Automatic Stay of Bankruptcy

Immediately upon the filing of a bankruptcy case, an “automatic stay” goes into effect which stops most collection activities against the debtor or the debtor’s property. The stay arises by operation of law and requires no judicial action. As long as the stay is in effect, creditors generally may not initiate or continue lawsuits, foreclosures, repossessions, wage garnishments, or even telephone calls demanding payment. Creditors are notified of the bankruptcy filing and the automatic stay by the bankruptcy clerk’s office.

The filing of a bankruptcy petition does not stay certain types of actions, such as criminal proceedings; paternity or child custody actions; the collection of alimony or child support; or police or regulatory actions.

As it pertains to specific property, the automatic stay continues until that property is no longer property of the debtor’s bankruptcy estate. In general, the stay continues until the case is closed, dismissed, or the debtor’s discharge is granted or denied. However, the duration of the automatic stay may be limited if the debtor has previously filed bankruptcy.

Creditors may seek to have the automatic stay terminated or modified. A creditor may request permission to act without the restraint of the stay if the creditor’s property is not being adequately protected or if the debtor does not have equity in the property and the property is not necessary for the debtor’s reorganization. In addition, a creditor may ask for relief from the stay if s/he believes the debtor’s bankruptcy was not filed in good faith.

If a creditor violates the automatic stay, the debtor may be able to recover actual damages, including costs and attorney’s fees, and punitive damages.

Credit Counseling Requirement for Bankruptcy

One cannot file bankruptcy unless s/he has, within 180 days before filing, received credit counseling from an approved credit counseling agency. The credit counseling agency must be approved by the United States Trustee’s Office and counseling must be offered regardless of the person’s ability to pay. The counseling may be given in person, over the telephone, or over the internet. If a debt repayment plan is developed during the credit counseling session, a copy of that plan must be filed with the court. There are limited exceptions to this credit counseling requirement in emergency situations or if the person is disabled, incapacitated or in active military duty in a combat zone.

To find an approved credit counseling agency near you, please visit the following website:
http://www.usdoj.gov/ust/eo/bapcpa/ccde/cc_approved.htm

Updated Median Family Income Figures

For Cases filed after 3/15/09

State 1 person 2 people 3 people 4 people
Iowa $41,381 $54,628 $63,888 $74,047
Nebraska $37,803 $53,453 $62,814 $72,179

* Add $6,900 for each individual in excess of 4.

HOW OFTEN CAN SOMEONE FILE BANKRUPTCY?

An individual can file a bankruptcy case at any time. The issue turns on whether the court will grant that individual a discharge of his debts.

Chapter 7 “Straight Liquidation” Cases

An individual can file a Chapter 7 bankruptcy and receive a discharge 8 years after the date he previously filed a Chapter 7 or Chapter 11 bankruptcy.

An individual can file a Chapter 7 bankruptcy and receive a discharge 6 years after the date he previously filed a Chapter 12 or Chapter 13 bankruptcy.

An individual filing a Chapter 7 after filing a Chapter 12 or 13 may be able to file and receive a discharge sooner if his payments under the Chapter 12 or 13 plan totaled at least:
1) 100% of the allowed unsecured claims, or
2) 70% of the allowed unsecured claims and the plan was proposed by the
individual in good faith and was the individual’s best effort.


Chapter 13 “Consumer Debt Repayment Plan” Cases

An individual can file a Chapter 13 bankruptcy and receive a discharge 4 years after the date he previously filed a Chapter 7, Chapter 11, or Chapter 12 bankruptcy.

An individual can file a Chapter 13 bankruptcy and receive a discharge 2 years after the date he previously filed a Chapter 13 bankruptcy.


* Please note the above time periods run from filing date to filing date.

Seventh Circuit Court of Appeals Allows Car Ownership Allowance

Neary v. Ross-Tousey (In re: Ross-Tousey), No. 07-02503, 2008 WL 5234070 (7th Cir. Dec. 17, 2008)

In Neary v. Ross-Tousey, the United States Trustee filed a motion to dismiss the debtors' Chapter 7 case, relying on the presumption of abuse that arose in the means test or, in the alternative, on the theory that the debtors' ability to pay their debts out of future income rendered their Chapter 7 case abusive based on the totality of the circumstances. The debtors objected.

The Seventh Circuit Court held that an above median income debtor who has no monthly vehicle loan or lease payment may claim a vehicle ownership expense deduction when calculating his disposable income.

Addressing an issue of apparent first impression for the federal circuit courts, the Seventh Circuit Court stated that this result was dictated by the plain language of the bankruptcy statute, the legislative history, and the underlying policies of the means test to use objective standards rather than actual expenses where the Bankruptcy Code does not specifically state that actual expences should be used.

This issue is being litigated in other circuits arounds the country. Still, debtors won an important victory with the Seventh Circuit's ruling that a debtor is entitled to claim a vehicle ownership allowance in the Section 707(b)(2) means test regardless of whether the debtor is currently making payments on a vehicle loan.

ABOVE MEDIAN INCOME CHAPTER 13 DEBTOR MUST COMPLETE 5 YEAR PLAN

Coop v. Frederickson (In re: Frederickson), No. 07-03391, 545 F.3d 652 (8th Cir. Oct. 27, 2008) (Wollman, J.)

In Coop v. Frederickson, the Eighth Circuit reversed the holding of the Bankruptcy Appellate Panel and the Bankruptcy Court.

The issues involved were:
1) whether an above median income Chapter 13 debtor must have a Chapter 13 plan for 5 years for the “applicable commitment period”; and
2) whether the Bankruptcy Court could confirm a Chapter 13 plan period shorter than the required “applicable commitment period” when the debtor has a negative “disposable income” as defined in 11. U.S.C. Section 1325(b)(2) and calculated on Form 22C.

11. U.S.C. Section 1325(b)(1) provides that if there is an objection to the confirmation of a Chapter 13 plan, the plan may still be approved but only if:
(i) the plan provides for 100% payment of claims, or
(ii) the plan provides that all of the debtor’s projected disposable income to be received in the applicable commitment period beginning on the date that the first payment is due under the plan will be applied to make payments to unsecured creditors under the plan.

The Eighth Circuit determined that the debtor’s “disposable income” calculation on Form 22C is a starting point for determining the debtor’s “projected disposable income” but the Bankruptcy Court can use its discretion in taking into consideration changes to the debtor’s financial circumstances and the debtor’s actual income and expenses are reported on Schedules I and J.

The Eighth Circuit further determined that the “applicable commitment period” is a temporal requirement that must be met in each Chapter 13 case.

Accordingly, all above median income Chapter 13 debtors will be required to complete a 5 year Chapter 13 plan. In addition, bankruptcy courts will determine the amount of Chapter 13 debtor's plan payments on a case-by-case basis after considering several aspects of the debtor's financial situation.