On April 20, 2005, the President approved S. 256,
the “Bankruptcy Abuse Prevention and Consumer Protection Act of 2005,”
which had been passed by the Senate on March 10, 2005 and by the House of
Representatives on April 14, 2005, both by over whelming votes. The bill
will amend the Bankruptcy Code to create a “means test” for debtors
filing under Chapter 7, restrict “cramdowns” of vehicle loans in
Chapter 13, encourage reaffirmations of credit union debts, and restrict
but not eliminate different treatment of the homestead exemption in
various states. Most of these amendments will take effect on October 17,
2005.
The U.S. Court of Appeals in Philadelphia has ruled that Chapter 13
debtors may not repay "loans" from their retirement funds before paying the
claims of unsecured creditors, and that such repayments are not "reasonably
necessary" to the maintenance and support of the debtor.
Likewise, a New York bankruptcy judge has ruled that pension loan
repayments and contributions must be included in a debtor's "net disposable
income" in calculating the level of payments which are required in order to fund a
Chapter 13 plan. The judge ruled that otherwise, debtors would be able to borrow
against pension funds before filing bankruptcy and insulate the repayment of such loans
from creditors after filing. Similarly, a Michigan bankruptcy judge has
denied confirmation of a Chapter 13 plan which proposed to pay a debtor's pension plan
loan in full but pay only 8% of unsecured claims. These cases have implications not
only in Chapter 13, but also in Chapter 7 cases, where substantial abuse may be
present. These cases are very relevant to government employees, who often take large
loans from their Thrift Savings Plans.
A Vermont Bankruptcy judge has ruled that the IRS violated the automatic
bankruptcy stay by entering a "freeze code" in its computer data base, which
suspends payment of refunds due to taxpayers who file bankruptcy and owe taxes.
A federal district judge in Nevada has held that a brothel license is a
property right and not a personal privelege and that a Nevada county may have violated the
automatic bankruptcy stay when it revoked the debtor's license even though it knew that he
had filed bankruptcy.
