 You're watching FJTN, the Federal Judicial Television Network. Welcome to this Federal Judicial Center program on the Bankruptcy Abuse Prevention and Consumer Act of 2005, which was signed into law by President Bush on April 20th. The legislation, most of which takes effect on October 17th, makes the most sweeping changes to the Bankruptcy Code in more than 25 years. In the next 90 minutes we will discuss those changes that will have the most impact on the bankruptcy courts. We'll start with the Judicial Conference Committee on Bankruptcy Rules response to the Act and highlight other resources available to you as you learn more about the new law. Then we'll discuss consumer issues, including the means test, for about 50 minutes. For the final 30 minutes, we'll discuss business issues. Later this summer we'll have two follow-up programs on FJTN, one that goes into more depth on consumer issues and the other that goes into more depth on business issues. Your materials today include a program outline, references to additional resources, and biographies of the judges who will comment on the new law and who will anticipate questions the federal judiciary faces in its wake. Judge James Haynes from the District of Maine, Judge Bruce Markell from the District of Nevada, Judge Elizabeth Parris from the District of Oregon, Judge James Walker from the Middle District of Georgia, and Judge Eugene Weidoff from the Northern District of Illinois. Also in your materials is a very important evaluation form. Please use it to let us know your view of the strong and weak points of this program. These evaluations will be important to us as we structure the programs that will broadcast later this summer. I'll be returning in a moment with the Committee on Bankruptcy Rules response to the Act and other resources that will be available to you. Question on everyone's minds is whether rules and forms will be in place before October 17 to implement the new Act. Here with me to discuss this question and to tell us what resources are available are Judge Walker, who is a member of the Advisory Committee on Bankruptcy Rules, and Judge Haynes, who is chair of the Federal Judicial Center Bankruptcy Education Committee. Welcome Jim and Jimmy. Jimmy, what's the Bankruptcy Rules Committee doing to implement this new Act? The Bankruptcy Committee is working hard to have new forms and new proposed rules ready, hopefully by the end of August. What we have in mind is a set of rules like were utilized after the 1978 Code. Are these suggested interim rules? They are, and they're offered to courts to be used as proposed as standing orders as suggested interim rules or temporary rules or in whatever way the courts utilize those kinds of rules. So they may be implemented in each court a little differently either by local rule or standing order? Yes, and they'll all be, the effectiveness will be generated at the local court level. We will simply supply the rules that we think are appropriate to the new Code. Now is it anticipated that those rules will be adopted uniformly around the country? It certainly is anticipated that that will happen, Tom. We also expect to have official forms ready by the end of August. The official forms, because they are official forms, will be mandatory and they will include the means test form and the IFP application. So they'll be approved by the Judicial Conference and really the local courts don't have discretion on whether to adopt them? That's right. Okay, Jim, this is just one of many programs to talk about the new law, and I know there are a lot of materials out there. What are some of the best resources that judges can look to to find out about the law? Well, you're right. There are many resources and many programs, and to list them all exhaustively here would probably not be the best use of our time, but the FJC website, the address for which is going to appear on the screen and is in the written materials, as well as the ABI website, both of those sources contain collected resources and have links to other useful resources. Those are good places to start consulting to find the materials one needs to prepare for the law. Are there any good law review articles coming out? Well, the upcoming issues the American Bankruptcy Law Journal are going to feature articles and analysis on the new act, and it should be a pretty comprehensive treatment. Beyond that, to say that the focus of the NCBJ meeting in San Antonio this fall will be the new act is probably an understatement. And finally, I'd just like to mention that in working with the law going forward, it will probably be handy for judges not only to have a red line copy of the code, but also a copy of the act, the legislation itself, with commentary, because some of the aspects of the legislation are not codified, and really to see how it all fits together, consulting the legislation itself is going to be useful. Okay, Jim, thank you and Jimmy. We'll be back in a moment to discuss the consumer issues. As we all know, the new bankruptcy act makes major changes in consumer bankruptcies. Judge Eugene Weidoff from the Northern District of Illinois joins Judge Haines, Judge Walker and me to discuss these changes. Welcome, Gene. Good to be here. What's the new consumer credit counseling requirement? Tom, this is a new eligibility requirement for an individual debtor to be eligible for relief under any chapter of the bankruptcy code. They're going to have to undergo a briefing to outline the opportunities for credit counseling and to assist them in analyzing their budgets. So this applies in Chapter 11 and Chapter 12? It does. It may even apply in involuntaries, although I don't think so, because the requirement is that this briefing be received within 180 days of the date that the individual files the case. And of course the individual debtor doesn't file the case in an involuntary, so probably only to voluntary cases. But it can be done by telephone or internet if the U.S. trustee approves it can be individual or group briefing. So there's some latitude here. The U.S. trustee also has to approve the agency that conducts this briefing. So this agency could exist outside of the district that the briefing was taking place? Yeah, that's the implication of this possibility of telephone or internet briefing. It could be a central place for the entire country if the U.S. trustee approves. The U.S. trustee has guidelines under Section 11 that they have to meet in order to approve an agency. And one of those guidelines is kind of interesting. If there's a fee attached, and one would expect there would be, the agency is going to have to provide the service to a debtor without regard to the debtor's ability to pay the fee. Now does this agency have to be nonprofit? Yes, that's one of the requirements under 111. Okay, well how is the court going to know that the debtor has been to this counseling? The debtor has to file a certificate issued by the credit counseling agency and is also going to have to attach any debt management plan. We expect the rules will provide a deadline for that and if the deadline isn't met the case would be subject to dismissal on the ground that the debtor is ineligible. Jean, in addition to credit counseling there's an educational component. What is that? Well instead of an eligibility requirement, this educational requirement, a course in personal financial management, is something that a Chapter 7 or 13 debtor has to go through in order to get a discharge. Okay, so the 11 debtor and the Chapter 12 debtor don't have to do this. No, they don't have that particular obligation. And again, it's a prerequisite for discharge. So although it shows up in 727 and 1328, we don't anticipate that this would be a ground for denying discharge, but if the debtor fails to file a certificate of education within the time that the rules would set, there would be the potential for the debtor going through the case, having the case closed without a discharge being entered. One thing I should have mentioned is that there are exceptions for both the credit counseling and the educational requirement. If the U.S. trustee finds that there aren't sufficient resources available in a particular district to offer the counseling or the education, then there's no obligation for any debtor to go through that. If the debtor is disabled and capacitated on active military duty in a war zone, they don't have to go through it, although they would have to file a certificate showing that they went through, they qualify for those exceptions. Now, where does the debtor go to get this education? That'll be up to the U.S. trustee. As with the credit counseling requirement, the statute provides that it could be through internet or telephone services, and so the debtor may not have to actually go anywhere. Does the debtor have to pay for this? As with the credit counseling, one of the requirements for approval by the U.S. trustee is that the service be provided without regard to the debtor's ability to pay for it. Okay. In the past, all debtors have had to pay a filing fee. Sometimes they could pay it in installments, but they always had to pay it. Has that changed it all into the law? It has. On the effective date, there's an informal papyrus alternative for low-income debtors who can demonstrate that their income is less than 150 percent of the OMB poverty line, and they have an inability to pay in installments. So this is a new aspect. It's going to create some additional work for the clerk's office and chambers, because the legislation gives the court the authority to authorize IFP filing, but there does have to be a review of the forms and a determination made. Now, we had any experience with this in the federal judiciary? Yes. From 1994 to 1997, there was a pilot project run in six districts and was the subject of an FJC study implementing and evaluating the Chapter 7 fee waiver program, and in that experience, about 3.4 percent of Chapter 7 debtors applied for IFP status for fee waiver, and about 2.9 percent were ultimately granted it. Those who were refused either were given the alternative to pay in lump sum or in installments. Do you think most of these would be prosa debtors? The experience from the pilot districts indicates that there were more heavy IFP applications in districts where legal services or free legal services were available to low-income debtors, but nonetheless, actually, in the bankruptcy, there was a greater percentage of prosa debtors from the IFP population. You know, in the present rules, it says you can't pay in installments if you've paid an attorney something before. Do you think that will carry over? My understanding is that it won't, that the extent to which the debtor may have paid an attorney or a third party may have paid an attorney on the debtor can be a factor considered in whether or not to grant IFP status, but that it won't be an absolute bar. Now, have the fees changed? The fees have changed as well. Again, as of the effective date, the fee for filing a Chapter 7 case raises to $220 plus the $39 administrative fee and a $15 trustee fee. For Chapter 13 filings, it's $150 plus the $39 administrative fee and for Chapter 11, there's a $1,000 filing fee now plus the administrative fee of $39 as well. Jimmy, we've heard that the new law puts new burdens on debtors. What are some of those? Well, that's a fact, Tom. The debtor's duties have always been on the Section 521, but that section's been enlarged considerably. Let me talk about three areas. The filing requirements, the statement of intent, and the tax returns. With regard to the filing requirements, there's three categories, and one of those categories is a brand new category, the automatic dismissal category. We've never seen that before in the bankruptcy law. And now, if you don't do any one of the five things in this category, your case is subject to automatic dismissal. I'll talk just a minute about what I think that may mean. First of all, the first of the five is the requirements that we've always known, the list of creditors, the assets and liabilities, and statement of income and expenses. Now, the second and new requirement in this category is a notice that the debtor has received the information about the different chapters of bankruptcy that are available, information about the credit counseling agencies and services, and advice regarding the consequences of perpetrating fraud in connection with the bankruptcy case. That's the second one. The third one is copies of pay statements from the employer for a period of 60 days prior to filing. The fourth is an itemized statement of net income. And the fifth is a statement of reasonably anticipated increases in income and expenses. Now, you're saying if you don't file these, then your case must be automatically dismissed? Well, that's right. No, no, it is automatically dismissed. Does that require an order from the court? A creditor may request an order. And if a request is made following the 45 days, the court must enter an order to that effect within five days. However, the case is still dismissed, even if a request is not made, the case is still dismissed. And what that means, how a case can be dismissed and no order dismissing the case is entered is a peculiar state of affairs. Well, it's sort of a zombie case. It goes on, but it really is dismissed. One assumes, but I guess practices show us how that works. There are possibilities for extending the 45 days for an additional 45 days. The debtor can make that request. And in the case where the trustee makes the request and shows that it's in the best interest of the creditors, then that request may also include a 45 day extension. Jimmy, what about the statement of intention? Has that changed? The statement of intention has changed. The rules regarding the statement of intention. First of all, we're accustomed to a 45 day rule, required compliance within 45 days, although under the old law, there may not have been any consequences to that. Now under the new law, it's 30 days after the meeting of creditors, and there are consequences. If you fail to perform the statement of intentions, then the automatic stay with respect to that property is lifted. The exception to that would be the case where the debtor proposes to reaffirm, and the creditor refuses to reaffirm according to the terms of the original agreement. In that case, the automatic stay will continue. OK, can you tell us briefly about the tax requirements? Tax return filing is treated differently under the new code. It's tightened up considerably. First of all, the three points here. First of all, the debtor has to bring to the trustee at least seven days before the meeting of creditors a copy of the last tax return filed at the end of the period prior to the filing of the case. Secondly, during the case, the debtor is required to file tax returns that come due. And if the debtor doesn't do that, the taxing authority is permitted to request a dismissal within 90 days after that's supposed to have happened. And then if the debtor doesn't do that, then the case is dismissed, and there's a real question about notice to the debtor that would precede that dismissal. Lastly, with respect to tax returns, the debtor will have to file any of the tax returns that came due in years before the case, after the case is filed. And if those returns are filed by the debtor during that period, creditors and parties of interest may request that copies or transcripts of those returns be filed. I'm just amazed at how many debtors have not filed tax returns in the last several years. Jim, one thing that's bothered me or concerned me a little bit is the address requirements that notices are going to have to be sent to. What's that all about? Well, it's a good cause for concern because although on its face it seems as though it might be logical enough that the consequences and requirements are a little difficult to follow and could be problematic. There are really two aspects of the creditor's ability now to control the address to which bankruptcy notices are directed by the debtor and the court. The first is sort of case by case. With regard to any bankruptcy case, if within 90 days of the filing, the creditor has sent communications to the debtor that include a designation of the debtor's then current account number and include a request that correspondents be directed to the creditor at a given address or even to a given subdivision and person's attention, then the debtor is required to send notices including a bankruptcy. What does communication mean exactly? Well, that's a good question because the statute says communication and it also says a request and whether or not that communication is limited to written communications or it could be electronic communications or it could be oral communications conceivably, I suppose. And then again, whether it includes a request as opposed to just a return address is going to be another question for the courts to consider. What's the consequences if the notice goes out to the wrong address there? Well, the wrong address has consequences in terms of any monetary sanctions that might be imposed for violation of the stay or failure to turn over property. But I'd have to also add that if the creditor hasn't corresponded within the 90 days before bankruptcy, then the debtor nonetheless, well, probably they wouldn't correspond because it might have been violation of some non-bankruptcy law, at least in the statute size, the debtor is then required to look at the last two communications sent in the 90 days before the 90 days pre-bankruptcy and ascertain whether the same information was included on that. Now, any time after the case is filed, a creditor can inform the court of the address to which it once notices sent. And within five days after that notification is given to the court, the debtor and the court will be required to use that address. Well, those are the case-by-case requirements. But there's also the general ability of a creditor to tell any bankruptcy court the addresses to which it wishes things sent for all Chapter 7 and 13 cases, both with regard to that bankruptcy court and any other bankruptcy courts. So if a creditor notifies you in Maine that they want notices at a particular address, that would be, in effect, binding on my court in Eastern North Carolina. And that notification can say we want it to a certain address for some courts and a certain address for other courts. The Bankruptcy Noticing Center is hard at work to coordinate this on a national basis, which will have to be done. But just to make things really interesting, such a general designation can be withdrawn at any time. OK, well, let's get back to the question of what happens when the notice goes out to a different address than the one the creditor has indicated. Well, the notice is deemed ineffective until such time as it's brought to the attention of the creditor. And those are the statute's words, brought to the attention. That can be difficult to demonstrate in that if the creditor is designated a given subdivision or a person even to whom these notices need to be directed, you have to be able to show that it was brought to their attention. And really, any acts that the creditor takes before effective notice can't lead, as I said, to liability for failure to turn over property or for violations of the stay. Whether this ineffective notice notion has implications beyond turnover orders and stay violation issues is an open question. Whether it'll come home to roost in areas such as sales-free and clear and the like, or whether those kinds of different things will continue to be governed by fundamental principles of notice and due process outside the statute's terms is left to be seen. I think that is an open question and a very important one. Jean, so far we've avoided talking about it, but it's probably the thing that's on most of our minds. Please tell us about means testing. OK, Tom. I think the first thing that you need to know about means testing is that it's part of a massive reworking of Section 707B of the bankruptcy code. I think most of us are familiar with this section that, under prior law, allowed dismissal of an individual Chapter 7 case if it was a substantial abuse of Chapter 7. Well, it had some limitations, and Congress has addressed three of those in particular. And one of them involves the means test. But it's also pretty important to note one thing stayed the same. It still applies only to individuals whose debts are primarily consumer debts. So people with primarily business debts are not affected by Section 707B or the means test at all. But now for the others, those with primarily consumer debts. Three things that 707B has been changed to do. First, the presumption. There used to be a presumption that the individual's choice of Chapter 7 should be honored. The means test is a reversal of that presumption. We'll be talking about the details in a little while, but the general idea is if the individual has enough income to pay general unsecured debts, after you take away the money that they would need for living expenses and payment of higher priority debts, they're going to be presumed to be abusing Chapter 7. Second thing is, what's abuse? Used to be substantial abuse. It implied that there was something special about it. Courts had different ideas about what was substantial abuse. Well, now it's simple abuse, not substantial. And it's described. Even if the presumption under the means test doesn't apply, a court can dismiss or allow a debtor to convert a Chapter 7 case if the totality of the debtor's financial circumstances show abuse or if the debtor is engaged in bad faith. They're put in the disjunctive. So apparently, either an ability to pay debts or doing something wrong in connection with the bankruptcy case, we're going to be grounds for conversion or dismissal. And the final big change was standing. The old version of 707B strictly limited standing. Only judges, US trustees, could bring a 707B motion. That's going to be changed now. If the debtor's income is high enough, all creditors are going to have standing. Case trustees will have standing to bring a 707B motion. How you determine whether the debtor's income is high enough is fairly complicated. It gets into the formula for determining income under the means test. And again, we'll be talking about that. But the idea is this. If the debtor's income, however you calculate it, is under the state median income for a family of the same size as the debtor, then the debtor is going to be in what the legislative history calls a safe harbor. The debtor is not going to be subject to any means test presumption brought by anybody. And the debtor is going to continue to have the standing protections under current law. That is only judges, US trustees, and bankruptcy administrators can bring a non-presumptive motion under 707B. So under the median state income for a family, constitutes a safe harbor. Is it hard to determine what that median state income is? It shouldn't be, because what the US trustee has promised us, and I'm confident that they'll honor their promises, that they'll put on their website precisely what the cutoff is for each debtor in each state. Jimmy, Gene talked about the one first component of the means test, that is the income. It's a presumptive income. What is that, and how do you determine it? It is, Tom. The means test begins with the determination of current monthly income. Current monthly income is the average of all income from all sources during the six month period before filing, and it begins the end of the month prior to filing and six months back. It includes all amounts received, regardless of whether it's taxable, gifts, certain investment income, contributions to the household by some other family member, all count as current income. What about social security then? Social security is not counted. Certain other kinds of things aren't counted, benefits from having been a victim of a crime, a war crime, and some things like that. The important thing is to notice that the six month period ends the last day of the month before the bankruptcy is filed, and it doesn't make any provisions for the situation where the debtor might have been unemployed for most of the time, or employed for most of the time and now unemployed. So it should be obvious that some pretty bizarre results are gonna occur in this calculation. So it can really bear no relationship to what the debtor's real income is at the time of the petition. That's right, Tom, and in most bankruptcy cases there are income interruption problems which precipitate the filing of the case in the first place. Okay, Jim, once you get the income, what's deducted from it for purposes of the means test? Well, I probably ought to fasten your seatbelts because if you're not lost yet, you may soon be. The expense side is comprised of a combination of actual expenses and a template provided by IRS standards or IRS guidelines actually. What are those guidelines used for? What are the IRS using for? Well, the IRS uses them to evaluate offers and compromise for payment of delinquent taxes and they're not binding on the IRS but they're used to gauge whether or not to accept those offers and compromise. Here, however, they provide really a rigid template for a goodly share of the debtor's expenses. The IRS standards consist of national standards, local standards, and other necessary expenses. The national standard is a standard, again, with an eye toward family size and income of personal care, entertainment, food, clothing, basic expenses for a family. The local standards are standards really on a localized basis for housing, home energy, transportation needs and insofar as those are concerned, and again, there are special circumstances for Alaska and Hawaii for the national standards, but as far as those are concerned, those are considered to be the debtor's legitimate expenses. Are there any exceptions to those? There are exceptions and we'll get into those in a minute but those generally govern what the expense side is gonna be for the general household expenses with the understanding that to the extent, a portion of the real expenditures of the debtor consists of debt repayments for secured or priority claims, those are backed out at that stage. They come back in later. Beyond the IRS standards, which again also include the other necessary expenses, which is a list of categories and as to which the debtor's actual expenses which fit into those categories can be considered. Once you get through those three levels of IRS standards, you get to a laundry list of recognized expenses for the debtor that are set forth in the statute. That laundry list also includes the ability to demonstrate that it's reasonable and necessary to increase the food and clothing allocation in the IRS national standards by up to 5% or that home energy costs push you up beyond what's recognized in the local standards. Now if you want an exception, if you want to have that increased, does that involve the court? Does the judge get involved in making those exceptions? Well, one would expect that the forms that will be promulgated on this end will include the ability for the debtor to provide a verified statement as the statute requires to demonstrate that exceptions should be made. And Gene will talk a little bit more about exactly what those exceptions are. But the laundry list includes a lot of the things that we see in the general disposable income calculation but also includes some things that here to fore have either been questionable or new to the calculation, including expenses for supporting a family member, not necessarily an immediate family member who's disabled and unable to pay for their own expenses and charitable contributions again, this time seemingly without a set limit. Also expenses for paying private schooling tuition for debtor's dependents up to $1,500 a year. So conceivably no limit on charitable deductions for the chapter seven means test? Conceivably, that's right. Okay, Gene, once we get the income and we get the deductions, we have a number. What's that number used for? Well, so far we've been doing everything on a monthly basis. We calculate current monthly income and then we allow deductions on a monthly basis. But when we come to the bottom line, whether there's a presumption or not, the means test shifts to what the debtor could do in a five year, 13 plan. So we deal with things on a 60 month basis, five years. And the statute basically breaks the debtor's result of the means test into three categories. If you have less than $6,000 in the five year period, that's less than $100 a month at the end of the means test calculations, no presumption of abuse. You pass the means test. If you have more than $10,000 at the end of this five year period, or $166.66 a month after the means test, then you always are presumed to be abusing chapter seven. $10,000 over five years is enough to be an abuse. What happens in the interim there? In between $100 a month and $166.66 a month, you're presumed to be abusing chapter seven if the amount of income you have would allow the payment over the five year period of 25% of your general unsecured debt. So if you had just $100 a month, $6,000 over the five year period, you'd have to have general unsecured debt of more than 24,000. You had general unsecured debt of more than 24,000. The 6,000 wouldn't be enough to pay 25%. Then at the other end of the spectrum, you have to have at least $40,000, just a little under $40,000 of general unsecured debt to cover $10,000 of income available in that five year period. What happens if you flunk the means test? Okay, then you're presumed to be abusing chapter 13 and this gets, excuse me, chapter seven and this gets into what Jim was saying. You can rebut the presumption by showing that your real income is less than what the means test calculates and your necessary expenses are higher than what the means test contemplates, but you have to do that by swearing to and documenting what's called in the statute special circumstances. The only examples that the statute gives are a call up to military duty or a serious illness. So apparently it's gotta be something that you don't voluntarily choose, but beyond that the statute doesn't give us a lot of guidance. Well again, does the court get involved in determining whether there are special circumstances? The court would get involved if there's an objection. I would expect a debtor that wants to rebut the presumption would attach something to their means test form that would show that their income really is lower. For example, if it's a situation that Jimmy was talking about, the debtor had been in a good job until just before filing and now has a much lower paying job. Well their current monthly income under the means test gonna be artificially high. So they attempt to rebut that by attaching something showing that their real income was lower. And it may be that everyone would be persuaded by that attachment, nobody would file an objection and the court wouldn't have to be involved. But if there's a contest, a motion and there's a disagreement about whether it's a special circumstance, yes. But there doesn't have to be a specific request for the special circumstances to the court in the first instance. The debtor would have to show, well, there wouldn't have to be. Again, the debtor could file a means test statement that showed there was a presumption of abuse. And if nobody chose to move on that, the court wouldn't have to get involved. Gene, the focus on the means test was available to pay unsecured creditors because repayment of secure debt and priority debt is figured in above the line. That's right, as you mentioned earlier, that's a separate deduction. So all that's supposed to be left when you take the allowed deductions from the current monthly income is what's available to pay general unsecured debt. Jim and my circuit, the fourth and several others that we have to pay and ride rule where you, if you're a consumer debtor, you continue to make your automobile payments without reaffirming or redeeming or turning over the automobile. Does the new law change that? It does indeed. The pay and ride rule or the so-called fourth option is eliminated expressly by section 521A6. So this means it can't be forced on a creditor who's unwilling to endure it, but it doesn't preclude the parties from coming to some agreement between themselves to just basically ignore the bankruptcy and ride through. You know, the same thing is evident in the amendment to section 722 which says you can force a redemption on a creditor only if the lien claims to be paid in full. But the consequence of these developments is that we're gonna see, I would guess, more reaffirmations and the reaffirmation process is certainly more highly regulated now than it was in the past. Have the disclosures changed or has the form changed? The form will change certainly. The disclosures are now disclosures that the creditor is required to make and they're set forth in numbing detail in section 524K. The creditor really has to go through a lot of explanation. There are some parts of it are optional but it's mandatory for some disclosures to be made and they are extensive. In addition, as before, the reaffirmation agreement has to be entered into before the discharge. If the debtor is represented, the debtor has to have an attorney's certificate and a new requirement is that the debtor has to file a statement in support of the reaffirmation agreement which is really a recap of the debtor's income expenses including reaffirmed debt and ongoing payments of any other debt that the debtor is making in the post bankruptcy period. And it's supposed to demonstrate that the debtor has enough money to make the payments for the debt that he or she seeks to reaffirm. If the debtor looks like it comes up short, well the attorney or her certificate is gonna have to represent where the money is gonna come from. But if it comes up short on what's required to service the reaffirmed debt, there's a presumption of undue hardship and a presumption of undue hardship is gonna trigger the necessity for a hearing on the reaffirmation agreement before it's approved. Now does that hearing have to be held before the discharge is entered? It does and the presumption of undue hardship endures for 60 days during which time the statute expects and I would read it as requires that a hearing be had on the reaffirmation agreement. Of course, in a stellar piece of focused lobbying, all of the attributes of the statute that focus on the presumption of undue hardship are inapplicable if the creditor involved is a credit union. So if we have what is typically the case is a reaffirmation agreement and the attorney has signed the certificate saying that everything's all right and there is no conflicting report showing that they can't pay then no hearing is required. No hearing's required and it's effective without court order. For prosaise or for debtors whose statement in support reflects a shortfall of funds, there's gonna have to be a hearing held but I would also say that the consequences of these regulations are tempered for the creditors in that a creditor who believes in good faith, they have a binding enforceable reaffirmation agreement with the debtor is free to collect payments with or without court approval before or after it's been filed and really the definition of good faith is that they've made the required disclosures. Jimmy, does the new law make any changes into how we value property? It certainly does, Tom. The students of the law who like the students of legislative statutory construction who like to think that different words can't mean the same thing, they'll have a problem with this law. We have three words here in the valuation area in play. Market value, replacement value and current value. The process begins with a requirement that the debtor's attorney advise the debtor by way of a notice that anytime valuation is required the debtor is required to use replacement value. So when we're looking at a debtor's schedules we'll be looking at replacement values? Maybe. The secured claims as we know them in the past have been based on the purpose of the valuation and the proposed disposition and use of the property. We still have that standard and that standard has been interpreted to being replacement value. However, there's a bit of a new overlay to the valuation scheme now. Individual debtors in chapters seven and 13 where we have claims secured by personal property, we have replacement value and no deduction for the costs of sale and marketing. However, if the property is required for personal, family and household use the price we're supposed to look to for the replacement value is the price of retail merchant would charge for property of a similar value. So the price of a cart at automobile dealership as opposed to the newspaper, the statute seems to prefer the price at the dealership which of course includes a profit component. Now, redemptions are also based on replacement value but now when we turn to reaffirmations the term current value is introduced. Furthermore, when we look at exemptions the term fair market value on the date the petition was filed is introduced. One would think all of that means replacement value but the use of different terms may suggest something else. Jimmy, does this change in 506A requiring retail for personal property in seven or 13? Does that apply in all situations? No, first of all it's only individual debtors in seven and 13 and property acquired for personal, family or household use. So there's a limited application. But it would apply even if we were dealing with the situation of say adequate protection for purposes of relief from the automatic state? One would assume and that aspect has benefits that cut both ways with respect to adequate protection. It may mean a strategic advantage for one side or the other. Well, Jimmy, how do you apply the liquidation test in a chapter 13 case where you've got schedules that show you a retail replacement value and for purposes of liquidation test you might use a different standard? Well, it seems that the liquidation test is no longer part of our vocabulary, Tom. Gene, we've been talking about valuation. What about cram down in chapter 13? Has that changed? Well, it certainly changes because of what Jimmy just said. You can't cram down a car to anything less than retail price in a chapter 13 now. So that famous footnote six in rash is certainly limited. Beyond that, there's an even more fundamental change in that stripped down's not allowed at all for a whole category of debt for the first time. Auto loans, purchase money, security interests in autos that are incurred within two and a half years of the bankruptcy, any motor vehicle, are not gonna be able to be stripped down, period. The full amount of that secured claim is gonna have to be paid if the debtor wants to retain that collateral in chapter 13. Any other purchase money, security interests that was incurred within one year of the filing will have to be paid in full if the debtor's gonna maintain the collateral. Now this is part of a very complicated addition to section 1325. It's a long sentence with five different clauses, three ors in an if, three ifs in an or, and it's very difficult to parse, but I think what I've just told you is the best interpretation. I can come up with, apply to real property as well. It applies to anything of value subject to a purchase money interest. So it would apply to a PMSI in real estate, but you know, real estate in 13 if it's the debtor's principal residence is already non-modifiable. So I don't think this is gonna have much of an impact on real estate, and it won't have any impact I believe on totally underwater PMSIs because it has to be secured by something of value. Okay Jim, in chapter 13 are there any changes to the plan length and disposable income? Well for above median income debtors there are significant changes. First, an above median income debtor who will have filled out the means test with a result, they're gonna have to file a five year plan unless they can pay everything off in full earlier. And second, the disposable income that was calculated through the means test or is gonna be the requirement, the computation for purposes of their chapter 13 plan. Now the disposable income test from the means test is imported fully with the special circumstances rebuttal provision in it. So they may not be absolutely locked in. And then we also know that down the road there may be reasons to modify. So we don't know that they're necessarily clamped in for five years tight. What about the super discharge in chapter 13? Well the super discharge is really by the boards and the discharge that's left can really can't even fairly be described as robust. A number of the section 523A exceptions to discharge are now fully applicable in chapter 13, significantly including the 523A2 exceptions that relate to fraud and credit card debt. And then we see litigated a lot in chapter seven. Also, there is an exception that sort of parallels section 523A6 for injuries to person, but it doesn't parallel it completely enough to be a nice fit. Indeed, it says injuries to person that are occasioned by malicious or willful conduct are subject to the exception for damages awarded. So there's not only a substantive difficulty in matching it up with 523A6, but there's also a temporal problem as to whether or not the claim has proceeded to judgment before the bankruptcy case. Okay, Jimmy, I know one of the purposes of the law was to prevent serial filers. How does it do that? Tom, it does it at least in two ways. One is to change the discharge period from one case to the next. For example, what we've known is six years between chapter sevens has now increased to eight years. It's a number of other rules that we ought to be aware of, but probably more useful in the prohibition of serial filings will be restrictions on the availability of the automatic stay. In a second case, and this is critical to understand, filed and dismissed within the last year, if the case was dismissed in the last year, then the new case filed within a year of the dismissal of that previous case only gets a stay for 30 days. In the what seems to me unlikely event that two cases were filed and dismissed within the year prior, then the third case will have no automatic stay at all. Now, the request can be made to continue the automatic stay after 30 days. And if the belief is that the case was filed in good faith, then the court may permit the automatic stay to be continued. One of the elements of proving good faith is of course to show that there's been no change in the debtor's circumstances. If there's been a prior stay relief granted in the case, then if it were pending or granted in a previous case, then the prohibition on the automatic stay after that creditor will continue. Well, this is an important change to the automatic stay. I know that there are a lot of other changes to the automatic stay, and we really don't have time to go over them. You just mentioned one or two of them. Well, in the domestic relations area, there's been an expansion of the things that automatic stay does not apply to. For example, restrictions on the issuance of driver's licenses for the failure to pay domestic support obligations is now impermissible. Professional licenses, recreational licenses, failure to pay support won't be now subject to that automatic stay requirement. Reporting of past due support to credit bureaus and lastly, a collection of support from income, federal and state income tax refunds is now permitted, not subject to the automatic stay. Well, there are a lot of changes there and everybody ought to look at 362 pretty carefully. Gene, how has the new law affected exemptions? I want to answer that question, Tom, but it occurred to me, I better put people's minds at rest on what we talked about a little earlier. That is all this complicated means test stuff we talked about is going to be addressed by forms that are being considered by the rules committee right now. So individual debtors and courts for that matter will have some guidance in that area. So let's put that to one side and then answer your question about exemptions. There are a couple of changes in exemption laws that are worth mentioning, but probably the most important is a change in the residency requirement for establishing the local exemption law that would apply to an individual debtor. For a long time it was real simple, the place where the debtor lived for the majority of time in the six months prior to bankruptcy. Well, that's changed. In order to use the local law the place where the debtor lives, the debtor has to have lived in that location for two years prior to filing the bankruptcy case. And if the debtor hasn't maintained a residence for two years in that place, then the local law is going to be established by the place in which the debtor spent the majority of the time, the greater part of the time, between two years and two and a half years prior to the filing of the bankruptcy. So to give you an example, if a particular debtor during that two to two and a half year period had spent three months in Illinois and then moved to say Florida 23 months before filing their bankruptcy case, that individual would get the Illinois exemption law and would be unable to claim the more generous Florida homestead exemption. And presumably it would work in exactly the reverse if the person had lived in Florida before moving to Illinois. So that's a big change. There's also some limitations on the extent to which someone can add to the value of their homestead exemption. We won't go into those details. And a new cap on homestead exemptions that's effective immediately. This one's not subject to the usual 180 day delay in the effective date. A new cap of $125,000 on a homestead exemption for someone who's engaged in financial fraud or crime or tort that resulted from serious personal injury to an individual. There's also a provision for delaying discharge if there's a proceeding pending that might result in a conviction of a crime of this sort. And that's not a denial of the discharge as a genetist. No, it almost reads like that because it shows up in the provisions that deal with objections to discharge. But the legislative history and even the caption in the section of the statute that imposes this talks about a delay in discharge. So the idea is the case should be kept open to find out whether the debtor really is convicted of a crime that might result in this homestead cap. Jim, have priorities changed under the new law? Well, section 507 has been revised substantially. It looks different, but not that much has changed. We'll remember a few years back that there was something of a discussion about the priority to be accorded family support obligations. And I guess the apparent fix for that was to place them first, which was awkward given the fact that the trustee would have expenses administering the assets. But the fix there is that the trustee comes in behind the family support obligations. But to the extent he or she has administered property to pay those down, their expenses will be recognized and basically surcharge will be applied. The priority for support claims also has been expanded a little bit in the area of assignments to governmental entities. It's largely the consequence of the act that if a governmental entity has taken an assignment but is passing the money on down to those who are entitled to the support, the priority will still attend. The employee wage and benefit earnings priority has been expanded to $10,000 over a 180-day look-back period. And that particular part of the law is effective now. It was effective upon its enactment. And finally, there has been a 10th priority added for claims, for personal injury and wrongful death that arise from the illegal intoxicated operation of a motor vehicle or a vessel. I know there's been a lot of concern in the last couple of years about privacy of documents that have been filed with the court. We don't have much time left, but could you briefly tell us a little bit about that? Section 107 has been revised and the court now to protect individuals from potential harm has a more express statutory provision to rely on than it had in the past. Basically, if there is an undue risk of personal harm or certain other circumstances, the court has the ability to seal personal identifiers or other information. The other place that privacy is going to come into play is with regard to these tax returns because when you look at the tax return provisions, they talk about filing with the taxing authority, but there are also instances in which tax returns will have to be filed with the court and those are replete with personal information and the statute attempts to limit the privacy invasion on that by limiting access and I suppose the redaction policies of the judicial conference privacy policy will apply as well. Okay, Gene, debtors attorneys have some new responsibilities and I know I've been getting a lot of questions as to what's my responsibility as a debtor attorney? What do we tell them? We tell them to read sections 526 through 528 of the bankruptcy code very carefully. These are the debt relief agency provisions of the code which impose a whole host of disclosure, record keeping and ethical obligations on debtors attorneys. Beyond that, 707B contains what amounts to a statutory rule 11 provision, a certification provision and there's a sense of Congress that'll require action by the rules committee to make rule 9-11 expressly applicable to schedules. But the law doesn't at this time change 9-11. It does not, it's merely a sense of Congress and it would require the usual three year course of adopting a rule before that would become effective. Okay, very well. Well, thank you Gene and Jim and Jimmy. Next up, we'll have business bankruptcy. Although the consumer provisions of the bankruptcy act have gotten a lot of press, the act also makes changes to provisions on business bankruptcies. Here to help me discuss the business changes are Judge Bruce Markell from the District of Nevada and Judge Elizabeth Parris from the District of Oregon. Welcome, Liz and Bruce. Thanks, Tom. Bruce, how are the new small business provisions in the act different from the present law? Well, as you know, Tom, in 1994, Congress put in the small business provisions and made them optional, that is to say, if small businesses wanted to, they could opt into a more fast-track system. Congress has now changed that to make it mandatory, that is to say, those who meet the definition of small business debtor now are on a mandatory fast-track in Chapter 11. The definition has been changed also in seemingly subtle ways, but ways I think that will make a difference. The debt limitation is still the same, two million dollars in non-contingent liquidated debt, but in this go-around, Congress has excluded the debt of insiders and affiliates, so that debt actually might be larger than the two million, but we're only gonna count if you will, the outsider debt. Moreover, there's a provision that provides that a small business debtor can be removed from the small business provisions and we'll be talking about what some of those are if, in fact, there's an active and representative committee. So the way in which the statute is written because no committee's appointed at the time of a filing, a small business debtor will file, they'll be under the provisions, if the US trustee appoints a committee and it's active, then they're out of those provisions. It's only if later on someone determines that committee's not active or it's not representative, then they'll go back into the small business. Sounds like that could present some problems because there's some consequences to being a small business. I think it's gonna present some interesting if you're an academic and troubling if you're a practitioner problems because as we're gonna see some of the timelines that Congress has provided are very tight, the consequences are relatively severe and to have uncertainty with respect to the applicability I think is, as you say, gonna cost some interesting times. Liz, what are some of the obligations that are imposed on a small business debtor? There are a number of obligations, Tom, that are new. Many of these come from the proposals of the Bankruptcy Review Commission several years ago and the commission had determined that in the small business area there were really two types of debtors. There were the debtors who really had a prospect of reorganizing and for those they wanted a system that would be quicker and cheaper and then there were the debtors who were really dead on arrival and they wanted a system that would more quickly sort out the dead on arrival debtors. New section 1116 requires quite a bit of additional information and poses additional duties. First, with the petition, the debtor is required to file a balance sheet cash flow statement to last federal tax return or a statement under penalty of perjury that the item is not available. The schedules and statement of financial affairs, the court can only grant an extension up until 30 days after the petition is filed or the order for relief unless there are extraordinary and compelling circumstances. The reports and the tax returns have to be timely filed and there's in fact a new section 308 that will specify what the reporting requirements are. Now does that go into affect the monthly operating reports? Is that going to affect right away? No, that won't be effective until 60 days after the National Rules Committee promulgates the forms for use. As I understand it, there will not be any interim forms dealing with that that they'll probably take the fully three year process. The debtor's required to maintain appropriate insurance to attend meetings scheduled by the court or by the United States trustee. Finally, for the debtor who's on track to confirm a plan, there's an amendment to section 1125 F to speed up the confirmation process and to drive down the cost. If the plan is adequate, the court can dispense with a disclosure statement altogether. The court can continue to conditionally approve a disclosure statement, have a combined confirmation disclosure hearing and form plans and disclosure statements are encouraged. I understand the National Rules Committee is working on a national form plan and disclosure statement. I believe they are, but again, that's probably going to be the three year process rather than an interim form. Bruce, are there any new time limits in small business cases? Yes, there are. One of the things that Congress did to kind of pick up on Liz's down on arrival comment was to say that those who have a reasonable chance of success should be able to go through the process relatively quickly. The relatively quickly that Congress came up with was to require that debtors file their plans and disclosure statement if a disclosure statement is going to be separately filed within 300 days of filing the case and there are separate provisions in 1129 that say once a small business that are filed as its plan, it has 45 days after that to confirm that plan. Is that a realistic requirement, do you think? Time will tell whether it's realistic or not. Some of the studies that existed before with respect to successful small business cases indicate that a little bit longer time is necessary in those cases, but we'll see. The provisions can be extended, but it's a tough extension process. You have to bring the motion before the previous extension, previous time limit deadline has expired. You have to get the order signed within that time limit and the order itself has to find that there's a reasonably likelihood that the debtor's gonna confirm a plan within a reasonable time and has to set a new deadline. So a lot of provisions that kind of keep the debtor if you will in harness and moving fast. Well, as to that 45 day requirement, it seems to me the only way you're gonna be able to meet that is to conditionally approve the disclosure statement. I think that's right. Or as the new law provides and as Liz indicated, to combine your disclosure statement and plan in the one document and hope that the court will say that one document is sufficient. It's gonna be very tight. Liz, we had talked earlier about in consumer cases the discouragement of repeat filings. Is there a provision that discourages repeat filings in small business cases? Yes, there is, Tom. There are a couple of provisions that they're contained in new section 362N and in the case where you have a serial filing by the same small business, if case number two is filed while case number one is pending, there is no stay. If case number two is filed while within two years after there was confirmation of a plan or dismissal in case number one, there is no stay. But there is a couple of exceptions. If there's a non-collusive involuntary for case number two, that's an exception. There's also an exception. If in case number two the court finds that the debtor is likely to be able to confirm a non-liquidating plan and the debtor's second filing is due to reasons that are beyond the debtor's control. The second major exception to the stay is if case number two is filed by a small business debtor who acquired substantially all the assets of small business debtor number one and is filed within two years after dismissal or confirmation of a plan in case number one. Now is that going to discourage companies from buying assets in small business chapter 11 case? Well, there is an exception for good faith purchases of assets, so hopefully not. Okay, Liz, the Supreme Court has told us that individuals can be debtors in chapter 11. Does the new law provide any new provisions for individuals in chapter 11? Yes, it does, Tom. One of the changes is in the area of property of the estate. Now for individual debtors, post-petition earnings from services of the individual debtor will be property of the estate. As will any assets that the individual debtor acquires after the filing of the petition that would have been property of the estate if the debtor had owned them on the date of the petition under section 541. This section, exactly parallel to section 1306, so we'll have a body of case law we can look to for interpretation. Sounds a little like chapter 13. Bruce, chapter 13 has a strict disposability, disposable income requirement. Is there a similar provision here? Yes, there have been lots of changes to the confirmation process in chapter 11 for individual debtors. Again, part of the means-testing changes that went over in the first part of the program, chapter 11 confirmation for an individual has changed. As you point out, one of those changes is that there's a new confirmation requirement that the debtor commits its disposable income as her disposable income for five years to a plan. Now, it's written so that if you can get five years worth of income into the plan, you don't have to go five years, although that raises questions as to where the income will come from. But there's a five-year requirement. There's also a requirement, a new requirement in 1123 that the debtor commit all the personal service income to the implementation. There are also some other provisions with respect to individuals that are going to have to be current on their post-petition, domestic support obligations, again, a new defined term, and they're going to have to provide all their tax information. In part, a lot of chapter 13 has been engrafted onto the chapter 11 process without really changing chapter 11. For example, if you have an unsecured class of creditors, you're still going to have to ballot, solicit, and ballot those, even though the disposable income test just as in chapter 13 may be raised by any individual unsecured creditor. So it sounds like you almost have to have a unanimous vote of your unsecured creditors. It looks, it's going to be interesting to see how the two interact. I mean, because again, the disposable income provision is going to be just like the best interest test, and that you're going to have to satisfy every creditor. Now, how does the means test play a role in this? Does this come in? Well, there's an interesting provision, the way in which the new confirmation requirement, which is 11, 20, 9, 8, 15 works, is it refers to chapter 13, that part of the disposable income of chapter 13, which does what we've always thought chapter 13 does, compares actual income to actual expenses. It does not refer to that provision of chapter 13 that brings in the means testing and the artificial current monthly income and the IRS template. I think the better read of that statute is that for chapter 11, it's going to be actual income and actual expenses, although I think a reasonable person might look at it a different way as well. Well, it looks like a lot of the chapter 13 provisions have been incorporated now in chapter 11 for individuals. Liz, are there any provisions of chapter 13 that are not incorporated with respect to individuals? Well, beyond the differences inherent between chapter 11 and chapter 13, such as voting, there are three specific provisions. The first is the valuation standard of section 506A2 that requires the use of retail in certain circumstances and replacement value in other circumstances does not apply in chapter 11. Second, the anti-cram-down provisions that apply to certain personal property do not apply in chapter 11. Third, there's no chapter 11 requirement that the disposable income has to go to the unsecured creditors as there is under revised 1325B. In chapter 11, it simply has to be devoted to plan payments. Bruce, did Congress make any changes with respect to the cram-down as to individuals in chapter 11? Sure, it's always been an issue as to how the absolute priority rule applies when an individual goes through chapter 11. Congress didn't solve that problem, but they made it a little bit easier given some of the changes that they made. For example, they've changed 1129B2B to provide that the income that's brought into the estate by 1115, the personal service income, may be kept by the debtor and still comply with the absolute priority rule so long as you meet the other confirmation requirements, including the disposable income tax that we talked about a little bit earlier. What about discharge in individual chapter 11 cases? How's that affected? Well, discharge for individuals is now going to be deferred until they complete all payments due under the plan unless the court orders otherwise after notice and a hearing. There is an exception, however. After confirmation, the court may order that the discharge be entered earlier if the creditors have been paid at least what they would have been paid in the case, and plan modification is not practical. That sounds sort of like the hardship discharge that we have in chapter 13 and chapter 12. Is it a little bit different? It's a little different in the sense that the debtor does not have to show that the reason that the plan will not be completed is due to circumstances for which the debtor should not be held accountable. So I suppose the debtor doesn't really have to show hardship. The debtor simply has to show impracticability. We've been talking about special deadlines in small business cases. Did the law make any changes to deadlines in chapter 11 cases generally? Oh, yes, it did. We're all familiar with 120, 180-day periods of exclusivity and the ability, of course, to extend those and the stories in various cases of how they've been extended in some cases to several years. Congress put caps on those now. The 120, 180-day periods can be extended only to a maximum of 18 and 20 months respectively. So once you get out to 18 months, you've lost exclusivity. There's no provision for extension of these periods. Does the new law provide any procedural tools to help bankruptcy judges keep cases moving? Sure. It's always been the case at least since 1994 that 105D has allowed judges to hold status conferences in cases and adversary proceedings. There's a change in 105D that changed a May to a shall which would at least initially indicate that they want judges to hold these and it's probably an indication they do, but it's also the shall isn't qualified by you shall hold these hearings to the extent necessary for the expeditious and economical resolution of the matter. So I guess if in fact the parties are doing all right on their own, you don't have to hold them, but it gives kind of an incentive or at least an indication that judges should hold these when appropriate. I know some judges don't like status conferences, some of them do. What's your thoughts on that? I think it's a good idea in those cases where for whatever reason the parties aren't moving the case forward. Many cases can be resolved quicker. Some cases, they'll require time. I think an approach to status conferences that looks at the case as it is and provides appropriate guidance are very useful. Bruce, have there been any changes in contracts and unexpired leases? Yes, one of the things that has a lot of the people in the Chapter 11 Bar are interested is the provisions with respect to non-residential real property leases. Before the 2005 legislation, he had 60 days to decide to assume or reject these non-residential real property leases, which in many business cases are the primary long-term obligation of the debtor. The act has two things. First, it extends the 60-day period to 120 days. So there's an initial 120-day period to kind of assess what's going on. The flip side of that, though, is the terms of extensions. There can be an extension of 90 days, so the 120 plus the 90 being 210 days. But after that, there can only be extensions with the consent of the affected landlord. So there will be no ability for the court to extend beyond the 200-day period the time to decide these issues without the consent of the landlord. It seems like most of the cases that I've had, we end up extending that time limit to the date of confirmation. What you're saying is you can't do that. Right. You can't do that. It's going to have a large impact on major retail cases. And Kmart had, I think, over 2,000 leases. We're now going to have a period where you're going to have to decide which ones to assume, which ones to reject within 210 days. Sounds like it gives the landlord a lot of extra leverage. I think it does. Now, has the law changed, there have been any changes with respect to pre-packs? Yes. One of the things that happened with pre-packs is there were no changes in the, before the 2005 legislation with respect to the holding of the First Amendment of Creditors. And sometimes it seemed odd to hold the First Amendment of Creditors when you've already had a plan that's been balloted and approved. And so the new legislation allows the court for cause to dispense with the First Amendment of Creditors in the 341A. You think that's a good idea? I think it's a good idea in a pre-packed case where it's truly been solicited and balloted beforehand. If it's a so-called pre-negotiated case where the priorities have a deal but they haven't solicited or balloted, it may not be such a good idea. And I think the statute gives you the kind of the flexibility in that with respect to saying it's for cause. There's also a provision or a change in 1125. 1125G allows the continuation of solicitation of a pre-pack if a bankruptcy is filed mid-solicitation for business reasons or the like so long as you are soliciting pre-petition in accordance with applicable non-bankruptcy law, which is usually going to be the securities laws. Now, Liz, there's been a big change in 366 with respect to debtor's obligations to utilities. Yes, what constitutes adequate assurance of payment has been substantially tightened up. Now it's going to be basically cash or the equivalent unless the utility agrees to something else's security. No longer will an administrative claim, a history of timely payment, or the availability of debtor in possession financing be adequate assurance of payment. Also, the timing has been changed slightly. There's now a provision that in chapter 11 case the utility cannot alter or discontinue service for 30 days after the case is filed while the debtor gets the arrangements in place for adequate assurance of payment. Now the general 20-day provision is still in the statute but I presume the 30-day specific provision will apply in chapter 11. This would give the utility a great deal of leverage, I would think. It will. Bruce, there have been some changes with respect to chapter 11 creditors committee. They appear to be relatively benign but I've heard that maybe they're not. Well, there are two basic changes to committees. One is that the 2005 legislation settles the issue as to whether a court can change the composition of a committee. The court now will have the power to change the creditors committee to ensure adequate representation of various creditors and that probably will be benign. The one that may not be benign is that Congress was concerned with respect to the representation that creditors committees were given and so now a couple of things have been if you will imposed on creditors committees. One, that creditors committees are going to have to share the information they receive with creditors who they represent who are not on the committee and this might cause some problems depending on the confidential or sensitive nature of the information given to the committee. A debtor might not be as willing or might insist on additional conditions to give information to a committee if they thought it was going to go to the entire creditor body which may in fact include some competitors. Also, there are requirements that the committee is going to have to solicit and receive comments from their constituents. And again, that sounds like a good idea in the abstract but there's been a disturbing trend in suits against creditors committees, their counsel and their members and this may provide an additional litigation tactic, post confirmation for a creditor who doesn't like the outcome to come back and say, you had an obligation to consult with me, you didn't. I think our bankruptcy administrator usually has a problem getting creditors to serve on creditors committee. This looks like it's more of a disincentive. I think it is more of a disincentive. There's also another strange provision that before the 2005 Act the compensation for an individual creditors committee's lawyer was provided for. That's been taken away in the 2005 Act. So again, a disincentive to be a committee member. Liz, we've discussed how judicial discretion has been reduced in the consumer cases with means testing, for example. Has there been any reduction of judicial discretion in Chapter 11? There has, particularly in the area of dismissal or conversion of the case on motion of a party in interest. Under the current statute, if the movement demonstrates grounds for conversion or dismissal, the court has discretion whether to actually grant the motion. Under the revised statute 11-12, the court has to grant the motion unless the court finds three things. First, the court has to find that there are circumstances establishing that granting the motion is not in the best interest of creditors and the estate. Second, the court has to find that there's a reasonable likelihood that the debtor will timely confirm a plan. And third, if the grounds for conversion or dismissal was the failure of the debtor in possession to do something, the court has to find, set a deadline to cure that and has to find that the debtor in possession will be able to cure by the deadline. The court does have one out. If the court finds grounds and cannot find the exception applicable, the court can elect under revised Section 11-04A to appoint a trustee or examiner instead of converting the case if that would be in the best interest of creditors and the estate. The court's discretion has also been restricted in the timing aspect of these motions. The court must commence the hearing within 30 days after the motion is filed and has to conclude the hearing and rule within 15 days after the hearing starts. So these will come on very quickly. Finally, there's several new grounds for conversion or dismissal. Some of them tied to the new duties of debtor. If the debtor makes an unauthorized use of cash collateral that's harmful to a creditor, that's grounds. Failure to timely file tax returns or pay taxes is an express ground. Failure to provide information or meet with the U.S. trustee or the bankruptcy administrator is required as grounds. In keeping with the giving everybody mandatory duties, the United States trustee and the bankruptcy administrator are required to bring a motion to dismiss or convert if they find material grounds for relief under section 1112. Well, this could really affect the small business debtor that has new obligations under the new law, especially if the debtor doesn't know whether they have those obligations or not based on the definition problems that we've seen. Bruce, one of the high visibility criticisms of chapter 11 have been that some of the debtor's officers get to stay on with large salaries and the retention of key employees. Has Congress responded to that? Yes, they have, and they've done so both in kind of a pre-petition and a post-petition way. Let me talk first about post-petition retention, which has gotten a lot of attention. These are so-called key employee retention plans, or CURPS. And there's a new section, 503C1, that specifically regulates CURPS. In particular, it doesn't permit the estate to pay on one or doesn't permit the court to approve one that pays an insider some fee to retain them unless you go through a fairly stringent and some might say somewhat unreasonable series of requirements. First, you have to show that the obligation or payment is essential to the retention of the individual, and there's some suggestion in the statute that the individual has to go out and actually get written bonafide offers from someone else that they would leave if they're paid this more money. That's not exactly what you want your management doing in the Chapter 11 case, certainly at the beginning of the case. Two, you have to show that the services to be provided by that individual are not just necessary for the business, that they are essential to the survival of the business. I think a much more expansive standard. And third, that the obligation or payments are not more than ten times the average of similar payments to other persons during the prior year. So there's a, if you will, a large sledgehammer being taken to these curb plans. Well, you said that they may not be reasonable. It sounds to me like they may not be even workable. I think that's probably true. In more workable but a little bit also problematic are changes to the fraud and transfer law in respect to payments to insiders. The fraud and transfer laws are changed in a number of ways, some of which I'll talk about in a little bit, but one of the ways in which they were changed is to specifically add to the list of conditions or situations that the debtor can be in and have a constructively fraudulent transfer. So before it was, it would be a constructively fraudulent transfer if there was less than reasonably equivalent value in insolvency or some financial state. Added to the insolvency unreasonably small capital is now going to be that you paid an insider and then, you know, some large amount within the fraudulent transfer period. So you will be able to recover that payment even if the company was solving and well-running if it's within the period. Now the other thing that happens there is that they've extended the reach-back period for fraudulent transfers under 548. It was one year. It is now two years, and this is an odd effective date provision. It's two years for all cases that commence one year after the date of enactment. So this is now an April 20, 2006 number. So all cases filed after that, the 548 statute of limitations will be two years. Have there been any changes to the preference law? There have been several. We have part two of the Duprezio fix, and this is now an exception to the preference law that transfers, that benefit both an insider and a non-insider that were made more than 90 days but less than one year before the petition will only be avoidable as to the insider. This is effective immediately as to not only cases filed after the enactment date, April 20, but also cases pending on that date. The ordinary course of business exception has been loosened by making, there's now a three-part test, making two of those parts in the alternative rather than in the conjunctive. So it will be enough if the creditor can prove the transfer was in the ordinary course of the debtors and the creditor's business or was made according to ordinary business terms. There's now a small preference exception that aggregate if the creditor has received less than $5,000, the preferences won't be recoverable. There's a change to how long the creditor has to perfect and have it relate back to the date of the original transfer, and that's 30 days now instead of 10 days. Okay, Bruce, very quickly, there's been a change to the reclamation law. The reclamation time periods have been extended back 45 days before the filing, as long as you make the claim within 20 days of the filing. That's an extension of 10 days in either case. Okay, Liz, with respect to single-asset cases, is Rockefeller Center now a single-asset case? It is because the $4 million debt limit has been removed. Okay, finally, there have been some changes to cross-border insolvencies and health care, and we'll be discussing those at our next program later this summer. Bruce and Liz, thank you for joining us. This concludes our overview of the Bankruptcy Abuse Prevention and Consumer Act of 2005. Thank you to our faculty for analyzing the legislation and helping to shape the program. Thanks also to you for joining the program and for returning your evaluation forms. Tell us what you liked about the program and what we might have done differently. We hope you'll join us later this summer for our in-depth programs on consumer bankruptcy and on business bankruptcy. Thank you so much for watching, and have a great day.