New Bankruptcy Laws

 

TO:	Clients and Other Friends of the Office
FROM:	Hershner Hunter, LLP Creditors’ Rights Practice Group
DATE:	October 18, 2005
RE:	New Bankruptcy Laws                            download pdf version   with Exhibit 1

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 was signed into law by President Bush in April. This is the most extensive revision of the Bankruptcy Code since its enactment in 1978, and will have a significant impact on the rights and interests of both creditors and debtors in consumer and business bankruptcy cases. Following is a summary of the major new and revised provisions. Except for a few provisions, the New Law will become effective on October 17, 2005. In general, the New Law will apply only to cases filed on and after that date, although a few provisions do apply to cases that were already pending as of April 20, 2005.

A. Preferences

1. Preference Defenses. Under both the Old Law and the New Law, the trustee or debtor in possession may commence an action against a creditor who received a payment within the 90 days before the bankruptcy filing in order to recover the payment for the benefit of all unsecured creditors.

• OLD LAW: The three primary defenses to a preference action were:

• Contemporaneous exchange for new value (you go to a grocery store and pay them $10, but you get $10 worth of goods at the same time);

• Subsequent new value (after receiving the payment, you sold more goods to debtor on credit, for which you did not receive any payment); and

• Ordinary course of business (the debt arose out of the ordinary course of business between the debtor and creditor, the payment was made in the ordinary course of business of the debtor and creditor, and the payment was made according to ordinary business terms).

• NEW LAW: The contemporaneous exchange and subsequent new value defenses have not changed. The ordinary course of business defense has become easier to prove. The creditor now only needs to prove that the debt arose out of the ordinary course of business between the debtor and creditor, and either that the payment was made in the ordinary course of the debtor’s and creditor’s business or that the payment was made according to ordinary business terms.

  2. Certain Dollar Amounts Not Preferences.

• NEW LAW: Transfers that total $4,999.99 or less are not recoverable as preferences in business bankruptcies. Transfers that total $599.99 or less are not recoverable as preferences in consumer cases.

  3. Preference and Look-Back Periods.

• OLD LAW: Determining the date that a transfer occurs is necessary to prove whether a payment was received within the 90 days before bankruptcy. Most transfers occur when the debtor makes a payment or grants a security interest, even if some other step must be taken to perfect the interest (for example, by noting your interest on the vehicle title). For a refinance transaction that will substitute a new secured party for an existing secured party, the Old Law granted a 10 day grace period to perfect the security interest. If the security interest was perfected within 10 days of the payment, you were allowed to use the date of the payment as the date the transfer took place instead of the actual date the secured interest was perfected, because it “relates back” to the original day.
  
• NEW LAW: Under the New Law the 10 day grace period has been extended to 30 days.

EXAMPLE: You’re a lender making a consolidation loan to pay off credit card companies and an automobile loan. You want to assume the car lender’s security interest in the debtor’s truck. You and the debtor sign the loan documents and you send the car lender a $13,000 payment on June 1. You receive the signed-off title on June 15. You perfect your security interest by having it noted on the title on June 16. The debtor then files bankruptcy 90 days later. Under the Old Law, the “transfer” of the security interest occurred on June 16 (the date you noted your interest on the title) because that date is more than 10 days after June 1. Under the New Law, since you perfected on or before the 30 th day from the payment date of June 1, the “transfer” of the security interest relates back to June 1 instead of June 16. This is important in determining if a transfer was made within the 90 days before bankruptcy. For example, under the Old Law, the “transfer” deemed to have occurred on June 16, instead of June 1, falls within the 90 day period before the bankruptcy filing making it a preference. Under the New Law, because you get a 30 day grace period, the transfer relates back to June 1, which falls outside of the 90 day period.

4. Preference and PMSIs. What if you are the seller of goods, retaining a purchase money security interest (PMSI) in those goods? When does the transfer occur for purposes of determining whether a transfer occurred within the 90 days before bankruptcy?

• OLD LAW: A PMSI (or the transfer) was created upon delivery of the goods to the debtor, but only if a financing statement was filed with the Secretary of State’s office before or within 20 days after delivery. If a financing statement was not filed within 20 days then the date of the transfer was the date you actually filed the statement.

• NEW LAW: Under the New Law the 20 days has been extended to 30 days.

• 5. Preference and Insider Guarantors. The look-back period for preferences is 90 days before the bankruptcy. If the recipient of the transfer is an “insider” of the debtor, or if the person who guarantees the debt is an “insider” of the debtor, the look-back period increases to one year before the bankruptcy.

• OLD LAW: Transfers by a debtor to a non-insider creditor were recoverable from the non-insider creditor for one year if an insider of the debtor had guaranteed the debt. (Some of you may know this as the Deprizio problem.) The rationale was: when an insider of the debtor guaranteed the debt, the insider got a contingent claim against the debtor for any amounts the insider guarantor would have to pay on the debt. When the creditor received payment from the debtor, the insider-guarantor’s contingent claim was reduced thereby giving the insider-guarantor a benefit.

EXAMPLE: Son borrows $10,000 from Bank (non-insider creditor), but it requires Mom (insider-guarantor) to guarantee the debt. Son pays the $10,000 on time. Son files bankruptcy 363 days after that payment was made. When Mom guaranteed the debt, she became a contingent creditor of Son because if she had been required to pay anything by reason of her guarantee, Son would have owed her that amount. So, the payment by Son eliminated the contingent debt—benefiting Mom. The $10,000 payment could then be recovered from Mom or Bank because the look-back period was one year.

• NEW LAW: As of April 20, 2005, this is no longer true. Under the New Law, for any transfers or payments made to a non-insider creditor the look-back period is only 90 days even if there is an insider-guarantor. So, it’s only the insiders who will be subject to a preference action for the transfers or payments for up to one year.

  6. Preference Safe Harbor for Consumer Cases.

• NEW LAW: If a payment is made as part of an alternative repayment schedule created by an approved nonprofit budget and credit counseling agency, it is not recoverable as a preference.

  7. Venue for Preference Actions.

• OLD LAW: The trustee had to commence all actions to recover a preference or fraudulent transfer in the district where the bankruptcy case was filed.

• NEW LAW: Where the trustee is seeking to recover up to $10,000 (whether under a preference theory or another cause of action), the action must be brought in the bankruptcy court in the district where the creditor is located.

EXAMPLE: You’re a fuel distributor doing business in Oregon. You sell fuel to the debtor on January 5. The debtor pays you $9,000 for the fuel on February 20. The debtor files bankruptcy 45 days later in Delaware making the $9,000 payment an avoidable preference. Under the Old Law, the trustee had to sue you in Delaware bankruptcy court to avoid the $9,000 payment. Under the New Law, because the payment is less than $10,000, the trustee must sue you in Oregon bankruptcy court to avoid the transfer.

B. Fraudulent Transfers

A transfer of an interest of a debtor in property without the debtor receiving reasonably equivalent value may be avoidable as a fraudulent transfer.

• OLD LAW: If a transfer was made with the actual intent to hinder, delay, or defraud creditors and was made one year before the bankruptcy (or four years under Oregon law), it was avoidable under bankruptcy law.

• NEW LAW: Under the New Law, the look back period has changed from one year to two years. The Oregon look back period of four years has not changed.

• OLD LAW: If a transfer was not made with the actual intent to hinder, delay, or defraud creditors, in order to avoid the transfer a trustee or a debtor-in-possession had to prove that the debtor was insolvent at the time of the transfer or became insolvent because of the transfer.

• NEW LAW: The insolvency test for fraudulent transfer claims is eliminated when the trustee seeks to recover payments made under employment agreements that are "outside the ordinary course of business" of the debtor. (Example: giving certain bonuses or payments to corporate insiders even if there was no actual intent to hinder, delay, or defraud creditors).

• NEW LAW: The New Law expands the look-back period for fraudulent transfer claims arising from the funding of a trust for the debtor’s own benefit to 10 years if it was done under circumstances that evidence an intent to hinder, delay, or defraud creditors. The look-back provision is effective for cases filed on or after April 20, 2005.

III. CONSUMER PROVISIONS

A. Who May Be a Debtor?

• OLD LAW: For the most part, anyone could file bankruptcy so long as doing so was not a “substantial abuse” of the bankruptcy system.

• NEW LAW: An individual debtor must first receive credit counseling from an approved non-profit credit counseling agency within 180 days before filing bankruptcy under any chapter. Debtors must participate in an individual or group session that outlines opportunities for available credit counseling and helps them perform an initial budget analysis. They will receive a certificate which must be filed with the rest of the initial bankruptcy documents.

• NEW LAW: In a consumer case, the court may reduce an unsecured creditor’s claim by up to 20% if the debtor proves by clear and convincing evidence that:

• The creditor unreasonably refused to negotiate a reasonable alternative repayment schedule proposed by an approved non-profit credit counseling agency;

• No part of the debt is non-dischargeable;

• The offer was made at least 60 days before the filing date; and

• The offer provided for payment of at least 60% of the debt over a period not greater than the contract period or reasonable extension.

• NEW LAW: An individual with primarily consumer debts will be permitted to file for chapter 7 relief only if the trustee determines that the debtor could not repay a certain amount or percentage to unsecured creditors. A presumption of abuse is created if after deducting certain expenses: (1) the debtor can pay unsecured creditors at least $10,000 over five years; or (2) the debtor can pay unsecured creditors at least $100 to $166.66 per month and at least 25% of the unsecured debt over five years. Once the presumption of abuse arises, unless the debtor rebuts the presumption with documented special circumstances or expenses, the case will be dismissed unless the debtor consents to a conversion (probably to chapter 13).

EXAMPLE: **

Current Monthly Income After Certain Deductions	Presumption of Abuse
< $100 $100 $150 $166.66 >$166.66	Does not arise, the debtor can file chapter 7. Arises unless debt is greater than $24,000. Arises unless the debt is greater than $36,000. Arises unless the debt is greater than $39,998.40. Always arises, the debtor must rebut the presumption.

** Source: Major Consumer Bankruptcy Effects of the 2005 Reform Legislation, by Eugene R. Wedoff, U.S. Bankruptcy Court, N.D. Illinois, April 13, 2005.

• OLD LAW: A chapter 7 could only be dismissed for “substantial abuse.” A motion for substantial abuse could be filed by the court or the U.S. Trustee only.

• NEW LAW: A chapter 7 can still be dismissed for general abuse even if a presumption of abuse does not arise or even if the debtor has rebutted the presumption. A chapter 7 can still be dismissed for general abuse if the debtor filed a case in bad faith or if the totality of the debtor’s financial circumstances show abuse. Now any party in interest can bring an action for abuse if the debtor’s income exceeds the state median income for Oregon. A party in interest includes creditors.

B. Creditors Entitled to Fair Notice

• NEW LAW: If a creditor has made at least two communications with the debtor in the 90 days before bankruptcy, which include the current account number and the address at which the creditor wants correspondence directed, the debtor must include the account number and use the correct address provided by the creditor for any notice required by the bankruptcy.

• NEW LAW: If an individual files for chapters 7 or 13, a creditor may file with the court and serve on the debtor a notice of the creditor’s preferred address to be used by the debtor and the court to send notices to the creditor for a particular bankruptcy case.

• NEW LAW: If a creditor prefers to use a certain address for all chapters 7 or 13 bankruptcy filings it can sent notice of that preferred address to the National Creditor Registration Service at www.ncrsuscourts.com or call 1-877-837-3424.

• NEW LAW: If the creditor violates the automatic stay by taking collection action or other action to recover the debt, but the debtor did not properly send notices to the creditor at the address the creditor requested be used, then there can be no monetary penalty against the creditor for violating the automatic stay.

C. Changes in Chapter 13

1. Limited Discharge.

• OLD LAW: Debtors who successfully completed a plan (usually of 36 months) repaying creditors a portion of their debt received a “super discharge” that included a discharge of debts otherwise non-dischargeable under other bankruptcy chapters such as those arising out of fraud, breach of fiduciary duty, or willful and malicious injury.

• NEW LAW: The chapter 13 discharge is no longer as expansive. The New Law eliminates discharge of debts arising out of fraud, breach of fiduciary duty, or willful and malicious injury. For those debts that are still dischargeable, the debtor will not be able to get a chapter 13 discharge unless the debtor has completed an education course in personal financial management as approved by the U.S. Trustee. Note  this is not the same course that a debtor must take to be allowed to file bankruptcy.

  2. Automobile Lien Stripping in Chapter 13.

• OLD LAW: Lien stripping was allowed on automobiles. For example, a chapter 13 plan could provide that a creditor with a debt of $19,000, secured by a car that could be sold for $10,000, would receive only $10,000 over the course of the plan. [Depending on the court, the debtor might also be able to reduce that by the hypothetical costs of sale.] The debtor would then own the car free and clear, and the creditor’s deficiency would be treated as an unsecured claim.

• NEW LAW: The debtor in our example above must pay $19,000 over the course of the plan to retain the car, if it was purchased in the last two and one-half years before the bankruptcy filing. The creditor retains its lien until paid in full. The creditor must have a purchase money security interest in the vehicle for the New Law to apply.

• NEW LAW: Vehicles purchased more than two and a half years before bankruptcy cannot be stripped down as aggressively as before. The New Law provides that the value of a claim secured by personal property must be its “replacement value” and without deducting marketing or sales costs.

  3. Chapter 13 Plan Payments.

• NEW LAW: Chapter 13 plan payments must start within 30 days of filing of the petition in bankruptcy or chapter 13 plan, whichever is earlier.

• NEW LAW: Prior to confirmation of a chapter 13 plan, a debtor must pay lessors of personal property directly for payments that become due after the bankruptcy filing. Payments made to lessors will be deducted from the amount a debtor must pay to the trustee under the plan. A debtor must show proof of payment to the trustee, including amounts and date of payment.

• Oregon Bankruptcy Court’s General Order provides that:

• Payments shall be made directly to the lessor only if the debtor’s plan provides for direct payments, or if the plan doesn’t specify how lease payments are to be made.

• If the debtor’s plan provides that lease payments will be paid instead to the chapter 13 trustee, the chapter 13 trustee will pay the lessor, pre and post-confirmation, in the normal disbursement cycle, and provided that the lessor has filed a proof of claim.

• NEW LAW: Prior to confirmation, the debtor must make adequate protection payments for payments that become due after the bankruptcy filing to secured creditors having a PMSI in personal property. (i.e. car payments to GMAC). Payments made to secured creditors will be deducted from the amount a debtor must pay to the trustee under the plan. Proof of payment must be provided to the trustee.

• Oregon Bankruptcy Court’s General Order provides that:

• All adequate protection payments provided for in the debtor’s plan shall paid to the chapter 13 trustee. In Oregon, the amount to be paid will be what is proposed in paragraph 2(b) of the plan.

• The chapter 13 trustee will send payments to the creditor in the normal cycle of disbursement and provided that the creditor has filed a proof of claim

4. Chapter 13 Plan Confirmations.

• OLD LAW: A confirmation hearing can be held at any time provided that adequate notice is given.

• NEW LAW: Confirmation hearings must be held no earlier than 20 days and no later than 45 days after the first meeting of creditors, unless the court believes it is in the best interest of creditors and the estate to hold an earlier hearing. If a party objects to an earlier date, the confirmation hearing must be held as prescribed by the New Law.

• OLD LAW: For the most part, a chapter 13 plan would be confirmed if the plan was proposed in good faith, it paid unsecured creditors at least as much as they would have received in chapter 7, if secured creditors accepted the plan and their allowed claims were paid, and if the debtor could make the proposed plan payments.

• NEW LAW: In addition to the requirements under the OLD LAW, a chapter 13 plan can be confirmed only:

• If the plan proposes to pay a secured creditor’s pre-petition arrearage in equal monthly installments;

• If a debt is secured by personal property, plan payments must be enough to provide the secured creditor adequate protection under the plan;

• If the court finds that the debtor filed bankruptcy in good faith;

• If the debtor has paid all domestic support obligations that became due after filing; and

• If the debtor has filed all federal, state, and local tax returns required by the NEW LAW.

• NEW LAW. If a trustee or an unsecured creditor objects to confirmation, the plan can be confirmed only if:

  (a) The plan pays all unsecured claims in full; or

  (b) The plan provides for all of the debtor’s projected disposable income for a period of at least three years or five years if the debtor’s annual family income (including debtor’s spouse’s income) is greater than the state median family income for a family of similar size.

  • Disposable income is the debtor’s current monthly income minus the debtor’s actual reasonably necessary expenses for maintenance or support of the debtor or debtor’s dependents, spousal or child support, charitable contributions, and business expenses if the debtor owns a business. If the debtor’s annual family income is greater than the state median family income then the debtor’s reasonably necessary expenses will be determined according to strict living expenses specified by the Internal Revenue Service.

    
    5. New Chapter 13 Plan.

• Please refer to attached Exhibit 1 for a copy of Oregon’s and Washington’s new chapter 13 plan.

• The New Plan has a new section, paragraph 2(b)(2), that allows debtors to treat creditors with a security interest in personal property unfavorably and contrary to the New Law provisions. If you do not file a written objection, the terms of the plan will control.

  6. Duration of Chapter 13 Plans.

• OLD LAW: Most chapter 13 plans lasted up to three years, but could last up to five years with the court’s approval.

• NEW LAW: Debtors whose annual family income exceeds the state median income for their family size must propose a five year repayment plan. Debtors who earn less than the state median income for their family size need only propose a three year repayment plan, but can go up to five years with the court’s approval. A plan of shorter duration can be confirmed as long as it provides for payment in full of all unsecured claims.

  7. Application of Payments Under a Chapter 11, 12, or 13 Plan.

• NEW LAW: The willful failure of a creditor to credit payments received under a confirmed chapter 11, 12, or 13 plan is a violation of the discharge injunction if the creditor’s action to collect and failure to credit payments as required by the plan causes material injury to the debtor. This provision does not apply if the order confirming plan is revoked, the plan is in default, or the creditor has not received payments as required by the plan.

D. Protecting Secured Creditors

• OLD LAW: In chapters 7 and 13, debtors had certain options when it came to secured debt:

• Reaffirm the entire obligation securing the property; or

• Redeem by paying the creditor a lump sum of the collateral’s liquidation value (that is the price it would receive if sold at an auction, less the costs of the sale); or

• Surrender possession of the collateral to the creditor. (In a surrender, the creditor had an unsecured claim for the amount of the deficiency remaining after applying the proceeds of the sale of the vehicle to the debt.)

Another option was available in some states, including Oregon. It was called a “ride-through” and was available only to debtors who were current on their payments. In a ride-through, the debtor retained the collateral, remained current, and had personal liability on the debt discharged in bankruptcy. The difference between ride-through and reaffirmation was that a ride-through did not have to be approved by the court and the ride-through creditor was barred from pursuing a deficiency judgment against the debtor if there was a later default and foreclosure.

• NEW LAW: The options described above remain, except the ride-through which may have been eliminated. In a chapter 13, loans secured by personal property other than an automobile (can’t strip an automobile lien if acquired within 2.5 years before the filing) are protected from lien stripping if the collateral was acquired within one year before bankruptcy, so redemptions must be in the amount of the entire obligation, not just the secured portion. In a chapter 7 or where lien stripping is allowed in a chapter 13, redemption must be at the “replacement value” instead of liquidation value without deducting marketing or sales costs.

• OLD LAW: If debtors filed chapter 7, the debtor was required to list all secured consumer debt and state his intentions with respect to each debt (reaffirm, redeem, etc. in their schedules), but the debtor did not actually have to perform the specified intent. Relief from stay would then be granted after hearing if the intended action was not taken within 45 days.

• NEW LAW: In chapter 7, all secured debt must be listed, not just consumer debt, and the debtor is required to actually perform the stated intent. If the debtor fails to file a statement of intent or fails to perform within 30 days after the first meeting of creditors, the stay is lifted automatically without a hearing after 45 days from the first meeting of creditors. EXCEPT: If the creditor rejects a debtor’s offer to reaffirm the debt according to the original terms then the stay does not automatically terminate. The automatic stay also does not terminate if the bankruptcy court determines that the property is of value to the bankruptcy estate, in which case the property is turned over to the trustee. The creditor must be given adequate protection by the trustee.

• NEW LAW: If a creditor violates the automatic stay because it in good faith believed the automatic stay was no longer effective because the debtor failed to file a statement of intent or perform the stated intent within 45 days after the first meeting of creditors, the creditor will be liable for actual damages only. REMEMBER: Consult with your lawyer before you take any action that may violate the automatic stay.

E. Lenders With a Security Interest in Debtor’s Principal Residence Can Still Communicate With Debtor After Discharge

• NEW LAW: The discharge injunction does not prevent creditors with a valid lien on the debtor’s principal residence from sending normal communications to the debtor about making periodic payments under the loan, provided that those communications are within the ordinary course of business of the secured creditor and the debtor.

• REMEMBER: If you are an undersecured creditor you cannot pursue collection actions against a debtor who has received a discharge. Remain cautious and include disclaimer language in all of your correspondence with the debtor indicating that you are only seeking to collect the amount due by foreclosing your security interest in the collateral.

F. Frequent Filers

• OLD LAW: The most frequent reason debtors file case after case is to keep their home from foreclosure. Debtors count on the automatic stay to derail the foreclosure, waiting until the day before a scheduled foreclosure sale, then filing chapter 7 or chapter 13.

• NEW LAW: If a debtor has previously been a debtor in at least one bankruptcy case within the last year which was dismissed, the filing of a subsequent case will provide a shortened 30-day stay unless the previous case was dismissed for failing the means test in which case the full automatic stay is in effect. The court must conclude that the new filing is an attempt to comply with the bankruptcy code’s goals, not an attempt to circumvent them. If not an attempt to comply with the goals, the stay is automatically terminated on the 30th day after the filing of the later case, unless the court orders otherwise.

  CAUTION: The automatic stay may only terminate as to property that belongs to the debtor (the debtor’s exempt assets) and not property that is part of the bankruptcy estate. Do not proceed with collection without first consulting with your lawyer.

NEW LAW: To continue the stay where the debtor had at least one bankruptcy case filing within the last year, the debtor (or any other party in interest) must file a motion before the expiration of the 30-day period and demonstrate that the filing of the later case is in good faith as to the creditors to be stayed. The presumption is that the case was not filed in good faith if the prior case was dismissed because the:

• Debtor failed to file or amend documents without substantial excuse;

• Debtor failed to provide adequate protection as ordered by the court; or

• Debtor failed to perform the terms of a confirmed plan.

But, the court could order that the stay remain in effect if the debtor is able to convincingly prove that:

• Debtor did not violate the three factors listed immediately above; or
• If they were violated, that there has been a substantial change in the debtor’s financial or personal circumstances; that will lead to a discharge under chapter 7 or a confirmed plan that will be fully performed under chapters 11 or 13.

• NEW LAW: If the debtor has two or more cases dismissed in the one year before the filing of the new case, no stay shall go into effect unless the debtor (or other party in interest) files a motion to impose the stay within the first 30 days of the new case. The debtor must convincingly prove that the filing of the later case was in good faith. Even if the stay is imposed, it is effective only from the date the order imposing the stay is entered.

• NEW LAW: If the debtor has two or more cases dismissed in the one year before the filing of the new case, the court shall promptly order that no stay is in effect, if requested to do so by a party in interest. A creditor or title company may request such an order, if, for example, a foreclosure sale is scheduled for the day after the filing of the newest bankruptcy.

• NEW LAW: The automatic stay does not arise to prevent enforcement of a lien or security interest in real property if the debtor:

• Is ineligible to file the current bankruptcy case because:

(a) The debtor is barred from filing for 180 days because:

• The prior case was dismissed by the court for willful failure of the debtor to follow the court’s order; or
• The debtor voluntarily dismissed the case after a creditor filed a motion for relief from stay; or

(b) The current case has been filed after the court ordered the debtor that it could not file bankruptcy.

• REMEMBER: Whether the automatic stay has arisen or not is a question best left to your lawyers. If you proceed without consulting them, you risk violating the stay. Your safest bet is to get a court to give you a comfort order that tells you that the automatic stay is no longer in place or did not arise.
• REMEMBER: If you are an unsecured creditor, you will only be able to pursue collection action against the debtor until the creditor receives a discharge. If you proceed with collection after that time, you will be liable for violating the discharge injunction and will be subject to paying damages to the debtor.

G. In rem Relief from Stay

In rem relief means that the relief is granted with respect to a particular piece of property, regardless of who owns it and regardless of who files bankruptcy.

• OLD LAW: In rem relief was arguably not allowed by the bankruptcy code, and its use was inconsistent across the country.

• NEW LAW: In rem relief shall be granted if the court finds that the bankruptcy was part of a scheme to hinder, delay, and defraud creditors that involved either:

• Sale or transfer of an interest in the real property without the consent of the secured creditor or a court; or

• Multiple bankruptcy filings affecting the real property.

The order granting In rem relief shall be recorded in the real property records and is binding in any future bankruptcy for two years, although if a debtor proves that good cause or changed circumstances exist, the court may reimpose the stay.

H. Personal Property Leases

• NEW LAW: If the trustee does not assume a personal property lease, the debtor may do so by notifying the lessor of his/her intent in writing. If the property lease is not assumed, the property is no longer property of the estate and the automatic stay is terminated. The creditor is given the option of whether to accept the debtor’s assumption, and may condition assumption on the debtor’s cure of any defaults. If the debtor assumes the lease, the debtor will be personally liable for any deficiency between the value of the collateral and the amount owed on the debt if the creditor has to foreclose.

I. Residential Evictions

• OLD LAW: A pre-bankruptcy judgment of eviction with respect to a residential leasehold was subject to the automatic stay, with the landlord having to successfully jump through the relief from stay hoops before being able to execute on the judgment.

• NEW LAW: A pre-bankruptcy judgment of eviction with respect to a residential leasehold is not stayed unless the petition discloses the judgment and the debtor includes with the petition a certification (the first required certification) that under applicable nonbankruptcy law, the debtor could cure the entire monetary default that gave rise to the judgment for possession and that the rent that would become due during that first 30 days of the bankruptcy has been deposited with the clerk of the court. If the first required certification is not filed, relief should be immediate, automatic, and should not require any order of the court. The new provisions relate only to residential leaseholds. The New Law does not apply to judgments of eviction obtained after a foreclosure.

• NEW LAW: When the pre-petition bankruptcy arrearage is actually cured, the debtor must file a second certificate to that effect. That cure must be made within 30 days after the bankruptcy filing. If the first required certification is filed, but there is no second certification that the monetary default has actually been cured, relief is automatic 31 days after the petition was filed. If the landlord objects that either certification is not true, the court shall hold a hearing within ten days after the filing and service of the objection. If the landlord wins, the eviction may proceed without further order of the court. An eviction action based on “endangerment” of the rented property or “illegal use of controlled substances” can be excepted from the automatic stay, upon the landlord’s showing of cause.

J. Exemptions

Debtors are entitled to exempt certain property from involuntary collection efforts both in and outside of bankruptcy.

• OLD LAW: Bankruptcy debtors had a choice between the federal exemptions or the debtor’s home state exemptions. Many states, including Oregon, have opted out of the federal scheme, so debtors can use only the state exemptions. Washington allows debtors to choose between the federal exemptions or the state exemptions. Some states have unlimited homestead exemptions. The debtor could choose where the case was filed and the exemptions to be applied by filing in the district in which the debtor had lived for the greater part of the 180 days before bankruptcy. That meant that it took only 91 days to be eligible for the new state exemptions.

• NEW LAW: States can still choose to opt out or allow a choice of either the federal or state exemptions. However, the law governing the choice of exemptions is the state law of the place where the debtor’s domicile was for the last two years before filing. If the debtor had multiple states of domicile and did not live in any single state for two years before filing, you look to where the debtor lived for the greater part of the 180 day period that is immediately before a date that is TWO YEARS before the bankruptcy was filed. If this rule means that the debtor is not eligible for any state exemptions, the debtor gets the federal exemptions. This change is effective for cases filed on or after April 20, 2005.

  EXAMPLE: Debtor lived in Oregon (which allows only state exemptions) from January 1, 2003 to May 31, 2005. The debtor then moves to Washington on June 1, 2005 (which allows a choice between state or federal exemptions) and files bankruptcy on September 4, 2005, 95 days after moving from Oregon. Under the Old Law, because the debtor lived in Washington the greater part of the 180 days before bankruptcy (here 95 days) the debtor can file in Washington and choose either Washington exemptions or the federal exemptions. Under the New Law, because the debtor did not live in the same state for the two years before the filing date, in order to determine what exemptions debtor is entitled to, you have to:

  1. Look back two years before the filing, in this case September 4, 2003; and
  2. Determine where the debtor lived for 91 days before September 4, 2003 (June 5, 2003). In this case it was Oregon, so the debtor must use Oregon exemptions even though the debtor filed in Washington. If the debtor did not live in one state for those 91 days then, the debtor would have to use the federal exemptions.

K. Homestead Exemption

• NEW LAW: The New Law reduces a debtor’s homestead exemption by the value that the homestead was increased (by paydowns or additions) within the last ten years, if the source of funds for the increase was non-exempt property, and the paydowns or additions were made with intent to hinder, delay, or defraud creditors. This change is effective for cases filed on or after April 20, 2005.

EXAMPLE: Imagine a house worth $250,000, with a mortgage of $225,000 owned by an unmarried debtor. Debtor sells some shares of stock (non-exempt property) and receives $210,000. Assume here that the state has an unlimited homestead exemption. Debtor sends the full $210,000 to the mortgagee to reduce the debt giving debtor a $235,000 equity in the property. Fast forward five years when debtor files a chapter 7 and claims a homestead exemption of $235,000 representing all of the equity in the house. If the court found that the payment to the mortgagee was made with intent to hinder, delay, or defraud creditors, the allowed homestead exemption would be reduced to $25,000, the equity debtor had before the large payment. The creditors would have the benefit of the $210,000 in equity not protected by the exemption.

• NEW LAW: The New Law reduces the value of a homestead that exceeds $125,000 by the amount added to it by the debtor, regardless of the debtor’s intent, for the last three years and four months (1215 days). If the $210,000 payment in the example above fell within the 1215-day look-back period, giving the debtor the benefit of $235,000 of equity, the homestead exemption would be allowed only to the extent of $125,000. The creditors would have the benefit of the $110,000 in equity not protected by the exemption ($235,000 - $125,000). This change is effective for cases filed on or before April 20, 2005.

• NEW LAW: There is an absolute cap on the homestead of $125,000 if the debtor has been convicted of a bankruptcy crime, or owes a debt arising out of fiduciary fraud, racketeering, or recent (within the last five years) crimes or torts that caused serious bodily injury or death. If the court finds, or if there is a pending proceeding to determine whether the debtor committed any bad acts that trigger the absolute cap on the homestead, no discharge can be entered until the proceeding is completed. This change is effective for cases filed on or before April 20, 2005.

L. Reaffirmation Agreements

• NEW LAW: A creditor and debtor are still allowed to enter into reaffirmation agreements, but the steps and disclosures for obtaining a reaffirmation agreement are now more cumbersome. As before, reaffirmation agreements must be entered into before the debtor is granted a discharge under chapters 7, 11, or 13. Under the New Law, however, there is no deadline for filing the reaffirmation agreement with the court.

• Additional Required Creditor Disclosures. Specific disclosures must be given to the debtor at or before the debtor signs the reaffirmation agreement. The disclosures must be made in writing and must be made clearly and conspicuously. Following are some of the major disclosures creditor must give to the debtor: (Please note that this is not an exhaustive list. If you need to enter into a reaffirmation agreement, contact your lawyer for a full list of the approved disclosures.)

 

(a) The amount reaffirmed which includes the total amount of the debt, plus the total of any fees and costs accrued as of the disclosure statement; plus

(b) The annual percentage rate that complies with the Truth in Lending Act; or

(c) If the underlying debt is a variable rate transaction, by stating that the interest rate on the debtor’s loan changes from time to time, so that the annual percentage rate may be higher or lower than the one disclosed; plus

(d) If the creditor has a valid security interest or lien in the debtor’s goods or property, the creditor must notify the debtor that it has a security interest or lien securing the debt and must list the items subject to the security interest including their original price; plus

(e) A statement that tells the debtor that even if the debtor signs the reaffirmation agreement, if certain steps are not taken by the parties the reaffirmation agreement is not effective; plus

(f) A statement explaining the steps the creditor, the debtor, and debtor’s attorney must take to make the reaffirmation agreement effective, and when it becomes effective; plus

(g) A statement that informs the debtor that if the court finds that entering into the reaffirmation agreement causes an undue hardship on the debtor it will not become effective; plus

(h) A statement that informs the debtor the steps that he/she must take to reaffirm the debt if the debtor is not represented by an attorney, including that the reaffirmation agreement must be approved by the court, except that court approval is not required if the debtor is reaffirming a consumer debt secured by a mortgage, deed of trust, or other security interest in the debtor’s real property; plus

(i) A statement that informs the debtor that he/she can cancel the reaffirmation agreement the later of: (1) before the court enters an order of discharge, or (2) 60 days after the reaffirmation agreement is filed with the court; plus

(j) The debtor’s rights and duties if he/she enters into the reaffirmation agreement; plus

(k) A statement that explains to the debtor that he/she is not required to reaffirm the debt and that explains that the debtor’s bankruptcy discharge does not eliminate any lien on the debtor’s property.

• Presumption of Hardship. A presumption of hardship arises if the debtor’s monthly income minus actual monthly expenses is less than the reaffirmed payments. If a presumption arises, the court must review the reaffirmation agreement. The court may disapprove a reaffirmation agreement if the debtor does not rebut the presumption by providing a written explanation of how the debtor intends to make the payments. This rule does not apply to credit unions.

• Debtor Affirmations. The debtor must sign the reaffirmation agreement, which must include the debtor’s monthly take home pay and other income, current monthly expenses (including post-petition debt and other reaffirmed debts), and the amount the debtor has available to make the payments of the reaffirmed debt. The debtor must also state that reaffirming the debt is not going to impose an undue hardship and that the debtor has the money to make the reaffirmation payments. If a presumption of undue hardship arises because it appears that the debtor will not have enough money to make the payments on the reaffirmed debt, the debtor has to explain to the court how he can afford to make the payments.

• Attorney Certification. The debtor’s attorney must file a certification that the reaffirmation agreement is being entered into by a fully informed and willing debtor, that the agreement does not impose an undue hardship on the debtor or any dependent of the debtor, and that the attorney fully advised the debtor about the legal consequences of entering into a reaffirmation agreement, including the consequences of a default. If a presumption of undue hardship arises, the attorney must also certify that in her opinion, the debtor is able to make the payments.

• Creditor Acceptance of Payments. Creditors are allowed to accept payments from the debtor before and after the filing of the reaffirmation agreement with the court. Creditors can also accept payments pursuant to a reaffirmation agreement that does not comply with the New Law if the creditor in good faith believes that the agreement is effective.
  • Investigation of Abusive Practices. The U.S. Attorney and the FBI are given the authority to investigate and prosecute abusive reaffirmation practices.

M. Individual Chapter 11

Individual debtors can also file chapter 11 if a debtor’s assets and liabilities exceed chapter 13 debt limits. Upon filing bankruptcy, a bankruptcy estate is created. With some exceptions, that estate includes all property owned by the debtor up to the date of filing. After exempting certain property, the property of the estate is used to pay creditors.

• NEW LAW: If an individual files chapter 11, property of the estate now includes all of the debtor’s property and the debtor’s earnings acquired after the commencement of the case but before the case is closed, dismissed, or converted to either a chapter 7 or 13. The debtor remains in possession of all property of the estate.

(Business and Consumer Cases)

A. Filing Frequency

• OLD LAW: Chapter 7 discharges were not granted if the debtor received a chapter 7 or chapter 11 discharge in the six years before the current case was filed unless (1) the debtor paid 100% of his debt in the chapter 7 or (2) paid 70% of his debts and the plan was filed in good faith and was the debtor’s best effort. A debtor could not receive a discharge in a new chapter 7 unless six years elapsed from the filing of a prior chapter 13. Chapter 13 discharges were granted regardless of the existence of an earlier bankruptcy case.

• NEW LAW: Chapter 7 discharges will not be granted if the debtor received a chapter 7 or chapter 11 discharge in the eight years before the current case was filed. Chapter 13 discharges will not be granted if the debtor received a chapter 7, 11, or 12 discharge in the four years before the current case was filed or if the debtor received a chapter 13 discharge in the two years before the current case was filed. No change has been made to the current law if the debtor files a chapter 7 following a chapter 13, the date for obtaining a discharge is still six years.

B. Luxury Goods and Cash Advances

• OLD LAW: Consumer debts owed to a single creditor of more than $1,225 for “luxury goods or services” and incurred within the 60 days before the filing of the bankruptcy were not dischargeable. Cash advances of more than $1,225 received within the 60 days before bankruptcy were also not dischargeable.

• NEW LAW: The New Law changes the 60 day look back period for luxury goods to 90 days; the $1,225 is reduced to $500; and the 60 day look back period for cash advances is changed to 70 days and the amount is now $750.

• OLD LAW: Funds borrowed from any source to pay non-dischargeable federal tax debt were non-dischargeable.

• NEW LAW: Funds borrowed from any source to pay non-dischargeable federal and state tax debt are now non-dischargeable.

EXAMPLE: Debtor takes out a $10,000 cash advance from his Citibank credit card to pay his county real property taxes that were payable the year before the bankruptcy filing. Under the Old Law, the $10,000 would be dischargeable because it was not a federal tax debt. Under the New Law, the $10,000 is no longer dischargeable.

C. Mandatory Debtor Education

• OLD LAW: No debtor education was required.

• NEW LAW: To be eligible to file a petition in a consumer bankruptcy, the debtor must receive individual credit counseling from an approved non-profit credit counseling agency within 180 days before filing. The course must have outlined the opportunities for available credit counseling and helped prepare a related budget analysis. The course must be presented by an approved nonprofit budget and credit counseling agency.

• NEW LAW: In order to obtain a discharge debtor must complete a post-petition instructional course on personal financial management. Failure to do so constitute grounds for the denial of a discharge in both chapter 7 and chapter 13 bankruptcy cases.

D. Student Loans

• OLD LAW: Student loans were not dischargeable (unless repayment would impose an undue hardship on the debtor). The definition of student loans was limited to loans made or guaranteed by a governmental unit or nonprofit.

• NEW LAW: The restriction on discharge was expanded to include “any other educational loan that is a qualified education loan” under current law, which basically has the effect of making most student loans non-dischargeable regardless of the source.

A. Time Limitations for Chapter 11 Plans

• OLD LAW: A debtor had the exclusive right to file a plan for the first 120 days following the filing of the bankruptcy case. That period could be extended (an unlimited number of times) by the court for cause, after which any interested party could propose a plan.

• NEW LAW: The debtor still has the exclusive right to file a plan for 120 days. After that time expires any interested party can file a plan if the court has not extended the deadline. Under the New Law, the court no longer has the discretion to extend the 120 day period beyond a date that is 18 months after the petition is filed.

B. Reclamation

A seller of goods to a customer that becomes a debtor in a bankruptcy case has the right under bankruptcy law to deliver a notice of reclamation for goods sold in the ordinary course of business that were delivered before bankruptcy, without risking a trustee’s action to recover the value of those goods as a preference.

• OLD LAW: A reclamation claim had to be made within 10 days after a debtor's receipt of the goods if the debtor had not yet filed bankruptcy. However, if the 10-day period expired after bankruptcy was filed, the seller had 20 days after the debtor’s receipt of the goods to exercise its reclamation rights.

• NEW LAW: Under the New Law a seller can reclaim goods sold in the ordinary course of seller’s business if the debtor received those goods while:

• The debtor was insolvent; and

• Within 45 days before the commencement of the case.

The seller must make a written demand for return of those goods not later than 45 days from the debtor’s receipt of the goods. If the 45 day period expires after bankruptcy is filed, sellers must exercise their reclamation rights within 20 days of the bankruptcy filing.

Example 1:Reclaiming Before Bankruptcy Filed

Example 2:Reclaiming After Bankruptcy Filed

• NEW LAW: If the seller fails to provide notice of reclamation then the seller may still assert an administrative expense claim in the bankruptcy for the value of the goods received by the debtor within 20 days before the commencement of the case if the goods were sold in the ordinary course of business.

  • REMEMBER: The right to reclaim is junior to a perfected security interest of another creditor. You may also need to obtain relief from the automatic stay before you can reclaim the goods if you intend to reclaim after the filing.

C. Leases of Non-Residential Real Property

• OLD LAW: A debtor in possession had to decide whether a lease would be assumed or rejected within 60 days of the filing of the bankruptcy case, but the judge usually extended that period several times when appropriate.

• NEW LAW: A debtor in possession must assume an unexpired lease of non-residential real property within 120 days after the filing of the bankruptcy petition or before the plan is confirmed, whichever comes first, or the lease is deemed rejected. (There can be one extension of up to 90 days, but only if the lessor or the trustee asks for it.)

• OLD LAW: If the debtor in possession assumed a lease (for example, a 20 year lease of a building at $10,000 per month, assumed because the debtor in possession believed it would need to operate in the city where the property is located) but later rejected it (it turned out that there was no need for a presence in that city), the bankruptcy estate would be burdened by the full amount of rent for the remaining term of the lease as an administrative expense, having priority over all unsecured and priority claims. In the example, the rent accrued $10,000 per month for the next twenty years, would give the landlord an administrative claim for up to $2,400,000. A claim like that would eat up all of the available funds leaving nothing for general unsecured creditors.

• NEW LAW: There is a two-year cap on the amount of administrative expense damages that may be claimed for breach of an assumed lease. The administrative claim in the example above would only be $240,000. Payments due after the two years are treated as unsecured claims, limited to a percentage of the remaining lease term.

D. Curing Non-Monetary Lease Defaults

• OLD LAW: Non-monetary defaults could include failure to maintain and repair the premises, going dark, failure to provide financial statements, failure to provide the lessor with insurance certificates, etc. To assume the lease, a debtor had to cure all defaults, including non-monetary defaults. Since a debtor could not go back in time to change the fact that the business went dark a few months ago, the lease could not be assumed even if other defaults were cured unless the lessor consented.

• NEW LAW: The debtor or trustee may cure by bringing the tenancy into compliance and committing to keeping it in compliance. For example, the tenant may reopen the business and promise not to go dark again after the date of assumption of the lease. If the lessor suffered any actual economic loss because of the non-monetary breach, there must also be an "economic cure" by the debtor, reimbursing those actual losses, in order for the debtor to be entitled to assume the lease.

E. Utilities

• OLD LAW: If a debtor continued to operate, asking the utilities to extend service after the bankruptcy, the utilities were entitled to require “adequate assurance” of future payments before extending service. The court decided what was adequate, on a case by case basis. Often, courts held that having an administrative priority claim for the post-petition service could be adequate assurance. If adequate assurance was not provided within 30 days (for a chapter 11) or 20 days (in other chapters) the utility had no obligation to provide services.

• NEW LAW: The New Law limits adequate assurance to cash deposits (and the equivalent) unless the parties agree otherwise. If a party requests a modification of the amount of the assurance, the court may modify it.

• NEW LAW: Under the New Law, utilities may set off post-petition defaults against a security deposit without notice or order at any time, without need to seek relief from the automatic stay.

F. Convert or Dismiss For Cause

If a debtor is not operating as you think it should, you may move to convert a chapter 11 case to one under chapter 7 (to liquidate the business under court supervision) or to dismiss it (to expose the business to the collection efforts of its creditors).

• OLD LAW: Courts could convert or dismiss a case for “cause.” Cause includes:
  • Loss to the estate and absence of reasonable likelihood of rehabilitation;
  • Inability to effectuate a plan;
  • Unreasonable delay;
  • Failure to propose a plan;
  • Denial of confirmation of proposed plans, and denial of motion for more time to modify or file a new plan;
  • Revocation of an order of confirmation and denial of confirmation of another plan;
  • Inability to substantially consummate a confirmed plan;
  • Material default under a confirmed plan;
  • Termination of a plan under the terms of the plan itself; or
  • Non payment of fees, such as U.S. Trustee fees.
    • NEW LAW: Courts MUST convert or dismiss a case if “cause” for doing so exists. There are new grounds for "cause" in addition to the existing ones listed above:
• Failure to maintain insurance;
• Unauthorized use of cash collateral;
• Failure to comply with an order of the court;
• Unexcused failure to file a document ;
• Failure to attend the first meeting of creditors or a Rule 2004 examination (a deposition in the bankruptcy case); or
• Failure to pay taxes.
  • NEW LAW: If a motion to convert or dismiss is filed, the court is now required to "commence a hearing" not later than 30 days after the motion is filed.
  • NEW LAW: The U.S. Trustee must move for the appointment of a trustee if there are reasonable grounds to suspect actual fraud, dishonesty or criminal conduct in the management of the debtor or the debtor’s public financial reporting by the current members of the governing body (board of directors); CEO or CFO; or members of the governing body when the CEO or CFO was selected.

G. Creditors’ Committees

• OLD LAW: The U.S. Trustee appoints an official committee of creditors who look out for the interests of all of the unsecured creditors. The members were generally selected from the holders of the 20 largest unsecured claims. Getting the membership changed or an additional committee appointed was not easy.

• NEW LAW: If the court determines that a change of membership is necessary to ensure adequate representation of creditors or equity security holders, the court can direct the U.S. Trustee to change the membership of a committee, specifically allowing the addition of a small business creditor whose claim is disproportionately large when compared to that creditor’s gross income. This change allows small businesses who usually hold a claim too small to qualify as one of the larger creditors to sit on and participate in the creditors’ committee. Changing the composition of the committee must be requested by a party in interest, notice must be given, and a hearing must be held.

• NEW LAW: The committee has a duty to provide access to information to creditors that are not committee members and that hold claims of the kind represented by that committee (e.g., unsecured creditors are entitled to information from the unsecured creditors’ committee). The committee must also solicit and receive comments from such non-committee creditors.

A. Small Business Debtors

A small business is one engaged in commercial or business activities other than owning or operating real property, with less than $2,000,000 in debt (not counting debts to insiders and affiliates.)

• OLD LAW: If a creditor or the U.S. Trustee or an official committee filed a motion to convert or dismiss the case, the court had discretion to deny it, and could condition that ruling on debtor’s compliance with the court’s orders regarding curing the cause of the motion.

• NEW LAW: If a debtor misses a reporting deadline and does not have “reasonable justification” for that failure, the New Law will REQUIRE dismissal or conversion upon motion of any party in interest, regardless of the status of the reorganization, and regardless of whether a plan could be confirmed in the near future.

• NEW LAW: The U.S. Trustee’s duties are expanded for small business cases. The U.S. Trustee MUST conduct an initial debtor interview before the first meeting of creditors to:

• Investigate the debtor’s viability;

• Inquire about the debtor’s business plan;

• Explain the debtor’s obligations to file reports;

• Attempt to develop an agreed scheduling order; and

• Inform the debtor of other obligations to file reports.

The U.S. Trustee MAY:

• Visit the business premises;

• Review the debtor’s books;

• Confirm the status of tax returns;

• Review and diligently monitor the debtor to determine whether this debtor is likely to confirm a plan; and

• If it is not, to move for conversion or dismissal.

The debtor must file periodic reports describing:

• The debtor’s profitability;

• Projected cash receipts and disbursements;

• Comparisons of actual receipts and disbursements to earlier projections; and

• Compliance with the Rules of Bankruptcy Procedure, tax laws, other governmental filing obligations, and payment of taxes.

B. Small Business Plan and Disclosure Statement

• OLD LAW: The debtor had to propose a plan of reorganization and draft a comprehensive disclosure statement.

• NEW LAW: The debtor must still draft a plan of reorganization, and may still be required to draft a disclosure statement. However, if the court decides that the plan alone gives the creditors sufficient information on which to base a vote, the disclosure statement can be waived. If a disclosure statement must be filed, the court must evaluate the debtor’s disclosure statement in light of the complexity of the case, the benefit of additional information to creditors, and the cost associated with providing any additional information. In a small business case, the court can approve a form disclosure statement.

• NEW LAW: A small business debtor has the exclusive right to file a plan for 180 days from the date the bankruptcy petition is filed. However, a plan and disclosure statement must be filed (by someone) in the first 300 days of the case, unless a disclosure statement is waived. If a plan is confirmable, the court shall confirm it within 45 days of its filing.

• REMEMBER: If you receive a plan and disclosure statement send it to your lawyer earlier rather than later to ensure that there’s enough time to object, if appropriate. Shorter time limits in small business cases should also encourage you to file your proof of claims earlier.

C. No Automatic Stay for Frequent Small Business Filers

• OLD LAW: The automatic stay arose automatically with the filing of a petition in bankruptcy and remained in effect until the court ordered otherwise.

• NEW LAW: The automatic stay does not arise if the debtor:

• Is a debtor in a pending small business case;

• Was a debtor in a small business case that was dismissed within two years of the filing of the current bankruptcy case; or

• Was a debtor in a small business case in which a plan was confirmed within two years of the filing of the current bankruptcy case; or

• Is an entity that has acquired substantially all of the assets of a small business debtor that:

• Was in a bankruptcy within the last two years, or

• Had a bankruptcy plan confirmed within the last two years, or

• Is a debtor in a pending small business case.

• NEW LAW: The automatic stay does arise:

  • In an involuntary case filed without collusion by the debtor; or

  • If the debtor can prove that the need to file was caused by circumstances beyond the debtor’s control; and

  • That the circumstances were not foreseeable at the time the previous case was filed; and

  • That it is more likely than not that the court will confirm a feasible plan of reorganization within a reasonable period of time. (A liquidating plan does not qualify for this treatment.)

• REMEMBER: Whether the automatic stay has arisen or not is a question best left to your lawyers. If you proceed without consulting them, you risk violating the stay. Your safest bet will probably be to get a court to give you a comfort order that tells you that the automatic stay did not arise.

This memorandum provides general information and should not be construed as legal advice or a legal opinion on any specific facts or circumstances or as an exhaustive compilation of the New Law. If you have specific legal questions, you are urged to consult with your lawyer concerning your own situation. Please also note that the information set forth in this memo is applicable to bankruptcy only and should not be construed as modifying any other existing law outside of the bankruptcy context. If you have any questions, please feel free to contact a member of Hershner Hunter, LLP’s Creditors’ Rights Department,Patrick Wade, or Nancy Cary.