CS 890 Bankruptcy – Overview, Definitions, Forms, and Alerts/Events
09/86 Revised 02/22/16 Training Completed 03/07/16
Overview - Bankruptcy Abuse Prevention and Consumer Protection Act of 2005
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 was signed into law in April 2005 enacting measures that make it more difficult for consumers to get out of debt by filing personal bankruptcy. The provisions of this new act were effective on October 17, 2005 and only affect those cases filed after this date (all bankruptcies filed before October 17, 2005 were/are subject to the conditions of the old bankruptcy law. Some of the most significant changes to the new act are as follows:
1. Increasing the amount of paperwork which must be filed by every debtor, requiring pre-filing with credit counseling and post-filing financial education for those individuals with primarily consumer debts. This includes increasing attorney obligations in a manner that will significantly increase the cost of filing for bankruptcy.
2. Making it more difficult for individuals to receive a Chapter 7 discharge.
3. Making Chapter 13 far less attractive by requiring five-year payment plans rather than the three-year plans that were previously the norm. For example, under this new act, the individual must make full payments on the covered property in order to retain it.
4. Defining “domestic support obligation” and giving domestic support obligations first priority in distribution of available funds above all other claims.
5. Allowing creditors to pursue collection remedies without court permission in various circumstances such as enforcing support orders during bankruptcy proceedings; for example, the automatic stay no longer prohibits or limits the Office of Recovery Services/Child Support Services (ORS/CSS) with the following:
a. Order establishment;
b. Modification of an order
c. Wage Withholding – this includes arrears payments;
d. Suspension of Drivers, Professional, or Occupational Licenses;
e. Collection of child support from property not part of the estate;
f. Reporting to the consumer reporting agency;
g. Interception of tax refunds;
h. Enforcement of medical Support – this includes medical sum-certain judgments; and,
i. SSA payments.
NOTE: Do not take an enforcement action for the arrears without first receiving confirmation from the assigned AGO.
6. Instructing Bankruptcy Trustees to provide appropriate written notice and certain information, including:
a. A custodial parent (CP) of the right to use the services of a state child support agency where the CP resides; and,
b. To the CP and child support agency of the bankruptcy proceedings, the claim for a domestic support obligation, and the granting of a discharge. This also includes the Non-Custodial Parent’s (NCP) last-known address, the name and address of the last-known employer, and the name of each creditor with a claim that was not discharged.
Under this new act, everything is a part of the estate until the plan has been confirmed, which means the ORS/CSS may not enforce on any arrears owed on the case until the plan has been confirmed and you have been notified by the assigned AG that it is okay. This does not include collection of current support obligations, as payment of monthly domestic support obligations is a requirement of the bankruptcy. Therefore, CSS may continue to collect all current support obligations including monthly medical support premiums for the child(ren).
1. Automatic Stay – As defined by the United States Courts Glossary – “An injunction [order] that automatically stops lawsuits, foreclosures, garnishments, and all collection activity against the debtor the moment a bankruptcy petition is filed.”
2. Bankruptcy – As defined by ORS/CSS – The formal condition of an insolvent person being declared bankrupt under law. The legal effect of a bankruptcy is to divert most of the debtor’s assets and debts to the administration of a third person, sometimes called a trustee in bankruptcy from which the debts are either paid off during a specified time period or at a certain rate or percentage (dependent on the bankruptcy filing time period – see above for more information).
During the bankruptcy, the debtor’s commercial and financial affairs are administered under the strict supervision of the trustee for a specified statutory period. The duration of the bankruptcy status varies from state to state, but depending on the filing date, it can have the benefit of erasing the debt(s), even if they were not satisfied by the sale of the debtor’s assets.
3. Chapter 7 – As defined by the United States Courts Glossary – “The chapter of the Bankruptcy Code providing for "liquidation," (i.e., the sale of a debtor's nonexempt property and the distribution of the proceeds to creditors.)”
4. Chapter 11 – As defined by the United States Courts Glossary – “The chapter of the Bankruptcy Code providing (generally) for reorganization, usually involving a corporation or partnership. (A chapter 11 debtor usually proposes a plan of reorganization to keep its business alive and pay creditors over time. People in business or individuals can also seek relief in chapter 11.)”
5. Chapter 13 – As defined by the United States Courts Glossary – “The chapter of the Bankruptcy Code providing for adjustment of debts of an individual with regular income. (Chapter 13 allows a debtor to keep property and pay debts over time, usually three to five years.)”
6. Confirmation – As defined by ORS/CSS –An order issued by the Bankruptcy Court in Chapter 13 cases, approving a plan for providing payment to the creditors of the debtor.
7. Conversion – As defined by ORS/CSS –The change of a case brought under one chapter of the Bankruptcy Code to a case under another chapter. For example, a case may have originally been filed under Chapter 13, but is later converted to Chapter 7.
8. Debtor – As defined by U.S. Code, Title 11, Chapter 1, subsection 101 Definitions – “. . . means person or municipality concerning which a case under this title has been commenced.” For example, the debtor in child support cases will be the NCP.
9. Discharge – As defined by ORS/CSS – Is granted to a debtor when a plan or the bankruptcy is completed. A discharge releases the debtor from his/her debts, or causes the debts to be unenforceable. A child support debt cannot be discharged. For more information on non-dischargeable debts, see non-dischargeable debts below.
10. Dismissal – As defined by ORS/CSS –An order terminating the case prior to its normal end. When a debtor fails to cooperate with the terms of the bankruptcy or court, the court may dismiss the case and terminate the proceedings, leaving the creditors free to resume collection efforts.
11. Domestic Support Obligation – As defined by Public Law 109-8, Title 11, Subtitle B. Sec. 211 – “. . . means a debt that accrues before, on, or after the date of the order for relief in a case under this title, including interest that accrues on that debt as provided under applicable nonbankruptcy law notwithstanding any other provision of this title, that is—
(A) owed to or recoverable by—
(i) a spouse, former spouse, or child of the debtor or such child’s parent, legal guardian, or responsible relative; or
(ii) a governmental unit;
(B) in the nature of alimony, maintenance, or support (including assistance provided by a governmental unit) of such spouse, former spouse, or child of the debtor or such child’s parent, without regard to whether such debt is expressly so designated;
(C) established or subject to establishment before, on, or after the date of the order for relief in a case under this title, by reason of applicable provisions of—
(i) a separation agreement, divorce decree, or property settlement agreement;
(ii) an order of a court of record; or
(iii) a determination made in accordance with applicable nonbankruptcy law by a governmental unit; and
(D) not assigned to a nongovernmental entity, unless that obligation is assigned voluntarily by the spouse, former spouse, child of the debtor, or such child’s parent, legal guardian, or responsible relative for the purpose of collecting the debt.”
12. Lift of Stay – As defined by ORS/CSS – A lift of stay is defined as removal of the obstruction for collection which the stay causes. A lift of stay can be requested by the AGO for collection of arrears, and for current support and arrears if the bankruptcy is filed in a state other than Utah.
13. Non-dischargeable Debts – As defined by ORS/CSS – Debts which are given special status by the Bankruptcy Court and cannot be dismissed. Child support debts fall into this category.
14. Non-priority Claims – As defined by ORS/CSS – Claims that are paid after the priority claims have been paid. For example, CSS medical claims are unsecured non-priority claims.
15. Pre-Petition Arrears – As defined by ORS/CSS – Arrears that accrue prior to the date the individual filed for bankruptcy.
16. Post-Petition Arrears – As defined by ORS/CSS – Arrears that accrue after the date the individual filed for bankruptcy.
17. Priority Claims – As defined by ORS/CSS – In bankruptcy, this refers to secured claims that by statute receive more favorable treatment than other unsecured claims. Priority claims must be paid first. Child support and alimony are considered unsecured priority claims in Bankruptcy Court.
18. Proof of Claim – As defined by the United States Bankruptcy Court for the District of Utah – A form telling the bankruptcy court how much the debtor owed a creditor at the time the bankruptcy case was filed (the amount of the creditor’s claim up to the actual date of the debtor filing bankruptcy). This form must be filed with the clerk of the Bankruptcy Court where the bankruptcy was filed.
19. Secured Debts – As defined by ORS/CSS – Debts which have some type of property which secures the debt, e.g., mortgages and automobiles are secured debt.
20. Trustee – As defined by ORS/CSS – An individual who is appointed by the Bankruptcy Court to take possession of property of the estate of the debtor and liquidate or manage the debtor’s property. A trustee is appointed in every Chapter 7 case, regardless of the amount involved. In Chapter 13 cases, a standing trustee has responsibility for monitoring numerous Chapter 13 plans.
21. Unsecured Debts – As defined by ORS/CSS – Debt obligations which are not backed by pledged collateral or security agreement. CSS debts fall into this category.
1. Attorney Notification Letter. If the NCP has an attorney and money is received from the Bankruptcy Trustee, send this letter to NCP’s attorney to notify him/her that money has been refunded to the bankruptcy trustee.
2. Bankruptcy Trustee Notification Letter (of refund). If money other than current support is received from the trustee, use this letter to send the money back to the trustee when appropriate.
3. Chapter 7/11 Bankruptcy Trustee Notification Letter. Use this letter to send the NCP’s overpaid money back to the bankruptcy trustee on a Chapter 7 or 11 filing.
4. Enforcement Referral. Complete this form and send it with the necessary documentation to the AGO after you have consulted with them about the bankruptcy/case, and it has been determined that it is appropriate to a make an AGO referral.
5. Federal Form B 410 – Proof of Claim. Complete this form for each of the NCP’s open CSS cases every time a bankruptcy with assets is filed (or refilled after dismissal). It must be filed with the Bankruptcy Court within 90 days of the bankruptcy filing date and prior to the confirmation hearing. Only include arrears owed up to the date of filing (not the date ORS received notice or the date the Proof of Claim is filed). You may access this form on the internet at: www.utb.uscourts.gov.