September 19, 2005 - New Legislation
Congress passed, and President Bush signed into law, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (referred to hereafter as "BAPCPA"). This legislates sweeping changes to the Bankruptcy Law - the most since passage of the Bankruptcy Code in 1978.

The law generally makes it tougher for consumer debtors to file Chapter 7; tries to force more debtors into Chapter 13; and gives more power to creditors. In fact, the more accurate name of the law should be the Consumer Debtor Abuse and Creditor Protection Act of 2005 - more compassionate conservatism, just when you needed it most.

The effective date of BAPCPA was October 17, 2005. (The law does not affect cases filed before that date, except for the right to claim certain exemptions if you have lived in other states in the previous two years.)

The law is subject to overhaul, revision and other "technical amendments" and rules promulgated to enhance its administration. As more is known about the final version of BAPCPA, that information will appear at this website. For the time being, the information contained herein is reliable.


Chapter 7 is commonly referred to as "straight bankruptcy". Individuals and businesses can file, but only individuals can receive a discharge of debt. In a typical consumer Chapter 7, the debtor exempts most if not all of the equity in his property; retains and continues to pay for mortgaged houses and reaffirms debt on cars she wants to keep; and walks away from unsecured debt like credit cards, medical bills, and mortgage and lien debt on surrendered houses and cars. (See FAQ for more information on exemptions, automatic stay, and future credit.)

Chapter 7 is not designed to assist debtors who are about to lose houses and cars they wish to keep to foreclosure and reposession due to delinquent payments. Nor is Chapter 7 ideal for debtors with nondischargeable tax liabilities or debtors with debts co-signed with people the debtor would like to protect. These issues are usually dealt with in a Chapter 13 (discussed below).

Unfortunately, under BAPCPA, the decision of whether to file a Chapter 7 or Chapter 13 has been made much more complex. No longer is the decision solely yours. Thanks to BAPCPA, the "Means Test" will make the decision for you. A Chapter 7 will be deemed to be "abusive" - and there will be a presumption that you should have filed a Chapter 13 instead - if, in a five year plan, the debtor can pay the lesser of a) 25% of unsecured claims or $6,000 of unsecured non-priority claims, whichever is greater or b) $10,000. The debtor must show "special circumstances" to get out from under this presumption.

In order to determine eligibility for Chapter 7, the means test will use IRS-based guidelines for "reasonable and necessary expenses" of the debtor. (Expenses include monies used to protect the family from domestic violence; actual expenses for the care of elderly and disabled family members; and school tuition of up to $1,500 per year.)

Social Security payments are excluded from calculations of current monthly income.

Long story short: The means test will not apply to a debtor if his income is equal to or below the highest median family income for a family of same or lesser size in the state or region in which the debtor resides. Should the debtor exceed this amount, then any party in interest can file a means test motion to convert the Chapter 7 to a Chapter 13 (or dismiss the case) as an "abusive filing". Even if a debtor passes the means test, a motion can still be filed by a party in interest if there is evidence of bad faith or the totality of circumstances show abuse.

In order to determine the accuracy of petitions, the law requires debtors to produce:

  1. a copy of the most recent tax return to the trustee 7 days before the creditors meeting
  2. copies of pay stubs received within 60 days of bankruptcy filing
  3. an itemized statement of monthly net income
  4. a detailed statement of any reasonably anticipated income and expenses for the one year following the filing of bankruptcy
  5. a means test calculation, even if the debtor's income is below the national median

Assuming the debtor successfully qualifies, she will attend a creditors meeting approximately 30 days after filing, and should receive a discharge in the mail in approximately 100 days after filing.

Some debts may not be dischargeable in Chapter 7:

  1. certain tax liabilities
  2. alimony, child support, and other domestic obligations
  3. debts for money, property, services or an extension, renewal or refinancing of debt if obtained by false pretenses, false representation, or actual fraud, or use of a false financial statement upon which the creditor reasonably relied
  4. "luxury goods" costing at least $500 purchased within 90 days of bankruptcy
  5. cash advances totalling at least $750 incurred within 70 days of bankruptcy
  6. certain creditors with potential non-dischargable claims neither listed nor scheduled in time for the creditor's timely participation in the case
  7. fraud or defalcation by the debtor while acting in a fiduciary capacity, embezzlement or larceny
  8. wilful or malicious injury by the debtor to another entity or entity's property
  9. educational loans
  10. death or personal injury if DWI related
  11. any payment of federal restitution

Some of the above exceptions are automatic. Others are only triggered by the timely filing of an "adversary proceeding" prior to the discharge deadline.

A Chapter 7 debtor cannot receive a discharge in another Chapter 7 for a period of 8 years (and cannot receive a discharge in a Chapter 13 for a period of 6 years).

Alimony and child support are now given first priority for any distribution made in a Chapter 7 case. Discharge of the debtor will be conditioned on the debtor being current on all support obligations. Chapter 7 trustees are required to notify all appropriate state agencies and support recipients that the debtor has filed a bankruptcy petition.

If you wish to make an appointment to file a Chapter 7, please contact Mary Denton at extension 221, or mary@sparkmanlaw.com.

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Chapter 11 "Reorganizations" can be filed by either individuals or corporations. Generally, corporate business entities file Chapter 11 in order to reject burdensome leases, foreclosures, repossessions, or tax levies, and give the company time to restructure under the protection of the bankruptcy court. During the Chapter 11, the debtor is typically allowed to remain as "debtor in possession" and to continue to operate in the "ordinary course of business." (The court will appoint a trustee to take over management with evidence of fraud, dishonesty, incompetence, gross mismanagement, or criminal conduct.) Typically, the debtor will continue to make future mortgage payments and lease payments as well as future payroll, and payroll tax deposits. However, debts that arose prior to bankruptcy (pre-petition) are held in abeyance until a plan of reorganization is filed with the court. That plan will typically restructure secured debt upon more favorable terms; provide for the partial liquidation of certain collateral; allow for assumption or rejection of certain leases or other "executory contracts"; allow for payment of tax liabilities in regular installment payments over a period of five years with statutory interest; and allow restructure of unsecured debt by paying a dividend on allowed claims over a number of years with nominal interest. How much must be paid to unsecured creditors depends upon the greater of two tests: the "liquidation test" and the "disposable income test".

The liquidation test is what unsecured creditors would receive had the company shut its doors; liquidation ensued; and monies first dispersed to secured creditors, costs of liquidation and administration, and payment to priority wage and tax claims.

The disposable income test is the business income and expense statement and looks to available cash that would be available to unsecured creditors after payment of all secured debt; payment of all administrative claims, including attorney, accountant, and all other professional fees; and payment of tax, wage and other priority claims. It is not unusual for Chapter 11s to propose to pay unsecured creditors $.10 on the dollar, plus nominal interest for a period of 5 - 10 years. However, each case is different. Some cases propose a 100% dividend to unsecured creditors over time.

During Chapter 11, debtors must submit monthly reports to the office of the Bankruptcy Administrator (BA). The BA is like a compliance officer. It is charged with monitoring your case to ensure that you are operating your company according to the Bankruptcy Rules, and are filing all required reports with the court. Every quarter, the Chapter 11 debtor must pay a quarterly fee, which is essentially a tax on disbursements made in the bankruptcy proceeding. This quarterly fee is remitted to the Clerk of Court within 30 days after the end of each calendar quarter. (Failure to: pay the quarterly fee in a timely fashion; properly manage the estate; keep the business insured; pay "cash collateral" payments to creditors secured with inventory and/or receivables; file reports in a timely manner; pay taxes; attend meetings of creditors; or provide information to the BA or creditors on time will result in a motion to dismiss the case or convert it to a Chapter 7.)

This law firm tends to specialize in smaller Chapter 11 proceedings, and in most of those cases, the court will require that we file a plan of reorganization and a disclosure statement (a narrative financial statement similar to a prospectus) within 90-120 days of filing the petition. Creditors are then sent copies of the plan of disclosure statement along with a ballot and are given an opportunity to vote on the plan. Each class of creditors must accept the plan (or the court must determine that the plan is fair and equitable over their objection). Creditors may submit a plan if the debtor cannnot get a plan accepted within 180 days.

After the deadline for balloting, the court conducts a confirmation hearing, at which time evidence is presented as to the feasibility of the plan and the reporting on ballots. Upon successful confirmation and consummation of plan, the debtor is "graduated" from the bankuptcy court, and free to operate its business, pursuant to the terms of the confirmed plan. To the extent a corporate debtor only proposed a partial dividend to creditors, the balance of the debt to those creditors is discharged upon confirmation. (Exceptions include taxes and certain domestic support obligations. Please see discussion of small business and individual Chapter 11s below.)

Once the debtor has successfully commenced implementation of the plan and has provided evidence of compliance with the bankruptcy court, this office is then free to submit a proposed final report and final decree which closes the case in the bankruptcy court. Of course, should the debtor default in payments under the plan, creditors could then sue the debtor in state court, based upon the default provisions contained in the confirmed plan, or promissory notes provided in conjunction with the plan.

Occasionally, we also file "liquidating chapter 11 proceedings" in which the corporate debtor comes to us to save itself from forced liquidation by foreclosure or repossession, and gives the company time to either operate or sell its assets in an orderly fashion at top dollar, or to buy time to find a "white knight" or other partner to fund its plan of reorganization.

The debtor cannot employ any professional without first obtaining prior approval of the Bankruptcy Court. Even after being approved for employment, professionals must then apply to the court for compensation. Attorney fees, accountant fees and other professional fees are paid by the hour at rates approved by the Bankruptcy Court. No fees can be disbursed to professionals without first submitting detailed time sheets for approval by the court and review by the client and the Bankruptcy Administrator. The fee applications are typically submitted, reviewed and approved every four months, and any unpaid fees become an administrative expense that must be paid upon confirmation of the plan.

As mentioned earlier, this law firm specializes in the smaller "mom & pop" individual and business Chapter 11s. Significant changes have been made in these "small business" and individual Chapter 11 proceedings under BAPCPA.

A Small Business Chapter 11 is defined as having not more than $2,000,000 of noncontingent, liquidated secured and unsecured debt (excluding debts of Affiliates). A debtor whose primary business activity is owning or operating real property is excused from the new small business requirements.

The small business must now:

  1. within 7 days of filing a bankrupty petition, file with the court its most recent balance sheet; statement of operations; cash flow statement; and federal income tax return (or a statement under penalty of perjury) that no such documents or returns have been prepared or filed
  2. attend all creditor meetings and intake conferences as required by the Bankruptcy Administrator
  3. file all schedules and statement of affairs in a timely fashion
  4. file all required post-petition financial and other reports required by the Court
  5. maintain insurance
  6. timely file all uncontested tax returns and other government reports
  7. allow the Bankruptcy Administrator to inspect the debtor's premises, books and records

The court may waive the preparation and filing of a separate disclosure statement in a Small Business Chapter 11 if it determines that the plan itself provides adequate information. It is contemplated that the Court may approve a standard form plan for Small Business Reorganizations.

The Individual Chapter 11 Debtor is now treated much like a consumer debtor under Chapter 13 in that:

  1. Within 180 days before the filing of the Bankruptcy petition, the debtor must receive a credit counseling briefing from an approved non-profit credit counseling agency (which may be accomplished by telephone or internet).
  2. Property of the debtor's estate includes all "disposable income", earnings, and property acquired by the debtor after filing for Chapter 11 until the case is closed, dismissed or converted to Chapter 7
  3. the debtor's plan must provide for payment to creditors from earnings and future income
  4. the debtor's plan can be modified post-confirmation to reduce or increase payments or alter distribution to creditors
  5. BAPCPA contemplates delay of discharge in individual Chapter 11s until completion of all payments, just as in a Chapter 13; however, most individual Chapter 11 cases will be closed upon "substantial consummation" and reopened for entry of discharge upon completion of all payments. BAPCPA does provide provision for granting of "early discharge", provided there was conspicuous notice of the request given to all creditors in the disclosure statement and the court makes specific findings as to the "cause" why discharge should be effective before the completion of all payments.

If you wish to make an appointment to file a Chapter 11, please contact Mary Denton at extension 221, or mary@sparkmanlaw.com.

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Chapter 12 is a reorganization for family farmers or fishermen. Generally, the farming operation debts cannot exceed $3,237,000 (with annual cost of living adjustments) and not less than 50% of the debt must be farm related (except for debt on the principal residence, unless that debt arose out of a farming operation). Additionally, more than 50% of the farmer's income for the previous taxable year must have been from farming operations.

Most farmers that come to us for Chapter 12 reorganizations are trying to save the family farm from foreclosure by a lender or from judgment by farm suppliers, or tax levies from the IRS. The farmers generally believe that the coming farm years will be better than those in the past, and believe that they will be able to farm their way out of debt. Chapter 12 usually involves a restructuring of the secured creditors at more favorable interest rates, and over a longer period of time. The tax authorities are typically restrained and restructured to be paid over a period of three to five years with statutory interest; and unsecured creditors get whatever is left over from the farmer's "disposable income" (or from sale of property at least equal in value to the farmer's disposable income) over a period of three years. The Chapter 12 trustee is also entitled to an annual fee that is based upon disbursements made by the farmer during that current farming year.

The farmer must come up with a farm plan, showing crop projections, and the ability to pay restructured debt from future income from future income. There is no voting for a plan in a Chapter 12; however the farmer must prove to the court and to the Chapter 12 trustee that the plan is feasible.

The Chapter 12 plan usually encompasses a status conference and creditors' meeting with the Chapter 12 trustee in Kinston, NC followed by a confirmation hearing in the bankruptcy court in either Wilson or Raleigh, NC. Under the law, a final discharge hearing is also required.

Finally, some farmers will file Chapter 12 in order to liquidate all or a portion of their property in an orderly fashion, rather than allowing the property to be sold at foreclosure or other "fire sale". Creditors are then paid in full or partially from the liquidation of certain property, while the farmer retains other property either in a downsized operation or as a vehicle to get out of farming altogether.

Family fishermen were added to Chapter 12 by the 2005 amendments. In order to be eligible, debts excluding the residence cannot exceed $1,500,000 and 80% of the debts must be related to commercial fishing. Also, more than 50% of the debtors income must be from commercial fishing.

If you wish to make an appointment to file a Chapter 12, please contact Mary Denton at extension 221, or mary@sparkmanlaw.com.

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People used to file voluntary Chapter 13s to:
  1. catch up mortgages on houses and cars
  2. pay taxes and to stop tax garnishments that were not dischargeable in Chapter 7
  3. protect co-debtors
  4. keep excess equity in property above and beyond their exemptions
  5. pay debt over time and under protection of the court that would have been non-dischargeable in a Chapter 7
  6. "strip" mortgages on property (other than mortgages exclusively secured by the debtor's residence) down to the collateral's fair market value

Even though the intent of Congress in passing BAPCPA was supposed to make Chapter 13 appear to be more appealing to debtors, (and to force more Chapter 7 debtors to file Chapter 13), there's no good news for the Chapter 13 debtor under BAPCPA. Among the restrictions:

  1. mandatory increase from 3 year to 5 year plans, in some cases
  2. mandatory credit counseling within 180 days before filing, and a personal financial management course prior to discharge
  3. plan payments are determined based upon "historic income" during the 6 months prior to filing. (So, if you were gainfully employed but wiped out in a hurricane just before you were forced to file bankruptcy, tough! Your payments will be based on income during the six months prior to your personal devastation. On rare occasions, the court may allow the debtor to substitute a different six month time-frame for calculation of income).
  4. no "lien stripping" of mortgages secured solely by residential real property (unless the bankruptcy court finds absolutely no equity for a junior mortgage); and no more "stripping" or "cramdown" of liens on automobiles purchased within 910 days before filing, and any consumer good bought within one year of filing. (An exception may be made by the court if gap insurance, credit life insurance, or some other service was also financed by the lender.) Now, the debtor must pay 100% of the retail value of his car, for example, plus interest. (This section applies to cars purchased within 2 1/2 years (910 days) before filing, and any consumer good bought within one year of filing
  5. no more "superdischarge" in Chapter 13. A Chapter 13 discharge is now no more expansive than a Chapter 7 discharge (except in cases of malicious injury to property)
  6. the debtor cannot obtain a discharge in a second Chapter 13 if a previous Chapter 13 was filed in the 2 years prior, or if a previous Chapter 7, 11, or 12 was filed in the previous 4 years
  7. all secured claims must receive an equal monthly installment on its claim, and the debtor must commence these payments immediately upon filing the petition. (So, for example, if a furniture company or car debt is to be paid inside the plan, the debtor nevertheless must pay at least an "adequate protection payment" to the creditor - a regular installment payment or the professed plan payment - until trustee payments to creditors commence. Proof of such payments must be provided to the trustee
  8. Chapter 13 debtors must provide an on-going annual financial statement for the tax year and their income and expenses for each year. The purpose is to be sure that raises, bonuses and inheritances are accounted for during the Chapter 13
  9. landlord evictions are no longer stayed if a judgment for possession was obtained pre-petition
  10. alimony and child support are now given first priority in plan payments. Approval of a plan is now conditioned on proof that the debtor is current on all support obligations, and trustees are required to notify the appropriate state agencies and support recipients that the debtor has filed a bankruptcy petition
  11. prior to the first creditors meeting, the debtor must have filed all required tax returns for all taxable periods for the four years preceding the filing of the bankruptcy petition.
  12. additional debts will now be non-dischargeable in Chapter 13:

    1. debts non-dischargeable under Chapter 7, including recent luxury good purchases and cash advances on credit cards
    2. tax fraud debts
    3. 401-K loans or other loan repayments made to the debtor's retirement plan
    4. debts incurred (for example, by use of a credit card) to pay income, property or other state or local taxes
    5. debts incurred to pay criminal restitution or fines
    6. debts incurred while acting fraudulently in a fiduciary capacity
    7. damages or restitution resulting from a civil action or judgment arising out of willful or malicious injury causing personal injury or death

    If you wish to make an appointment to file a Chapter 13, please contact Mary Denton at extension 221, or mary@sparkmanlaw.com.

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    This firm represents many creditors including banks, credit unions, finance companies as well as individual creditors. We file many motions to "lift stay" in the bankruptcy court seeking permission for our creditor clients to proceed with foreclosures on real property or repossessions of personal property including vehicles, mobile homes, and business equipment. When the bankruptcy proceeding is filed, an "automatic stay" comes into effect, which restrains creditors from taking any action to collect its debt without first saying, "Mother, may I?" to the bankruptcy court. Once these motions are filed and approved by the court, the "stay" is lifted and the creditor entitled to proceed with its state court remedies. Generally, however, the creditor is limited only to its collateral and cannot go after the individual debtor or guarantor if that individual is in a bankruptcy proceeding. Many times, a consent order is entered into with the debtor to provide "adequate protection payments" consisting of regular contractual payment or interest payments pending confirmation in lieu of lifing of stay.

    We are frequently retained to represent creditors in objecting to Chapter 13 and Chapter 11 confirmation of plans and in objecting to certain values placed by debtors on collateral by our clients. We are also retained to file lawsuits ("adversary proceedings") in the Bankruptcy Court objecting to debtor's discharge "across the board", or to the dischargeability of particular debts. Examples of non-dischargeable debts include situations where an individual debtor may have committed some alleged fraudulent act against a creditor; a fraudulent transfer of property; or provided a false financial statement or other credit application.

    There have been significant changes in the law for the benefit of creditors:

    I. Automatic Stay

    A.  If a debtor's case is dismissed and another bankruptcy is filed within one year thereafter, the stay afforded by §362 terminates automatically 30 days from the second petition date.

    i. The debtor can move to reinstate the stay but must show the filing was in good faith. ii. A rebuttable presumption of bad faith arises if the debtor's first case was dismissed for failure to pay direct payments or payments into the plan.

    B.  If the debtor files a third case within the same twelve month period, there is no §362 stay.

    i. The debtor can again seek to have the stay reinstated, but must demonstrate "good faith" by an even higher standard of "clear and convincing evidence".

    ii. An automatic presumption of bad faith arises with a third case if dismissal was due to failure to make payments.

    C.  With multiple filings, the court can order relief from stay and allow the order to be recorded with the local Register of Deeds. The stay relief is then good for 2 years and is binding on all owners of record of that particular real property. Should a co-debtor or a co-owner of the property later file bankruptcy within the 2 year period, no stay applies.

    D.  Should a debtor ignore a prior "dismissal with prejudice" and file within the prohibited time anyway, no stay takes effect.

    II. New Presumption Periods - Non-dischargeable Debts

    A.  "luxury goods" in excess of $500 purchased within 60 days (instead of the former $1,225 within 90 days) are presumed to be nondischargeable. "Luxury goods" is not defined.

    B.  Cash advances incurred in excess of $750 within 70 days of bankruptcy (instead of the former $1,225 within 60 days) are presumed to be non-dischargeable.

    C.  The bar date for filing the adversary proceeding to determine the debt to be non-dischargeable is still 60 days from the first scheduled §341 meeting.

    III. Means Test Challenge

    The "backbone" of the law is the narrowing of eligibility of debtors wanting to file Chapter 7. The intention is to force those debtors with disposable income above the state median income to file a Chapter 13. A Chapter 7 petition can be challenged by any party in interest, including creditors. The result may be a conversion to Chapter 13 or dismissal of the Chapter 7 case if the debtor's income is above the defined state median. Debtors' counsel can also be sanctioned for persisting in the filing of a Chapter 7 where the debtor fails the Means Test.

    IV. Reaffirmation Agreements & Redemption

    Under pre-October 17th, 2005 Fourth Circuit Case law, a debtor could be current in his mortgage payments and not have to sign a Reaffirmation Agreement - the debt would "pass through" the bankruptcy. The lien would survive the bankruptcy, but the debtor's personal liability of the underlying debt would be discharged - so there would be no possibility of a deficiency should there be a later default.

    The BAPCPA abolishes this case law and requires that the debtor either surrender, reaffirm, or redeem the collateral. However, reaffirmations have become more complex with mandated disclosures set forth in §524(k). Because the new forms will require that the debtor show a sufficient disposable income to pay the debt, most debtors in Chapter 7 will have no evidence of an ability to reaffirm the debt. Moreover, attorneys for debtors must sign a certification that the debtors can, in fact, afford to make the reaffirmed debt payment.

    The debtor can try to show "undue hardship" to the Judge; however, conventional wisdom says that most arguments will not be approved.

    So, expect Chapter 7 debtors to propose surrender of your collateral; or continue to volunteer payment and retain the collateral without a reaffirmation; or propose a "win-win" compromise with you to negotiate new terms on the law to avoid surrender of the collateral. As reaffirmations wane under BAPCPA, expect redemptions to increase.

    2008 UPDATE: The above prediction has not panned out. Reaffirmation agreements are being approved either without the attorney's signature or with the attorney striking the portion of the certification regarding debtors' ability to make payment. Judges appear to be willing to approve reaffirmation agreements by the debtors who show a necessity to retain the property; evidence of being current in payment at the time of the reaffirmation agreement (unless other agreement has been worked out with the lender); and the ability to make payment going forward, including assistance from family and friend.

    Under old law, a debtor could offer to pay a secured creditor NADA wholesale; obtain 3rd party financing through an entity like 722 Redemption, Inc, and pay that value in return for the title to the car, for example. The balance of the debt to the old lender would be discharged as a general unsecured claim.

    Under BAPCPA, the debtor can still redeem, but must pay full retail value, unless the creditor consents to a different treatment. The result will either be a flood of surrendered cars back to lenders, or a negotiated settlement somewhere between wholesale and retail.

    Under new §521(a)(6), debtors must, within 45 days of the creditors meeting, either redeem or reaffirm a purchase money mortgage debt. Should the debtor fail to do either, then the stay terminates (unless the Bankruptcy Trustee thinks there is equity and files a timely motion to extend the stay).

    V. Debtor's Statement of Intention

    Should the debtor fail to file the statement of intention within 30 days of the petition date, the stay is automatically lifted. Should the debtor fail to surrender, redeem or reaffirm within 30 days after the first creditors meeting (unless extended by the court), then the stay is also automatically lifted.

    It appears that the debtor's deadline of 30 days after the creditors meeting to perform the statement of intention will always expire prior to the 45 days for purchase money mortgages under §521(a)(6).

    Therefore, a secured creditor has two options when seeking a return of its collateral:

    1. Allow the debtor free use of your collateral for 30-45 days after the first creditors meeting and then pick up your collateral upon automatic lifting of stay, or
    2. Hire a lawyer and file the typical lifting of stay in Chapter 7 if you want your collateral sooner.

    VI. Chapter 13 Cramdowns

    The debtor can no longer reduce the value ("cramdown") on automobiles subject to a purchase money security interest purchased within 910 days (2 1/2 years) prior to the petition date.

    The debtor cannot cram down any other secured debt on personal property purchased within 365 days before the petition date.

    Again, to avoid large-scale surrender of cars, anticipate offers to negotiate secured valuations or a creditor could voluntarily file a secured claim for a lesser payment.

    VII. Chapter 13 Adequate Protection

    1. Under BAPCPA, Chapter 13 plans must provide that secured debt be paid in equal and regular monthly installments.
    2. Moreover, the debtor must commence these payments directly to the secured or lease creditor immediately upon filing of the petition and prior to plan confirmation, and provide proof of those payments to the trustee. (The payment may either be the regular mortgage payment or the proposed plan payment.)

    VIII. Chapter 13 Retention of Liens

    Under the old law, a Chapter 13 debtor could pay off a "crammed down" car loan halfway through his case; obtain his car title; and later his case would be dismissed, leaving the creditor with an inadequate legal remedy. Now, the new change allows the creditor to retain the title and lien until the debtor has completed his Chapter 13 and obtained discharge.

    This change in the law will not affect the ability of a debtor to pay the secured portion of his claim in a Chapter 13, and then convert to Chapter 7. Upon entry of discharge, the debtor gets his car title, and the debtor is left with an unsecured claim. (However, since valuations must be 100% retail in Chapter 13, the unsecured deficiencies should be much less than under old law).

    If you wish to contact this office about creditor representation, please contact Diane Sparkman at extension 225, or dsparkman@embarqmail.com.

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    Mr. Sparkman has been a member of the Chapter 7 panel of bankruptcy trustees for the Eastern District of North Carolina since 1979. As a bankruptcy trustee, neither he nor his staff can give you legal advice. If you are a creditor in a case in which Mr. Sparkman is trustee, you must consult your own attorney. If you are the debtor (even a "pro se" debtor, representing yourself) we cannot give legal advice. We can provide case number and status of general information regarding case status, or information about distribution to creditors in particular asset cases.

    Should you have any particular questions about a pending matter in which Mr. Sparkman is bankruptcy trustee, please contact Joyce Jones at extension 226, or joyce@sparkmanlaw.com.

In addition to representing creditors and trustees, this law firm is a debt relief agency, proudly helping people file for relief under the Bankruptcy Code since 1979. Please note that the information you obtain at this site is not, nor is it intended to be, legal advice, nor does it constitute a contract of service between you and our firm. You must consult an attorney for individual advice regarding your personal situation.

©2005-2013 by Richard D Sparkman and Associates, P.A. All rights reserved. You may reproduce materials available at this site for your own personal use and for non-commercial distribution. All copies must include this copyright statement.