Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act in 2005. Many new requirements and restrictions were imposed with the goal of creating uniformity in the evaluation of bankruptcy cases. It also added many creditor-friendly provisions that are too numerous to go into here. But there are several requirements that need to be eliminated, either because they were poorly considered at the time, or have become ineffectual in the years following:
- Pre-bankruptcy credit counseling – This is simply a waste of time and money, which does nothing to deter the filing of bankruptcy cases. All it does is add an additional expense to already overwhelmed consumers, and prolong access to the protection of the bankruptcy courts.
- Post-bankruptcy credit counseling – Unlike pre-bankruptcy counseling, the goal of this counseling is more forward-looking. Once again, it is an additional expense, and failure to complete it can result in a bankruptcy case being closed without a discharge. This is especially problematic for someone who has been in a Chapter 13 repayment plan over several years, and is denied a successful discharge because of this burdensome procedural requirement.
- Notifications to domestic support creditors – As of now, a separate notice is issued by the bankruptcy trustees to anyone who is owed child support or alimony by the debtor. Domestic support obligations are non-dischargeable, and the recipient does not have to take any steps in the bankruptcy case to protect his/her right to receive the payments. In addition, all of the information that is mailed to the recipient is already included in the bankruptcy petition. These notices are duplicative, and only seem to confuse- rather than inform-the domestic support recipient.
- Verification of child support – In a Chapter 13 case, debtors are required to submit a statement at the end of the case verifying that 1) they are not required to pay child support or alimony, or that 2) they are required to pay child support and/or alimony and are current. Our firm has had several cases closed without a discharge because someone failed to file a form simply stating that they do not owe child support. On the other hand, there is no problem with the requirement that the debtor must be current on any domestic support obligations in order to receive a discharge, but it would make more sense for the child support creditor to file a notice if they are delinquent.
- Random audits – The United States Trustee is charged with the responsibility of policing the participants in bankruptcy cases. Among those responsibilities is the auditing of cases for material misstatements. The audits can either be targeted, due to the complexity of a case, or random. The bankruptcy policy behind targeted audits is unquestionable, especially when debtors have been less than candid about their financial affairs. But given that very few random audits uncover any material discrepancies, it is unfair to burden someone with the time and expense of securing documents necessary to complete the audit, when there has been no indication that a debtor has been dishonest or evasive.
Not everything in the 2005 Act was a waste of time and money, and the next article on this topic will address what Congress got right, and how it has improved the consumer bankruptcy system.