Kevin's Corner
Practice Management Tip on Getting Familiar with Important Noticing Tools
"If you have not already done so, you should familiarize yourself with Electronic Bankruptcy Noticing (EBN) and the National Creditor Registration Service.
"These noticing tools serve a crucial role in the creditor's ability to choose delivery addresses and create notices.
"The EBN account allows court notices to be transmitted electronically to notice recipients, which makes for a faster, more efficient delivery. An EBN account can totally eliminate paper notices by forwarding the notices to one specific address using the following methods:
- Internet E-mail;
- Electronic Data Interchange; and
- Fax Notice Service.
"In addition, the Preferred Address Service with the National Creditor Registration Service is a free tool provided by the U.S. Bankruptcy Courts. With this service creditors have the option to specify a preferred address where bankruptcy notices should be sent. These accounts provide for improved functionality and efficiency in handling noticing requirements."
- Kevin Chern
President, Start Fresh Today
Bankruptcy Legislation Updates
Sen. Richard Durbin (D-IL) reintroduced legislation this week that would allow judges to modify the terms of troubled mortgages on primary homes in Chapter 13 bankruptcy cases.
Sources say the legislation is likely to pass this time around; however, probably not until sometime in 2009. President-elect Barack Obama has repeatedly said that his administration will make passing cram-down legislation a priority when he takes office in January.
Senate Democrats have tried to get the legislation passed through recent financial recovery acts but have failed twice.
The Numbers Game on Consumer Bankruptcy Filings
Here's some of the latest bankruptcy-related figures to be aware of:
- 108,595 bankruptcy petitions were filed in October—the first time since 2005 that there's been more than 100,000 bankruptcy filings in one month.
- Bankruptcy filings were up 7.9 percent from September and 33.7 percent from the same time last year.
- 240,000 more jobs were cut in October, bringing the total number of people who have lost their jobs since the beginning of the year to 1.2 million.
Did You Know…
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Bankruptcy Article of the Week
Below or Above the Line: The Cost of Doing Business and Filing Chapter 13
As a bankruptcy practitioner, it can be easy to fall into the mundane routine of completing your client's Chapter 13 paperwork and not giving a second thought to the process because you know the procedures like the back of your hand, right?
Well, not so fast.
In an article published in the American Bankruptcy Institute Journal, Mark A. Redmiles and Saleela Khanum Salahuddin highlight a growing debate between competing court decisions concerning debtors filing Chapter 13 who are engaged in business and the deduction of ordinary and necessary business expenses when calculating current monthly income in Part I of Official Form 22C.
In Drummond v. Wiegand (In re Wiegand), 386 B.R. 238 (B.A.P. 9th Cir. 2008), the Bankruptcy Appellate Court for the Ninth Circuit ruled that a Chapter 13 debtor could not deduct business expenses from gross receipts to calculate a debtor's current monthly income. The court also stated that Part I of Official Form 22C was totally inconsistent with the definition of "disposable income" as stated in 11 U.S.C. Section 1325(b)(2).
The impact of this ruling in the Wiegand case and other cases decided under this rationale is that it could possibly force debtors to complete the entirety of Form 22C and cause those debtors who are self-employed to have a five-year commitment plan instead of the shorter three-year commitment period.
The Wiegand court also stated that allowing debtors to use the net business income to determine a debtor's current monthly income could possibly result in Chapter 13 debtors deducting the same expenses on Official Form 22C to calculate current monthly income, and also to determine disposable income under 11 U.S.C. Section 1325(b)(2) or 3.
As Redmiles and Salahuddin pointed out, when the Advisory Committee on Bankruptcy Rules approved Form 22C, it realized that there could be an issue concerning redundancy in using net business income to determine a debtor's current monthly income and Section 1325(b)(2)(B)'s instruction to subtract business expenses from current monthly income to calculate disposable income.
This issue was addressed in Official Form 22C for above-median income debtors by instructing them not to deduct any business expenses in Part IV of Official Form 22C that they may have already deducted to calculate business income in Line 3 of the form.
While the reasoning of the Wiegand Court is well taken, there are some practical reasons for adopting the Form 22C approach of including ordinary and necessary business expense deductions in the calculation of current monthly income. Using the Form 22C approach will determine whether a debtor is at the above or below median income level. This information is crucial in deciding if the five-year commitment period applies or the three-year commitment period applies.
Under Form 22C, the debtor compares current monthly income to the Census Bureau's median income figures under 11 U.S.C. Section 1325(b).
Utilizing the Wiegand model to calculate current monthly income would be extremely inconsistent because it mandates comparing the debtor's income figure based on gross business receipts with the Census Bureau's median income figures that are based on the net income of the debtor.
On January 1, 2008, Official Form 22C was amended to specify that current monthly income should only include net business expense amounts.
Overall, the application of the Wiegand model definitely places below-median income debtors in the line of fire as above-median debtors and lengthens the repayment plan commitment period. This, in turn, prolongs the amount of time Chapter 13 debtors will have to wait in order to receive a bankruptcy discharge.
As case law continues to develop in this area, it is important that as a bankruptcy lawyer, you understand the long term effects of a Wiegand ruling and advise your client carefully based on the philosophy of the courts in your particular jurisdiction. To read the full opinion of the Bankruptcy Appellate Panel in Wiegand, please see Drummond v. Wiegand.
On the Bankruptcy Calendar
Some bankruptcy-related events to keep in mind for the upcoming months include:
- 20th Annual Winter Leadership Conference, Tucson, AZ, December 4-6;
- Northeast Consumer Winter Forum, Boston, MA, January 19, 2009;
- Rocky Mountain Bankruptcy Conference, Denver, CO, January 22-23, 2009;
- Atlanta Consumer Bankruptcy Skills Training, Atlanta, GA, January 28 & June 4, 2009;
- NACBA 17th Annual Convention, Chicago, IL, May 29-31, 2009.
Are we missing anything? Let us know by e-mailing newsletters@startfreshtoday.com.