Gimme 5: What Every Lawyer Should Know about Bankruptcy after 2005 and in These Incredibly Difficult Financial Times

By Catherine E. Bauer, Assistant United States Attorney, Los Angeles. The views expressed are those of the author only and do not reflect the views of the United States Attorney’s Office for the Central District of California or the Department of Justice. The author can be reached at Catherine.Bauer@usdoj.gov.

1. Bankruptcy still exists. Everyone and his or her brother seem to have recently stumbled upon a truth that bankruptcy lawyers have known since 2005: Bankruptcy did not go away with enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. BAPCPA did create a “means test” for filing Chapter 7, and it did make some fairly major changes to bankruptcy law, but debt relief is still available to most individuals and entities who are experiencing financial woes. So much for one urban myth.

2. Bankruptcy won’t modify a home mortgage. These are very strange and dire economic times. Possible solutions for dealing with the subprime mortgage mess have included changing bankruptcy law to allow bankruptcy judges the ability to alter home mortgages. But, as of this writing, it is still the case that bankruptcy judges cannot modify the terms of home mortgages. A wage earner (someone with regular income) can file a Chapter 13 bankruptcy and pay past due payments over time through a plan (while continuing to make their regular monthly payments). Unfortunately, the Chapter 13 road is not a realistic option for most folks with subprime mortgages since the problem is that they can’t afford to make the loan payments.

3. The automatic stay is now only semi-automatic. BAPCPA changed the automatic stay into a semi-automatic stay. A debtor gets one old-fashioned automatic stay to stop a foreclosure, but multiple bankruptcy cases do not lead to multiple automatic stays.

4. Financial education is now a mandatory part of bankruptcy. BAPCPA added a requirement that debtors attend a personal financial management course to receive a discharge of debts. (This is in addition to the credit counseling course that must be completed to file bankruptcy in the first place.) The financial management class must be taught by one of the organizations approved by the Office of the United States Trustee. (A list of approved providers is available on the Office of the United States Trustee’s Web site.) If a certificate of attendance at a financial management course is not filed before the bankruptcy case is closed, the debtor does not receive a discharge. While it is possible to reopen a case to file the necessary certificate, this requires payment of a hefty fee.

Without a discharge, a debtor remains personally liable for debts as if a bankruptcy had not been filed. 

5. Get friendly with a bankruptcy lawyer. Bankruptcy filings are way up. In the Central District of California, filings for 2008 are expected to exceed the historical average of 61,000 per year by many thousands. We are, by far, the district with the most bankruptcy filings in the nation. 

Yes, we’re #1, a dubious distinction perhaps, but it warms a bankruptcy lawyer’s heart. 

Find past Gimme 5 articles here.