Chapter 13 changes under BAPCPA

As many of our clients may know, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) modified, but did not eliminate the process of filing for Chapter 13 bankruptcy. Chapter 13 bankruptcy is generally filed to protect assets such as a house, a car or a below-market lease.

With the fall in real estate values and increase in interest rates on variable rate mortgages, we have been receiving more calls from clients whose houses are either close to foreclosure or have been foreclosed on.

Here are a few of the changes BAPCPA made to filing for Chapter 13 bankruptcy:

1. If the Debtor’s income is above the median income ($42,896 for one earner, $51,994 for two people, $62,815 for three people, $74,501 for four people and $6,900 for each individual in excess of four), the Debtor may be required to file a Chapter 13 repayment plan where the Debtor repays a percentage of his or her debts over a period not to exceed five years, and not allowed to file a traditional Chapter 7 liquidating bankruptcy where the debts are eliminated (discharged), unless the Bankruptcy Court rules that the Debtor’s circumstances are extraordinary.

2. If the Debtor is required to file a Chapter 13 case under the Median Income or Means Test, then the Debtor’s monthly expenses will be limited to the IRS National and Local Standard Expense guidelines, subject to limited adjustment.

3. If a Chapter 13 Debtor’s current monthly income combined with their spouse’s current monthly income is greater than the applicable median income, the plan proposed by the Debtor must not exceed five years. On the anniversary date of a confirmed plan, a debtor must file a new statement of income and expenses.

4. All returns “required” for the 4 years ending on the petition date must have been filed with the taxing authority by the day before the first scheduled meeting of creditors. The Chapter 13 trustee may “hold open” the meeting of creditors for limited periods to allow the debtor to file unfiled returns.

5. The court may not grant a Chapter 13 discharge unless the debtor has completed an educational course concerning personal financial management as approved by the U.S. Trustee.

6. A debtor may not receive a discharge in Chapter 13 if the debtor received a discharge in a Chapter 7, 11 or 12 case filed within four years of the filing of the Chapter 13.

7. A Chapter 13 debtor may not receive a discharge if the debtor received a discharge in a previous Chapter 13 case filed within two years of the filing of the current case.

8. Within 60 days of the filing of a petition, a Chapter 13 debtor must provide to lessors of personal property or purchase money secured creditors reasonable evidence of insurance on the property that the debtor retains. The debtor must continue to provide proof of such insurance for as long as the debtor retains possession of the property.

9. The Chapter 13 “super-discharge” that was obtainable under the Bankruptcy Reform Act of 1978 is greatly reduced under BAPCPA. Debts for trust fund taxes, taxes for which returns were never filed or filed late (within two years of the petition date), taxes for which the debtor made a fraudulent return or evaded taxes; fraud and false statements under §523(a)(2), unscheduled debt under §523(a)(3), defalcation by a fiduciary under §523(a)(4), domestic support payments, student loans, drunk driving injuries, criminal restitution and fines and civil restitutions or damages rewarded for willful or malicious personal actions causing personal injury or death are now excepted from discharge.

For more information about filing for Chapter 13 bankruptcy, please contact Shenwick & Associates.