BAPCPA’s Biggest Blunders

17 Apr BAPCPA’s Biggest Blunders

The misnamed Bankruptcy Abuse Protection and Consumer Protection Act (“BAPCPA”) is poorly drafted, badly written and internally inconsistent. This article will highlight some of the more obvious writing and reference errors in this deeply flawed law. All Code references are to 11 U.S.C. unless otherwise noted.

The Involuntary Credit Counseling Conundrum. As discussed in more detail in my article, Involuntary Bankruptcy and the Credit Counseling Conundrum, Section 303(a) of the Code (unchanged from pre-BAPCPA) states: “An involuntary case may be commenced only under Chapter 7 or 11 of this title, and only against a person…that may be a debtor under the chapter under which such case is commenced.” (Emphasis added.) BAPCPA added new explicit requirements for being an individual debtor in § 109(h): “[A]n individual may not be a debtor under this title unless such individual has, during the 180-day period preceding the date of filing of the petition by such individual, received from an approved nonprofit budget and credit counseling agency…credit counseling…” (Emphasis added.)

In other words, if the proposed involuntary debtor does not first take a pre-petition credit counseling course, he or she cannot be a debtor…and thereby cannot have an involuntary petition filed against them!

How Many Motions and Hearings Are Necessary? § 362(c)(3)(B) says that, “[U]pon notice and a hearing, the court may extend the stay…after notice and a hearing completed before the expiration of the 30-day period.” Does that require one or two notices, and one or two hearings? Some Districts have local rules that say if no one objects, no hearing at all is held, and the stay is extended anyway. Is this allowed?

How Much Process is Due? In the words of Prof. Kenneth Klee of UCLA, § 342(g) is a statutory attempt to define due process. It’s a pretty poor attempt. “Notice provided to a creditor…shall not be effective notice until such notice is brought to the attention of such creditor.” What does the phrase “brought to the attention of” mean? First class mail? Is second class mail sufficient? Email? A phone call? Smoke signals? Banner across the street?

Judge Lundin suggests that if a company of 280,000 employee designates one person to be the recipient of bankruptcy notice and you notice all 279,999 other employees, you do not have sufficient notice, unless one of the 279,999 relays the notice to the designated person. And that still leaves the question: Does the relay constitute ‘brought to the attention of?” This phrase is nowhere to be found in SCOTUS’ cases like Mullane, Sniadach, Fuentes and others that deal with due process. If I do not know the designated person, do I have to notify all 280,000 in order to bring it to the attention of the designated person? (Thanks to Jonathan Becker for this.)

Credit Counseling Insults. As discussed in more detail in my article, “Why I Hate Credit Counseling,” what purpose is served in having a Ph.D. in finance who has to file for bankruptcy take a credit counseling class? Do we really think they’ll learn something? If Donald Trump has to file, he’ll have to take the same course as everyone else; does this make sense?

Why should someone who has to file because of illness and medical bills have to take a credit counseling class? After all, the cause of the filing wasn’t poor financial management, it was a family member getting sick and lots of unexpected medical bills (and possibly lost wages as well). Ditto someone whose spouse left, or someone who lost their job. Blaming the victim for financial problems that aren’t of their doing by requiring credit counseling (and making them pay for it) just seems cruel.

The Infamous Hanging Paragraph. Most statutes have section headings to let you know how to properly refer to them. For example, although a citation to § 362(c)(3)(C)(i)(II) is rather clunky, at least it lets everyone know what portion of the Bankruptcy Code you’re talking about. Section 1325 is different. It has a paragraph that Congress just decided not to number, and thus there’s no real way to refer to it. [It’s the paragraph immediately after § 1325(a)(9).] Most lawyers and judges call it the “hanging paragraph,” but no one’s really figured out a good way to reference it. One I’ve seen is to refer to it as “§ 1325(a)(*),” which probably is as good as anything. (Thanks to Elaine Dowling for mentioning this section.)

Lack of Definitions. There are lots of new terms under BAPCPA. There are also lots of new terms under BAPCPA that are not defined in the Code. These are important terms, and the lack of definitions can really cause some headaches, not to mention litigation. (I’m currently involved in a case on appeal to the U.S. Court of Appeals for the Fourth Circuit involving the question of what the word “filed” means in § 1328(f)). (Section numbers indicate where the term is used): “Household [§ 707(b)(6)].” “Good Faith [§ 109(b)(5)(B)].” “Material Misstatement [§ 727(d)(4)(A)].” “Inquiry [§ 527(a)(2)(c)].” “Notice.” “Filed [§ 1328(f)].” “Certification (which appears 26 times in the Code).” “Constituent Creditors [§ 1102(b)(3)(B)].”

Have some more that drive you nuts? Let me know and I’ll add them to the list (and give you credit).

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Brett Weiss, a senior partner at The Weiss Law Group, LLC, represents people and businesses in all phases of bankruptcy. He has experience in complex individual Chapter 7, Chapter 11, and Chapter 13 bankruptcy cases, and in Chapter 11 small business restructuring and reorganization. Mr. Weiss lectures nationally on bankruptcy issues. He has testified before the Federal Bankruptcy Rules Committee, the Consumer Financial Protection Bureau, and has twice testified before Congress on bankruptcy and credit issues. Brett Weiss is the co-author of Chapter 11 for Individual Debtors, and has written Not Dead Yet: Bankruptcy After BAPCPA, for the Maryland Bar Journal, as well as hundreds of blogs for the Bankruptcy Law Network. With his colleague, Daniel Press, he recorded a 13-hour basic bankruptcy training series, and leads intensive three-day Chapter 11 training boot camps. Mr. Weiss has received international media attention in connection with his work. He was interviewed by Barbara Walters on The View, has appeared on the Today Show, Good Morning America, ABC News with Peter Jennings, the Montel Williams Show, National Public Radio, AARP-TV, the BBC World Service, German state television, and numerous local radio and television programs, and been quoted in Money magazine, The Washington Post and The Baltimore Sun, among others. Brett Weiss is the previous Maryland State Chair for the National Association of Consumer Bankruptcy Attorneys, a founding member of the Bankruptcy Law Network, on the board of the Maryland State Bar Consumer Bankruptcy Council, and a member of the American Bankruptcy Institute and the Bankruptcy Bar Association of Maryland. He has received the Distinguished Service Award from the National Association of Consumer Bankruptcy Attorneys for his work on behalf of consumers across the country. Mr. Weiss is admitted to practice before Maryland and District of Columbia federal and state courts, the United States Courts of Appeals for the DC, Fourth and Eighth Circuits, the United States Tax Court, and the Supreme Court of the United States, and has been practicing law since 1983.

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