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101

7.3.11 The Statement of Intention with Regard to Property Securing Consumer

Debts (Official Form 8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102

7.3.12 The Chapter 13 Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103

7.3.12.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103

7.3.12.2 Form of Plan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103

7.3.12.3 Required Provisions and Confirmation Standards. . . . . . . . . . . . 104

7.3.12.4 Other Plan Provisions Permitted . . . . . . . . . . . . . . . . . . . . . . . 105

7.3.12.5 Formulating the Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106

7.3.13 Other Forms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107

7.3.13.1 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107

7.3.13.2 Disclosure of Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107

7.3.13.3 Application to Pay Filing Fee in Installments . . . . . . . . . . . . . . 107

7.3.13.4 Application for Waiver of Filing Fees in Whole or in Part . . . . . 107

7.3.13.5 Motion for Extension of Time to File Required Documents . . . . 107

7.3.13.6 Forms Required by Local Rules or Practice . . . . . . . . . . . . . . . 108

7.4 Signing, Verification, and Filing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108

Chapter 8 After the Papers Are Filed

8.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109

8.2 Advice to Clients . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109

8.3 Events Which May Occur Prior to or After the Section 341 Meeting of

Creditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110

8.3.1 Notice of the Automatic Stay and Turnover Requirement . . . . . . . . . . . . 1108.3.2 Amendments to Statements or Schedules . . . . . . . . . . . . . . . . . . . . . . . 111

8.3.3 Personal Financial Management Course . . . . . . . . . . . . . . . . . . . . . . . . 111

8.3.4 Production of Tax Returns or Transcripts . . . . . . . . . . . . . . . . . . . . . . . 112

8.3.4.1 Providing Tax Return or Transcript to Trustee and Creditors. . . . . 112

8.3.4.2 Filing Tax Returns or Transcripts with the Court. . . . . . . . . . . . . 113

8.3.4.3 Privacy Concerns and Safeguards . . . . . . . . . . . . . . . . . . . . . . . 113

8.3.5 Annual Statements of Income and Expenditures in Chapter 13 Cases . . . . 114

8.3.6 Avoiding Transfers of Exempt Property . . . . . . . . . . . . . . . . . . . . . . . . 114

8.3.7 Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115

8.3.8 Complaints on Dischargeability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115

8.3.9 Objections to Claims of Creditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116

8.3.10 Other Disputes That May Arise. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116

8.3.11 Retaining Nonexempt Property in Chapter 7 Cases. . . . . . . . . . . . . . . . 116

8.3.12 Commencement of Payments in Chapter 13 Cases . . . . . . . . . . . . . . . . 117

8.3.12.1 Plan Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117

8.3.12.2 Adequate Protection Payments and Payments to Personal

Property Lessors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117

8.3.12.3 Graduated Plan Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . 118

8.3.13 Proof of Insurance in Chapter 13 Cases . . . . . . . . . . . . . . . . . . . . . . . 118

8.3.14 Filing of Tax Returns with Taxing Authorities in Chapter 13 Cases . . . . 118

8.3.15 Audits and Rule 2004 Examinations . . . . . . . . . . . . . . . . . . . . . . . . . 119

8.3.15.1 Debtor Audits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119

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8.3.15.2 Rule 2004 Examinations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119

8.4 The Meeting of Creditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119

8.4.1 Preparation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119

8.4.2 Document Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120

8.4.3 Procedure at the Meeting of Creditors . . . . . . . . . . . . . . . . . . . . . . . . . 120

8.4.4 Attendance of Creditors Seeking Reaffirmation Agreements. . . . . . . . . . . 122

8.4.5 Examination of Chapter 7 Debtors Awareness of Bankruptcy

InformationBankruptcy Information Sheet . . . . . . . . . . . . . . . . . . . . . 1228.4.6 Checking Claims That Have Been Filed . . . . . . . . . . . . . . . . . . . . . . . . 123

8.5 Chapter 7 CasesAfter the Meeting of Creditors. . . . . . . . . . . . . . . . . . . . . . 123

8.6 Chapter 13 Confirmation Hearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124

8.7 Administration of the Chapter 13 Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125

8.7.1 Trustee Payments to Creditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125

8.7.2 Postpetition Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125

8.7.3 Modification of the Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126

8.7.4 Debtors Inability to Complete the Plan . . . . . . . . . . . . . . . . . . . . . . . . 127

8.7.4.1 Failure to Make Plan Payments . . . . . . . . . . . . . . . . . . . . . . . . 127

8.7.4.2 Plan Modifications That Enable the Debtor to Complete the Plan . . 128

8.7.4.3 Obtaining a Hardship Discharge. . . . . . . . . . . . . . . . . . . . . . . . 128

8.7.4.4 Conversion to Chapter 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128

8.7.4.5 Dismissal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130

8.8 The Discharge and the Discharge Hearing. . . . . . . . . . . . . . . . . . . . . . . . . . . 131

8.8.1 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131

8.8.2 Reaffirmation of Debts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131

8.8.3 Procedure When There Is a Discharge Hearing . . . . . . . . . . . . . . . . . . . 133

8.9 After Discharge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133

Chapter 9 Automatic Stays and Turnover of Property

9.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135

9.2 Purpose of the Automatic Stay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135

9.3 Duration of the Stay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135

9.3.1 In General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1359.3.2 Duration If No Prior Case Was Dismissed in Year Before Petition . . . . . . 136

9.3.3 Duration If a Prior Case Was Dismissed in Year Before Petition . . . . . . . 137

9.3.3.1 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137

9.3.3.2 One Prior Case Dismissed Within Previous Year. . . . . . . . . . . . . 137

9.3.3.2.1 General application. . . . . . . . . . . . . . . . . . . . . . . . . . 137

9.3.3.2.2 Demonstrating good faith for extension of stay past

thirty days. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137

9.3.3.2.3 Overcoming the presumption that case was not filed in

good faith . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138

9.3.3.3 Two or More Cases Dismissed Within Previous Year . . . . . . . . . 138

9.3.3.4 Order Confirming Stay Termination . . . . . . . . . . . . . . . . . . . . . 139

9.3.3.5 Codebtor Stay Still Applicable. . . . . . . . . . . . . . . . . . . . . . . . . 139

9.3.3.6 Filings in Violation of Section 109(g) or a Prior Court

OrderSection 362(b)(21) . . . . . . . . . . . . . . . . . . . . . . . . . . . 139

9.4 Scope of the Automatic Stay. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140

9.4.1 Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140

9.4.2 Acts Directed at the Debtors Property . . . . . . . . . . . . . . . . . . . . . . . . . 142

9.4.3 Other Acts Prohibited by the Stay . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145

9.4.4 The Automatic Stay Protecting Codebtors in Chapter 13. . . . . . . . . . . . . 148

9.4.5 Exceptions to the Automatic Stay . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150

9.4.5.1 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150

9.4.5.2 Criminal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150


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9.4.5.3 Family Law Exceptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150

9.4.5.4 Continued Withholding of Income for Loans from Retirement

Funds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151

9.4.5.5 Provisions Based on Prior Bankruptcy Case Filings by Debtor or

Related Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152

9.4.5.5.1 In general . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152

9.4.5.5.2 In Rem orders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152

9.4.5.6 Exceptions to Stay of Residential Tenant Evictions . . . . . . . . . . . 1539.4.5.6.1 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153

9.4.5.6.2 Prepetition judgment for possession. . . . . . . . . . . . . . . 153

9.4.5.6.3 Illegal use of controlled substances or endangerment to

the property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154

9.4.5.7 Transfers Not Avoidable Under Section 549. . . . . . . . . . . . . . . . 154

9.4.5.8 Setoff of Tax Refunds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155

9.4.5.9 Other Exceptions Sometimes Applicable in Consumer Cases . . . . 155

9.4.6 Non-Automatic Stays . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156

9.5 Notice of the Automatic Stay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157

9.6 Enforcing the Stay. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157

9.6.1 Actions Taken in Violation of the Stay Are Void . . . . . . . . . . . . . . . . . . 157

9.6.2 Cause of Action for Damages, Punitive Damages, and Attorney Fees . . . . 158

9.6.3 Notice Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160

9.6.3.1 Giving Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160

9.6.3.2 Effective Notice Under Section 342 . . . . . . . . . . . . . . . . . . . . . 160

9.6.4 Contempt Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161

9.6.5 Other Possible Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162

9.6.6 Remedies Against State and Federal Government . . . . . . . . . . . . . . . . . 162

9.6.7 Procedural Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163

9.7 Proceedings Seeking Relief from the Stay. . . . . . . . . . . . . . . . . . . . . . . . . . . 163

9.7.1 Proceedings Must Be Commenced by Motion . . . . . . . . . . . . . . . . . . . . 163

9.7.2 Time Limits for Court Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164

9.7.3 Defending Against Motions for Relief from the Stay . . . . . . . . . . . . . . . 165

9.7.3.1 Procedural Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165

9.7.3.1.1 Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1659.7.3.1.2 Discovery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166

9.7.3.1.3 Defenses and counterclaims . . . . . . . . . . . . . . . . . . . . 166

9.7.3.1.4 Burden of proof . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167

9.7.3.1.5 Effect of prior bankruptcy cases involving the same

debtor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167

9.7.3.2 Grounds for Relief. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169

9.7.3.2.1 For cause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169

9.7.3.2.2 Lack of adequate protection . . . . . . . . . . . . . . . . . . . . 171

9.7.3.2.3 Lack of equity or necessity for effective reorganization . . 173

9.7.3.2.4 Leases involving residential property. . . . . . . . . . . . . . 174

9.7.3.3 Tactics in Stay Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176

9.7.3.3.1 Valuation problems . . . . . . . . . . . . . . . . . . . . . . . . . . 176

9.7.3.3.2 Other tactics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176

9.7.3.3.3 Stays pending appeal . . . . . . . . . . . . . . . . . . . . . . . . 177

9.8 Utility Services in Bankruptcy Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177

9.8.1 No Utility May Deny Service Within Twenty Days After Bankruptcy . . . . 177

9.8.2 A Utility May Be Able to Discontinue Service If the Debtor Does Not

Furnish Adequate Assurance of Future Payment . . . . . . . . . . . . . . . . . . 178

9.8.2.1 Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 178

9.8.2.2 Adequate Assurance of Future Payment . . . . . . . . . . . . . . . . . . 179

9.8.2.2.1 Methods of adequate assurance. . . . . . . . . . . . . . . . . . 179

9.8.2.2.2 Adequate assurance not always required . . . . . . . . . . . 179

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9.8.2.2.3 Amount necessary for adequate assurance . . . . . . . . . . 180

9.8.2.2.4 Postpetition termination procedures . . . . . . . . . . . . . . . 181

9.8.2.2.5 Possible special protections for customers of

governmental utilities . . . . . . . . . . . . . . . . . . . . . . . . 181

9.9 Turnover of Property Under Section 542. . . . . . . . . . . . . . . . . . . . . . . . . . . . 181

9.9.1 The General Rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 181

9.9.2 Questions of Scope: Secured Parties in Possession. . . . . . . . . . . . . . . . . 182

9.9.3 Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1839.9.4 Issues of Possession After Turnover . . . . . . . . . . . . . . . . . . . . . . . . . . 183

Chapter 10 Exemptions

10.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185

10.1.1 Importance of the Exemption Provisions. . . . . . . . . . . . . . . . . . . . . . . 185

10.1.2 Definition of Exempt Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185

10.1.3 Purposes of Exemptions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 186

10.2 What Property Is Exempt? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 186

10.2.1 The Choice of State or Federal Exemptions . . . . . . . . . . . . . . . . . . . . 186

10.2.1.1 In General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 186

10.2.1.2 Determining the Applicable Exemption Law. . . . . . . . . . . . . . . 188

10.2.2 The Federal Bankruptcy Exemptions . . . . . . . . . . . . . . . . . . . . . . . . . 189

10.2.2.1 In General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 189

10.2.2.2 Homestead 522(d)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 189

10.2.2.3 Motor Vehicle 522(d)(2). . . . . . . . . . . . . . . . . . . . . . . . . . 190

10.2.2.4 Household Goods, Household Furnishings, Wearing Apparel,

Appliances, and Similar Items 522(d)(3). . . . . . . . . . . . . . . 190

10.2.2.5 Jewelry 522(d)(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 191

10.2.2.6 Any Property 522(d)(5) . . . . . . . . . . . . . . . . . . . . . . . . . . 191

10.2.2.7 Tools of the Trade 522(d)(6) . . . . . . . . . . . . . . . . . . . . . . . 192

10.2.2.8 Unmatured Life Insurance 522(d)(7) . . . . . . . . . . . . . . . . . 192

10.2.2.9 Accrued Dividend, Interest, or Loan Value of Life Insurance

522(d)(8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193

10.2.2.10 Health Aids 522(d)(9) . . . . . . . . . . . . . . . . . . . . . . . . . . 19310.2.2.11 Disability, Retirement, and Other Benefits Replacing Wages

522(d)(10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193

10.2.2.12 Rights to Compensation for Injury or Losses 522(d)(11) . . . 196

10.2.2.13 Pensions and Retirement Accounts 522(d)(12) . . . . . . . . . 197

10.2.2.13.1 2005 amendments . . . . . . . . . . . . . . . . . . . . . . . . . 197

10.2.2.13.2 Guidelines for exempt retirement funds . . . . . . . . . . 198

10.2.2.13.3 Cap on certain IRA accounts . . . . . . . . . . . . . . . . . 198

10.2.3 Using the State and Federal Nonbankruptcy Exemptions . . . . . . . . . . . . 198

10.2.3.1 Federal Bankruptcy Modifications of These Exemptions. . . . . . . 198

10.2.3.2 Exemption of Property Not Subject to Process . . . . . . . . . . . . . 200

10.2.3.3 Special Retirement Exemptions Available to Debtors Who

Utilize State and Federal Nonbankruptcy Exemptions . . . . . . . . 203

10.2.3.4 Limitations on State Homestead Exemptions . . . . . . . . . . . . . . 204

10.2.3.4.1 In general . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 204

10.2.3.4.2 Scope of the new restrictions . . . . . . . . . . . . . . . . . . 204

10.2.3.4.3 Homestead limitation based on fraudulent conversion

of nonexempt property . . . . . . . . . . . . . . . . . . . . . . 204

10.2.3.4.4 Cap on homestead property acquired during 1215-day

period before filing . . . . . . . . . . . . . . . . . . . . . . . . . 205

10.2.3.4.5 Homestead cap based on certain criminal or wrongful

conduct. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 205

10.2.3.4.5.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . 205


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10.2.3.4.5.2 Felony conviction . . . . . . . . . . . . . . . . . . . 205

10.2.3.4.5.3 Debts arising from certain wrongful conduct. . 206

10.2.3.4.5.4 Standing to bring objection to exemption . . . . 206

10.2.3.4.5.5 No cap if homestead reasonably necessary for

support . . . . . . . . . . . . . . . . . . . . . . . . . . 206

10.2.3.4.5.6 Delay of discharge . . . . . . . . . . . . . . . . . . 207

10.2.3.4.5.7 Application of homestead caps in joint cases. . 208

10.3 Procedure for Claiming Exemptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20810.3.1 The Initial Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 208

10.3.2 Amending the Claim of Exemption . . . . . . . . . . . . . . . . . . . . . . . . . . 209

10.3.3 Objections to Exemptions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 210

10.3.4 Absent Successful Objections, the Exemptions Are Allowed . . . . . . . . . 212

10.4 Making the Most of Exemptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 213

10.4.1 Exemption Planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 213

10.4.2 Avoiding Powers of the Debtor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 214

10.4.2.1 General Principles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 214

10.4.2.2 Procedure for Use of Avoiding Powers . . . . . . . . . . . . . . . . . . 215

10.4.2.3 Power to Avoid Judicial Liens 522(f)(1)(A) . . . . . . . . . . . . 216

10.4.2.3.1 Extent of the power to avoid judicial liens . . . . . . . . . 216

10.4.2.3.2 Limitations on power to avoid judicial liens . . . . . . . . 219

10.4.2.3.3 Avoidance of liens on property which may be claimed

as exempt under 522(b)(2)(B) . . . . . . . . . . . . . . . . 220

10.4.2.4 Power to Avoid Nonpossessory, Nonpurchase-Money Security

Interests in Certain Items 522(f)(1)(B) . . . . . . . . . . . . . . . . 221

10.4.2.5 Power to Exempt Property Recovered by Trustee 522(g) . . . . 224

10.4.2.6 Debtors Right to Utilize Trustees Avoiding Powers 522(h). . 226

10.4.2.6.1 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 226

10.4.2.6.2 The strong-arm clause 544 . . . . . . . . . . . . . . . 226

10.4.2.6.3 Statutory liens 545. . . . . . . . . . . . . . . . . . . . . . . 229

10.4.2.6.4 Preferences 547 . . . . . . . . . . . . . . . . . . . . . . . . . 229

10.4.2.6.4.1 In general . . . . . . . . . . . . . . . . . . . . . . . . 229

10.4.2.6.4.2 Exceptions to preference avoiding power . . . . 231

10.4.2.6.4.3 Debtors use of preference avoiding power . . . 23410.4.2.6.5 Fraudulent transfers 548 . . . . . . . . . . . . . . . . . . . 235

10.4.2.6.6 Postpetition transfers 549 . . . . . . . . . . . . . . . . . . 239

10.4.2.6.7 Setoff 553. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 240

10.4.2.6.8 Liens securing fines, penalties and forfeitures

724(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 242

10.4.2.7 Other Limitations on Debtors Use of Trustee Avoiding Powers . 242

10.4.2.8 Recovery of Property After Transfer Is Avoided . . . . . . . . . . . . 243

10.4.2.9 Preservation of Avoided Transfers or Recovered Property. . . . . . 244

10.4.2.10 Limits on Availability of Debtors Avoiding Powers As Applied

to Liens Predating the Bankruptcy Reform Act . . . . . . . . . . . . 244

10.5 Protection of Exempt Property After Discharge . . . . . . . . . . . . . . . . . . . . . . 245

Chapter 11 Dealing with Secured Creditors

11.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 247

11.2 Determination of the Allowed Secured Claim . . . . . . . . . . . . . . . . . . . . . . . 247

11.2.1 The Concept of the Allowed Secured Claim . . . . . . . . . . . . . . . . . . . . 247

11.2.1.1 General Principles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 247

11.2.1.2 Limitations on Claim Bifurcation in Chapter 7 . . . . . . . . . . . . . 248

11.2.1.3 Claim Bifurcation Alive and Well in Other Chapters . . . . . . . . . 248

11.2.2 Procedure for Determining the Allowed Secured Claim. . . . . . . . . . . . . 249

11.2.2.1 Overview of the Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . 249

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11.2.2.2 Date of Valuation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 251

11.2.2.2.1 In general . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 251

11.2.2.2.2 Statutory rules for some personal property . . . . . . . . . 251

11.2.2.3 Method of Valuation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 252

11.2.2.3.1 Valuation standard. . . . . . . . . . . . . . . . . . . . . . . . . . 252

11.2.2.3.2 Valuation of motor vehicles . . . . . . . . . . . . . . . . . . . 253

11.2.2.3.3 Property other than automobiles . . . . . . . . . . . . . . . . 254

11.2.2.3.4 Computation of value . . . . . . . . . . . . . . . . . . . . . . . 25411.3 Creditors Efforts to Obtain Security After Bankruptcy Commenced . . . . . . . . 255

11.3.1 Overview. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 255

11.3.2 Reclamation of Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 255

11.3.3 Abandonment of Property by the Trustee . . . . . . . . . . . . . . . . . . . . . . 256

11.3.4 Disposition by the Trustee Under Section 725 . . . . . . . . . . . . . . . . . . . 257

11.3.5 Holding of Cash Collateral by Creditors . . . . . . . . . . . . . . . . . . . . . . . 257

11.4 Statement of Intention with Respect to Property Securing Consumer Debts and

With Respect to Personal Property Leases . . . . . . . . . . . . . . . . . . . . . . . . . . 258

11.4.1 Overview. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 258

11.4.2 Effect of 2005 Amendments to Section 521(a)(2) and Related Provisions. 259

11.4.2.1 In General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 259

11.4.2.2 No Material Change to the Statutory Language . . . . . . . . . . . . . 259

11.4.2.3 Section 362(h) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 260

11.4.2.4 Section 521(a)(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 261

11.4.2.4.1 Overview. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 261

11.4.2.4.2 Requirement of allowed claim . . . . . . . . . . . . . . . . . 261

11.4.2.4.3 Requirement of claim for the purchase price . . . . . . . . 261

11.4.2.4.4 Rights of creditors and debtors when section 521(a)(6)

applies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 262

11.4.2.5 Section 521(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 262

11.4.2.6 Legislative History of the 2005 Amendments . . . . . . . . . . . . . . 263

11.4.2.7 Bankruptcy Policies Supporting the Retain and Pay Option. . . . . 263

11.5 Right of Redemption in Chapter 7 Cases. . . . . . . . . . . . . . . . . . . . . . . . . . . 263

11.5.1 Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 263

11.5.2 Limitations on the Right to Redeem. . . . . . . . . . . . . . . . . . . . . . . . . . 26411.5.3 Redemption by Payment in Installments . . . . . . . . . . . . . . . . . . . . . . . 264

11.5.4 Secured Creditors Who Refuse to Agree to Continued Installment

Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 265

11.5.5 Uses in Practice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 266

11.6 Using Chapter 13 to Deal with Secured Creditors: The Chapter 13 Cramdown . . 267

11.6.1 Modification of Secured Creditors Rights in Claims Not Secured Only

by Real Estate That Is the Debtors Principal Residence . . . . . . . . . . . . 267

11.6.1.1 In General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 267

11.6.1.2 Limitations on Modifying Certain Debts Secured Only by Real

Estate That Is Debtors Principal Residence . . . . . . . . . . . . . . . 267

11.6.1.2.1 In general . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 267

11.6.1.2.2 Security interests in the debtors residence that are not

protected by section 1322(b)(2). . . . . . . . . . . . . . . . . 267

11.6.1.2.3 Right to cure defaults is not impaired by section

1322(b)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 270

11.6.1.2.4 Section 1322(b)(2) not applicable to liens that are not

security interests in real estate . . . . . . . . . . . . . . . . . 270

11.6.1.3 Provisions Dealing with Allowed Secured Claims Provided for

by the Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 271

11.6.1.3.1 Overview. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 271

11.6.1.3.2 Creditor acceptance of plan or debtors surrender of

collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 271


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11.6.1.3.3 Payment of allowed secured claim through plan when

creditor does not accept plan . . . . . . . . . . . . . . . . . . 271

11.6.1.3.3.1 Lien retention and present value of payments . 271

11.6.1.3.3.2 Payments in equal monthly amounts and

provision of adequate protection . . . . . . . . . . 272

11.6.1.3.3.3 Filing of the secured claim . . . . . . . . . . . . . 273

11.6.1.3.3.4 Plan need not provide for all secured claims . . 273

11.6.1.3.3.5 Determination of allowed secured claim . . . . . 27411.6.1.3.3.6 Trustees fee and present value interest . . . . . 275

11.6.1.3.3.7 Plans not complying with section 1325(a)(5)

may be confirmed . . . . . . . . . . . . . . . . . . . 276

11.6.1.4 Different Rules for Secured Claims Described in Paragraph at

End of Section 1325(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 277

11.6.2 Right to Cure Defaults on Long-Term Debts Including Mortgages on

Debtors Residence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 278

11.6.2.1 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 278

11.6.2.2 Cure of Mortgages After Acceleration or Foreclosure Judgment . 278

11.6.2.3 Cure of Mortgages That Mature Before the Bankruptcy Case or

Before the End of the Plan . . . . . . . . . . . . . . . . . . . . . . . . . . 279

11.6.2.4 Cure Permitted Even If Debtor Has No Personal Liability . . . . . 280

11.6.2.5 Length of Time Permitted for Cure . . . . . . . . . . . . . . . . . . . . . 280

11.6.2.6 Method of Maintaining Current Payments on Debts Being Cured . . . 280

11.6.2.7 Amount Necessary to Effectuate Cure . . . . . . . . . . . . . . . . . . . 281

11.6.2.7.1 Attorney fees and costs . . . . . . . . . . . . . . . . . . . . . . 281

11.6.2.7.2 Interest on arrears . . . . . . . . . . . . . . . . . . . . . . . . . . 282

11.6.2.8 Effect of Cure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 283

11.7 Use of Section 506 to Reduce Liens That Are Not Paid Under Section

1325(a)(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 283

11.8 Rent-to-Own Transactions in Bankruptcy. . . . . . . . . . . . . . . . . . . . . . . . . . . 284

11.9 Automobile Title Pawn Transactions in Bankruptcy . . . . . . . . . . . . . . . . . . . 286

Chapter 12 Issues Arising in Chapter 13 Cases

12.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 287

12.2 Eligibility for Chapter 13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 287

12.2.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 287

12.2.2 Individuals with Regular Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . 288

12.2.3 Debt Limitations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 289

12.2.3.1 Determining Whether Debts Are Secured or Unsecured . . . . . . . 289

12.2.3.2 Determining Whether Debts Are Liquidated and Non-Contingent . 290

12.2.3.3 Procedure for Determining Eligibility . . . . . . . . . . . . . . . . . . . 291

12.2.3.4 Strategies for Avoiding Eligibility Problems . . . . . . . . . . . . . . . 291

12.3 What Amount Must Be Paid to Unsecured Creditors? . . . . . . . . . . . . . . . . . . 292

12.3.1 Overview. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 292

12.3.2 The Best Interests of Creditors Test . . . . . . . . . . . . . . . . . . . . . . . . . . 292

12.3.3 Use of the Good Faith Test Prior to the 1984 Amendments . . . . . . . . . . 29312.3.4 The Ability to Pay (Disposable Income) Test . . . . . . . . . . . . . . . . . . . 295

12.3.4.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 295

12.3.4.2 Procedure for Objections Based upon Section 1325(b) . . . . . . . . 296

12.3.4.3 Full Payment Test . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 297

12.3.4.4 Disposable Income Test. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 297

12.3.4.4.1 Use of current monthly income . . . . . . . . . . . . . . . 297

12.3.4.4.2 New exclusions from disposable income . . . . . . . . . . 298

12.3.4.4.2.1 Overview . . . . . . . . . . . . . . . . . . . . . . . . 298

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12.3.4.4.2.2 Child support, foster care, and similar

payments . . . . . . . . . . . . . . . . . . . . . . . . 298

12.3.4.4.2.3 Payments on domestic support obligations . . . 298

12.3.4.4.2.4 Repayments of pension loans and pension

contributions . . . . . . . . . . . . . . . . . . . . . . 298

12.3.4.4.3 Use of means test expense calculations for debtors

with incomes above median income . . . . . . . . . . . . . 299

12.3.4.4.4 Administrative expenses . . . . . . . . . . . . . . . . . . . . . 29912.3.4.4.5 Calculation of expenses for debtors below median

income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300

12.3.4.4.6 Applicable commitment period and plan length. . . . . . 300

12.3.4.5 Post-Confirmation Modification of Plan Based Upon Change

in Circumstances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 303

12.3.5 Use of the Good Faith Test After the 1984 Amendments. . . . . . . . . . . . 304

12.3.6 Payments to Unsecured Priority Creditors . . . . . . . . . . . . . . . . . . . . . . 305

12.3.6.1 Priority Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 305

12.3.6.2 Required Filing of Tax Returns . . . . . . . . . . . . . . . . . . . . . . . 307

12.3.6.3 Postpetition Domestic Support Obligation Payments . . . . . . . . . 307

12.4 Classification of Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 308

12.4.1 In General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 308

12.4.2 Claims with Cosigners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 308

12.4.3 Other Classifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 309

12.4.4 Payments Outside the Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 311

12.4.5 Payments to Former Chapter 7 Trustees . . . . . . . . . . . . . . . . . . . . . . . 312

12.4.6 Practical Considerations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 312

12.5 Feasibility of the Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 312

12.6 Other Plan Provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 313

12.6.1 Payment of Debtors Income Directly to Trustee . . . . . . . . . . . . . . . . . 313

12.6.2 Payment of Interest and Penalties . . . . . . . . . . . . . . . . . . . . . . . . . . . 314

12.6.3 Length of Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 315

12.6.4 Adjustments in Trustees Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . 315

12.6.5 Liquidation of Property in Chapter 13 . . . . . . . . . . . . . . . . . . . . . . . . 316

12.6.6 Refinancing a Property During a Chapter 13 Case . . . . . . . . . . . . . . . . 31612.7 Do the Section 1325(a) Standards Set Mandatory Requirements? . . . . . . . . . . 317

12.8 Use and Possession of Property of the Estate and Adequate Protection . . . . . . 318

12.8.1 Continuing Use of Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 318

12.8.2 Adequate Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 319

12.8.2.1 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 319

12.8.2.2 Adequate Protection Payments . . . . . . . . . . . . . . . . . . . . . . . . 319

12.8.2.2.1 When payments required . . . . . . . . . . . . . . . . . . . . . 319

12.8.2.2.2 Determining the amount and timing of payments . . . . . 319

12.8.2.2.3 Remedy for failure to make payments . . . . . . . . . . . . 320

12.8.3 Payments to Personal Property Lessors. . . . . . . . . . . . . . . . . . . . . . . . 320

12.8.4 Proof of Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 320

12.8.5 Vesting of Property Upon Confirmation . . . . . . . . . . . . . . . . . . . . . . . 320

12.9 Unexpired Leases and Executory Contracts . . . . . . . . . . . . . . . . . . . . . . . . . 32112.9.1 Definition of Executory Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . 321

12.9.2 Assumption of a Lease or Executory Contract in Chapter 13 . . . . . . . . . 322

12.9.3 Rejection of Leases or Executory Contracts . . . . . . . . . . . . . . . . . . . . 325

12.9.3.1 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 325

12.9.3.2 Residential Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 325

12.9.3.3 Credit Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 326

12.9.4 Procedure and Tactics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 326

12.9.5 Assumption or Rejection of Personal Property Leases by Chapter 7

Debtor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 327


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12.9.5.1 2005 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 327

12.9.5.2 Effect of Lease Rejection in Chapter 7 . . . . . . . . . . . . . . . . . . 328

12.9.5.3 Lease Assumption by the Debtor in a Chapter 7 Case . . . . . . . . 328

12.10 Chapter 13 Cases After Prior Bankruptcies . . . . . . . . . . . . . . . . . . . . . . . . 328

12.10.1 Availability of a Discharge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 328

12.10.2 Determining Whether a Prior Discharge Was Under Chapter 7 or

Chapter 13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 329

12.10.3 Repeat Filing Still Permissible Even If Discharge Unavailable . . . . . . . 32912.11 Confirmation of Plan Binds Debtor and All Creditors . . . . . . . . . . . . . . . . . 331

Chapter 13 Litigating in the Bankruptcy Court

13.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 335

13.2 Bankruptcy Court Jurisdiction Under the 1984 Amendments . . . . . . . . . . . . . 335

13.2.1 A Brief History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 335

13.2.2 Initial Referral of Bankruptcy Matters to the Bankruptcy Courts. . . . . . . 337

13.2.3 The Bankruptcy Case . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 337

13.2.4 Types of Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 338

13.2.4.1 Adversary Proceedings, Contested Matters, and Applications . . . 338

13.2.4.2 Core and Non-Core Proceedings. . . . . . . . . . . . . . . . . . . . . . . 338

13.2.4.3 Courts Determination of Jurisdictional Questions . . . . . . . . . . . 339

13.2.4.4 Procedure in Non-Core Proceedings . . . . . . . . . . . . . . . . . . . . 342

13.2.5 Withdrawal to the District Court . . . . . . . . . . . . . . . . . . . . . . . . . . . . 343

13.2.5.1 In General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 343

13.2.5.2 Mandatory Withdrawal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 343

13.2.5.3 Discretionary Withdrawal . . . . . . . . . . . . . . . . . . . . . . . . . . . 344

13.2.6 Personal Injury and Wrongful Death Claims . . . . . . . . . . . . . . . . . . . . 344

13.2.7 Jury Trials in the Bankruptcy Court . . . . . . . . . . . . . . . . . . . . . . . . . . 345

13.2.8 Contempt Powers of the Bankruptcy Courts . . . . . . . . . . . . . . . . . . . . 346

13.3 Advantages of the Bankruptcy Court As a Forum. . . . . . . . . . . . . . . . . . . . . 347

13.3.1 Possibilities of a Fairer Result for the Consumer Client . . . . . . . . . . . . 347

13.3.2 Avoidance of Substantive or Procedural Difficulties . . . . . . . . . . . . . . . 348

13.3.2.1 In Personam Jurisdiction, Venue and Service Requirements. . . . 34813.3.2.2 Sovereign Immunity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 349

13.3.2.3 Overcoming Barriers to Federal Court Access . . . . . . . . . . . . . 352

13.3.2.4 Recoupment Claims in Bankruptcy After Expiration of

Limitations Periods. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 352

13.3.2.5 Avoiding Mandatory Arbitration Agreements . . . . . . . . . . . . . . 353

13.3.2.6 Avoiding Standing and Judicial Estoppel Problems . . . . . . . . . . 354

13.3.2.6.1 In general . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 354

13.3.2.6.2 Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 354

13.3.2.6.3 Judicial estoppel . . . . . . . . . . . . . . . . . . . . . . . . . . . 355

13.4 Bringing a Matter Before the Bankruptcy Forum . . . . . . . . . . . . . . . . . . . . . 356

13.4.1 Removal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 356

13.4.1.1 In General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 356

13.4.1.2 Procedure for Removal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 357

13.4.1.3 Procedure After Removal . . . . . . . . . . . . . . . . . . . . . . . . . . . 358

13.4.1.4 Remand of Removed Actions. . . . . . . . . . . . . . . . . . . . . . . . . 358

13.4.2 Litigation of Other Claims Commenced by the Debtor . . . . . . . . . . . . . 359

13.4.3 Objections to Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 360

13.4.3.1 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 360

13.4.3.2 Claims Filed After Bar Date for Claims. . . . . . . . . . . . . . . . . . 360

13.4.3.3 Claims Not Enforceable Against the Debtor . . . . . . . . . . . . . . . 362

13.4.3.4 Objecting to Overcharges on Mortgage Claims . . . . . . . . . . . . . 363

13.4.3.4.1 Overcharges in general . . . . . . . . . . . . . . . . . . . . . . 363

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13.4.3.4.2 Escrow overcharges . . . . . . . . . . . . . . . . . . . . . . . . 364

13.4.3.4.3 Interest overcharges . . . . . . . . . . . . . . . . . . . . . . . . 364

13.4.3.4.4 Late charge abuses and other mistakes in crediting

payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 365

13.4.3.4.5 Bankruptcy monitoring fees and other bankruptcy fees. . 366

13.4.3.5 Objecting to Claims Filed with Inadequate Documentation . . . . . 368

13.4.3.6 Objecting Based Upon Prepetition Settlement Attempts . . . . . . . 370

13.4.3.7 Reconsideration of Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . 37013.4.4 An Example: Truth in Lending Claims of the Debtor . . . . . . . . . . . . . . 370

13.4.5 Habeas Corpus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 372

13.5 Abstention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 373

13.5.1 In General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 373

13.5.2 Mandatory Abstention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 373

13.5.3 Discretionary Abstention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 374

13.6 In Forma PauperisFiling Fee Waivers in Bankruptcy Cases and

Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375

13.6.1 General Principles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375

13.6.2 Statutory Authority of Bankruptcy Courts to Waive Fees. . . . . . . . . . . . 376

13.6.2.1 Chapter 7 Filing Fee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 376

13.6.2.2 Other Filing Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 377

13.7 Class Actions in Bankruptcy Court. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 377

13.8 Involuntary Bankruptcy Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 378

13.9 Voluntary Dismissal of Bankruptcy Cases . . . . . . . . . . . . . . . . . . . . . . . . . . 381

13.10 Typical Causes and Effects of Involuntary Dismissal or Conversion to

Chapter 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 382

13.10.1 Reasons for Dismissal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 382

13.10.2 Automatic Dismissal Under Section 521(i) . . . . . . . . . . . . . . . . . . 383

13.11 Involuntary Dismissal for Abuse of the Provisions of Chapter 7 . . . . . . . . . . 384

13.11.1 In General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 384

13.11.2 Limits on Section 707(B) Motions for Debtors with Incomes Below

States Median Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 384

13.11.2.1 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 384

13.11.2.2 Determining the Debtors Current Monthly Income . . . . . . . . . 38513.11.2.2.1 A six-month average used to determine safe harbors. . 385

13.11.2.2.2 Payments toward household expenses of debtor or

dependents on a regular basis . . . . . . . . . . . . . . . . . 385

13.11.2.2.3 Treatment of spouses income . . . . . . . . . . . . . . . . . 385

13.11.2.2.4 Treatment of business income . . . . . . . . . . . . . . . . . 386

13.11.2.2.5 Treatment of capital gains and losses . . . . . . . . . . . . 386

13.11.2.2.6 Withdrawals from an IRA or pension plan . . . . . . . . 386

13.11.2.2.7 Explicit statutory exemptions from current monthly

income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 386

13.11.2.3 Determining Whether Current Monthly Income Is Above

States Median Family Income . . . . . . . . . . . . . . . . . . . . . . . 387

13.11.3 Safe Harbor for Disabled Veterans . . . . . . . . . . . . . . . . . . . . . . . . . . 388

13.11.4 The Means Test Formula . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 388

13.11.4.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 388

13.11.4.2 Deduction of IRS Expense Allowances . . . . . . . . . . . . . . . . . 389

13.11.4.2.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 389

13.11.4.2.2 IRS national standards for food, clothing,

housekeeping supplies, personal care, and

miscellaneous expenses . . . . . . . . . . . . . . . . . . . . . 389

13.11.4.2.3 IRS local standards for transportation expenses . . . . . 389

13.11.4.2.4 IRS local standards for housing and utilities . . . . . . . 391


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13.11.4.2.5 Other necessary expenses allowed under IRS

standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 391

13.11.4.3 Other Expenses That May Be Deducted . . . . . . . . . . . . . . . . . 392

13.11.4.3.1 In general . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 392

13.11.4.3.2 Deduction for secured debts . . . . . . . . . . . . . . . . . . 392

13.11.4.3.3 Deduction for priority debts . . . . . . . . . . . . . . . . . . 393

13.11.4.3.4 Deduction for health insurance . . . . . . . . . . . . . . . . 393

13.11.4.3.5 Deduction for expenses to maintain safety fromdomestic violence . . . . . . . . . . . . . . . . . . . . . . . . . 393

13.11.4.3.6 Deduction for support of elderly and disabled family

members . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 393

13.11.4.3.7 Deduction for administrative expenses . . . . . . . . . . . 393

13.11.4.3.8 Deduction for education expenses . . . . . . . . . . . . . . 394

13.11.4.3.9 Deduction for charitable contributions . . . . . . . . . . . 394

13.11.5 Application of the Means Test Formula. . . . . . . . . . . . . . . . . . . . . . . 394

13.11.5.1 Presumption of Abuse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 394

13.11.5.2 Rebutting the Presumption of Abuse . . . . . . . . . . . . . . . . . . . 394

13.11.6 Other Changes in the Abuse Standard Under Section 707(B) . . . . . . . . 395

13.11.6.1 No Challenges Based on Ability to Pay for Debtors with

Incomes Below Median Income . . . . . . . . . . . . . . . . . . . . . . 395

13.11.6.2 Substantial Abuse Standard Changed to Abuse Standard. . . . . . 395

13.11.6.3 Elimination of Explicit Presumption Favoring the Debtor . . . . . 396

13.11.6.4 Dismissal for Bad Faith or Based on a Totality of

Circumstances Showing Abuse . . . . . . . . . . . . . . . . . . . . . . . 396

13.11.6.5 Dismissal for an Abusive Rejection of an Executory Contract . . 397

13.11.7 Procedures for Means Testing Under Section 707(B). . . . . . . . . . . . . . 397

13.12 Chapter 7 Involuntary Dismissal Based on Certain Crimes . . . . . . . . . . . . . . 398

13.13 Bankruptcy Appeals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 398

13.13.1 Appeals from the Bankruptcy Court . . . . . . . . . . . . . . . . . . . . . . . . . 398

13.13.2 Direct Appeal from Bankruptcy Court to Court of Appeals . . . . . . . . . 400

13.13.3 Appeals from the District Court or Appellate Panel . . . . . . . . . . . . . . 400

13.13.4 What Is a Final Order?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 401

13.13.5 Procedure on Appeals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 404

Chapter 14 The Discharge: Protecting It and Using It

14.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 407

14.2 Objections to Discharge in Chapter 7 Cases. . . . . . . . . . . . . . . . . . . . . . . . . 407

14.2.1 How They Arise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 407

14.2.2 Grounds for Objecting to Discharge. . . . . . . . . . . . . . . . . . . . . . . . . . 409

14.2.2.1 Debtor Is Not an Individual11 U.S.C. 727(a)(1) . . . . . . . . . 409

14.2.2.2 Intentional Concealment, Transfer or Destruction of

Property11 U.S.C. 727(a)(2) . . . . . . . . . . . . . . . . . . . . . . 409

14.2.2.3 Unjustified Failure to Keep Books or Records As to

Finances11 U.S.C. 727(a)(3) . . . . . . . . . . . . . . . . . . . . . . 410

14.2.2.4 Dishonesty in Connection with the Bankruptcy Case11 U.S.C.

727(a)(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 411

14.2.2.5 Failure to Explain Loss or Deficiency of Assets11 U.S.C.

727(a)(5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 411

14.2.2.6 Refusal to Obey Court Orders or to Testify11 U.S.C.

727(a)(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 412

14.2.2.7 Commission of Prohibited Acts in Connection with Another

Bankruptcy Case Concerning an Insider11 U.S.C. 727(a)(7) . . 412

14.2.2.8 Prior Discharge in Chapter 7, Chapter 11, or Their

Predecessors11 U.S.C. 727(a)(8). . . . . . . . . . . . . . . . . . . . 412

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14.2.2.9 Prior Discharge Under Chapter 1311 U.S.C. 727(a)(9) . . . . . 413

14.2.2.10 Written Waiver of Discharge11 U.S.C. 727(a)(10) . . . . . . . 413

14.2.2.11 Failure to Complete Course in Personal Financial

Management11 U.S.C. 727(a)(11).. . . . . . . . . . . . . . . . . . 413

14.2.2.12 Delay of Discharge to Determine Homestead Exemption

Rights11 U.S.C. 727(a)(12) . . . . . . . . . . . . . . . . . . . . . . 414

14.3 Revocation of Discharge11 U.S.C. 727(12)(e) . . . . . . . . . . . . . . . . . . . . 414

14.4 Exceptions to Discharge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41514.4.1 Differences Between Chapter 7 and Chapter 13 . . . . . . . . . . . . . . . . . . 415

14.4.2 How Exceptions to Discharge Are Raised. . . . . . . . . . . . . . . . . . . . . . 416

14.4.3 Which Debts Are Excepted from Discharge?. . . . . . . . . . . . . . . . . . . . 419

14.4.3.1 Taxes11 U.S.C. 523(a)(1), 1328(a)(2) . . . . . . . . . . . . . . . 419

14.4.3.1.1 Taxes that can not be discharged. . . . . . . . . . . . . . . . 419

14.4.3.1.2 Analyzing tax debts to determine dischargeability . . . . 422

14.4.3.2 Debts Incurred Through False Pretenses, Fraud, or False

Financial Statements11 U.S.C. 523(a)(2) . . . . . . . . . . . . . . 424

14.4.3.2.1 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 424

14.4.3.2.2 Elements which must be proved by the creditor in

cases of alleged false financial statements. . . . . . . . . . 425

14.4.3.2.2.1 Generally . . . . . . . . . . . . . . . . . . . . . . . . 425

14.4.3.2.2.2 The debtor obtained money, property, services,

or an extension, renewal, or refinancing of

credit . . . . . . . . . . . . . . . . . . . . . . . . . . . 425

14.4.3.2.2.3 The statement was materially false and in

writing . . . . . . . . . . . . . . . . . . . . . . . . . . 426

14.4.3.2.2.4 The statement concerned the financial

condition of the debtor or an insider . . . . . . . 427

14.4.3.2.2.5 The creditor reasonably relied upon the false

statement . . . . . . . . . . . . . . . . . . . . . . . . 427

14.4.3.2.2.6 The debtors intent to deceive . . . . . . . . . . . 428

14.4.3.2.3 Debts incurred through false pretenses or fraud . . . . . . 429

14.4.3.2.3.1 Generally . . . . . . . . . . . . . . . . . . . . . . . . 429

14.4.3.2.3.2 Credit cards and other credit use with nointent to pay . . . . . . . . . . . . . . . . . . . . . . 430

14.4.3.2.3.3 Public benefits overpayments. . . . . . . . . . . . 434

14.4.3.2.4 Tactics in cases under 11 U.S.C. 523(a)(2) and

award of attorney fees under 11 U.S.C. 523(d) . . . . . 434

14.4.3.3 Creditors Not Listed or Scheduled by the Debtor11 U.S.C.

523(a)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 437

14.4.3.4 Fraud As a Fiduciary, Embezzlement, or Larceny11 U.S.C.

523(a)(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 440

14.4.3.5 Domestic Support Obligations11 U.S.C. 523(a)(5). . . . . . . . 441

14.4.3.5.1 In general . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 441

14.4.3.5.2 Support debts owed to governmental units . . . . . . . . . 442

14.4.3.5.3 Determination of whether debt is a domestic support

obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44214.4.3.6 Willful and Malicious Injury11 U.S.C. 523(a)(6),

1328(a)(4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 445

14.4.3.7 Fines and Penalties11 U.S.C. 523(a)(7), 1328(a)(3) . . . . . . 448

14.4.3.8 Student Loans11 U.S.C. 523(a)(8). . . . . . . . . . . . . . . . . . . 449

14.4.3.8.1 In general . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 449

14.4.3.8.2 Student loan dischargeability tests . . . . . . . . . . . . . . . 452

14.4.3.8.2.1 Former seven year test . . . . . . . . . . . . . . . . 452

14.4.3.8.2.2 Undue hardship test. . . . . . . . . . . . . . . . . . 453

14.4.3.8.3 Procedure for dischargeability determination . . . . . . . . 456


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14.4.3.8.4 Raising defenses to student loan debts . . . . . . . . . . . . 457

14.4.3.8.5 Special issues regarding student loans in chapter 13. . . 457

14.4.3.8.6 Health education assistance loans and other special

loan programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . 459

14.4.3.9 Debts Incurred Through Drunk Driving11 U.S.C. 523(a)(9) . . 459

14.4.3.10 Debts Which Existed at Time of Denial or Waiver of Discharge

in Prior Bankruptcy Cases11 U.S.C. 523(a)(10). . . . . . . . . 461

14.4.3.11 Debts Emerging from Responsibilities to Federal DepositoryInstitutions11 U.S.C. 523(a)(11), (12) . . . . . . . . . . . . . . . 461

14.4.3.12 Federal Criminal Restitution11 U.S.C. 523(a)(13) . . . . . . . 461

14.4.3.13 Debts Incurred to Pay Nondischargeable Taxes or to Pay

Federal Election Law Fines or Penalties11 U.S.C.

523(a)(14A), (14B). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 462

14.4.3.14 Marital Property Settlement Debts11 U.S.C. 523(a)(15) . . . 462

14.4.3.15 Debts for Condominium, Cooperative, or Home Owner

Association Fees11 U.S.C. 523(a)(16) . . . . . . . . . . . . . . . 463

14.4.3.16 Costs and Fees in Prisoner Litigation 11 U.S.C. 523(a)(17). . 463

14.4.3.17 Pension Loans11 U.S.C. 523(a)(18). . . . . . . . . . . . . . . . . 464

14.4.3.18 Debts Arising from Securities Violations11 U.S.C.

523(a)(19) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 464

14.4.3.19 Debts Made Nondischargeable by Other Statutes. . . . . . . . . . . 464

14.4.3.20 Debts That Were Nondischargeable in a Previous Bankruptcy

Case11 U.S.C. 523(b) . . . . . . . . . . . . . . . . . . . . . . . . . . 464

14.4.4 Res Judicata and Collateral Estoppel in Dischargeability Cases . . . . . . . 465

14.5 The Protections of the Discharge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 468

14.5.1 Effects on Discharged Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 468

14.5.1.1 Definition of Claim for Discharge Purposes . . . . . . . . . . . . . . . 468

14.5.1.2 Elimination of Personal Liability and Protections for Property. . . 469

14.5.1.3 Voiding of Judgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 469

14.5.1.4 The Discharge Injunction. . . . . . . . . . . . . . . . . . . . . . . . . . . . 470

14.5.2 Reaffirmation and Security Interests Which Survive Bankruptcy . . . . . . . 472

14.5.2.1 Reaffirmation by Agreement Only. . . . . . . . . . . . . . . . . . . . . . 472

14.5.2.2 Disclosure Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47314.5.2.3 Form of the Reaffirmation Agreement . . . . . . . . . . . . . . . . . . . 474

14.5.2.4 Protective Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 475

14.5.2.5 Abusive Creditor Reaffirmation Practices . . . . . . . . . . . . . . . . . 476

14.5.2.6 The Undue Hardship and Best Interests Tests . . . . . . . . . . . . . . 477

14.5.2.7 Factors to Be Considered by Attorneys Validating Reaffirmation

Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 477

14.5.3 Secured Debts Without Reaffirmation. . . . . . . . . . . . . . . . . . . . . . . . . 478

14.5.4 Protection Against Discrimination Based on Bankruptcy . . . . . . . . . . . . 480

14.5.5 Particular Problems Relating to Discharge Protections . . . . . . . . . . . . . 483

14.5.5.1 Drivers Licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 483

14.5.5.2 Student Loans and College Transcripts . . . . . . . . . . . . . . . . . . 483

14.5.5.3 Public and Private Housing . . . . . . . . . . . . . . . . . . . . . . . . . . 484

14.5.5.4 Social Security, Welfare, and Other Governmental Benefits. . . . . 485

14.5.5.5 Criminal Proceedings, Fines, and Incarceration . . . . . . . . . . . . . 486

14.5.5.6 Tax Consequences of the Discharge . . . . . . . . . . . . . . . . . . . . 487

14.5.5.7 Enforcement of the Discharge Protections . . . . . . . . . . . . . . . . 487

Chapter 15 Attorney Fees for Debtors Counsel and Attorney Duties in Consumer

Bankruptcy Cases

15.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 491

15.2 Initial Fee Arrangements with Clients . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 491

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15.2.1 The Basic Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 491

15.2.2 Amounts Typically Charged . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 492

15.2.3 Method of Payment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 493

15.3 Court Supervision of Bankruptcy Attorney Fees . . . . . . . . . . . . . . . . . . . . . . 495

15.3.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 495

15.3.2 Disclosures Required. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 495

15.3.3 Bankruptcy Court Review of Fee Disclosures and Requests. . . . . . . . . . 496

15.3.4 Making a Record on Fee Issues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49815.4 Payment of Attorney Fees Through the Chapter 13 Plan . . . . . . . . . . . . . . . . 499

15.4.1 Fees Which Can Be Paid Through a Plan . . . . . . . . . . . . .