Moderator Benjamin A. Stolz, Esq., is trainer, speaker, educator, writer and attorney with over 20 years experience practicing consumer bankruptcy and business law, managing and advising small businesses. He is a serial entrepreneur, having founded or played an executive role in successfully launching half a dozen new startups providing professional services ranging from SaaS solutions to Legal Process Outsourcing. Frequently a co-founder or key executive, he has served in various corporate development, strategic advisory, and business development roles at the Executive Level, including General Counsel and interim CEO. Ben received his BA from the University of South Florida, with Departmental Honors, and a JD from Southern Methodist University. He has been admitted to practice in Texas both before the Supreme Court of Texas, all lesser Texas courts, as well as the United States District Courts for the Northern and Eastern Districts of Texas. Ben is a member of the National Association of Consumer Bankruptcy Attorneys (NACBA), the American Bankruptcy Institute (ABI), Association of Litigation Support Professionals (ALSP), the American Bar Association (ABA), a proud graduate of the Max Gardner Bankruptcy Bootcamp, and a frequent guest panelist at Consumer Bankruptcy CLE events. As a result of his ongoing commitment to continuing legal education, Ben was also admitted in 2009 to the College of the State Bar of Texas.

Disclaimer This is a Continuing Legal Education (CLE) presentation, and it is not legal advice. This presentation was prepared for information purposes only for other lawyers only and deals with hypothetical or historical situations. The information is certainly not intended and should not in any way be construed as legal advice. Your receipt of this information does not in any way create an attorney-client relationship and cannot substitute for obtaining legal advice from an attorney. The presenters make no claim about the correct interpretation of any law discussed in this presentation. The presenters do not make any claim about what the correct course of action might be in a particular matter. Although every effort has been made to assure the accuracy of the information in this presentation, the presenters also do not make any claim that the information contained in this presentation is error free.

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I. The Options for an Individual Debtor An individual may file a bankruptcy petition under four different chapters of the Bankruptcy Code: Chapter 7, Chapter 11, Chapter 12, and Chapter 13. Each of the chapters defines a particular type of bankruptcy case, with its own eligibility requirements. Of these four types of bankruptcy cases, only one—Chapter 7—involves a liquidation of the debtor’s assets. The essential features of a Chapter 7 case are:

• Only certain debtors are permitted to proceed in Chapter 7. The debtor must either pass the so-called “means test” or have an income less than the median income in the debtor’s state for the same family size. Under the means test, for which the Bankruptcy Code prescribes a detailed formula, a debtor must have less than a specified amount in available income (which, under the circumstances, ranges from $117.08 to $195.41 per month) to pay unsecured, nonpriority creditors. There are also several other grounds on which a debtor may be excluded from Chapter 7.

• The debtor surrenders his or her assets that have liquidation value—value after taking into account existing liens and

any exemption the debtor is able to claim—in exchange for a discharge of many, but not all, of the debtor’s unsecured debts. A bankruptcy trustee sells these assets and distributes the proceeds to creditors. The debtor is able to keep all the property that is exempt, for example, under California law, other property that the Bankruptcy Code protects, and any property that the trustee doesn’t believe has enough value to worry about.

• In most instances, the liens on secured debts are not voided and pass through bankruptcy unaffected if the debtor

retains the collateral for the debt. Therefore, the creditor retains the ability to repossess the collateral after the case is over, although the debtor’s personal liability is discharged, so the creditor cannot attempt to collect any deficiency from the debtor personally, unless the debtor reaffirms the debt.

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• For each secured debt, the debtor must make an election as to how to treat the debt:

o For a debt secured by real property, the options are surrendering the collateral, reaffirming the debt, or doing nothing while keeping current on the payments (the so-called “ride through” option).

o For debts secured by personal property, the options are surrendering the collateral, reaffirming the debt, or (where

the property is tangible personal property intended primarily for personal, family, or household use) redeeming the collateral by paying the creditor its value.

o If the debtor surrenders the collateral, any deficiency remaining on the debt will be an unsecured debt included in

the debtor’s discharge, so that the debtor can simply walk away from that debt. If the debtor reaffirms the debt, however, the debtor’s personal liability is reinstated rather than discharged.

• Code § 523(a) defines 21 different kinds of debts that are not included in the debtor’s discharge; these debts are referred

to as “non-dischargeable.” (“Code” is shorthand for “Bankruptcy Code,” which is found in Title 11 of the U.S. Code.) Some of these, such as debts incurred to pay fines or penalties imposed under federal election law, or debts for malicious or reckless failure to fulfill a commitment by the debtor to a federal depository institutions regulatory agency, will rarely come up. Others, such as student loan debts, or debts for spousal or child support, affect a large number of debtors. The debtor will emerge from Chapter 7 with these debts intact, although some of these debts require the creditor to act during the bankruptcy case, so that the debt will be discharged if the creditor does not do so.

The other three chapters under which an individual may file a bankruptcy petition all involve the debtor’s securing court approval of a reorganization plan, under which the debtor pays creditors for a number of years. At the end of that process, the debtor will be granted a discharge of certain of the debtor’s debts, again excluding most secured debts and some unsecured debts. The reorganization chapters are:

• Chapter 12 is for a “family farmer” or a “family fisherman” who has “regular annual income.” See Code § 109(f).

• Chapter 13 is for an individual (not a business entity) with “regular income” and total debts under specified limits. Currently those limits are $360,475 in unsecured debts and $1,081,400 in secured debts. These limits, which are updated every three years, were last revised on April 1, 2010.

• Finally, Chapter 11 is for a person or a business entity that is not eligible for Chapter 11 or 12. Chapter 11 is

considerably more expensive for debtors and more complex for attorneys, and debtors try hard to avoid it. But it will be the only option for an individual debtor who has too much available income to remain in Chapter 7 and too much debt to be eligible for Chapter 13 (and who isn’t a farmer or fisherman).

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II. Filing a Chapter 7 Case; Eligibility Requirements A. Eligibility for Chapter 7 There are no eligibility requirements per se for filing a Chapter 7 case; anyone may potentially be a Chapter 7 debtor. However, there are certain eligibility requirements that apply to individual debtors filing a bankruptcy petition under any chapter of the Bankruptcy Code. Under Code § 109(h), the debtor must have obtained prepetition credit counseling or be able to establish a basis for a waiver of the requirement. Code § 109(g) prohibits an individual from being a debtor if, during the preceding 180 days, the person was a debtor in a bankruptcy case and either (1) the case was dismissed by the court for willful failure of the debtor to abide by orders of the court, or to appear before the court in proper prosecution of the case; or (2) the debtor requested and obtained the voluntary dismissal of the case following the filing of a request for relief from the automatic stay. Moreover, a debtor’s eligibility for a Chapter 7 discharge is a matter distinct from the debtor’s eligibility to file a Chapter 7 petition, and there are several bases on which an individual may be found not deserving of a Chapter 7 discharge, which is reserved for debtors who are both honest and needy. Depending on the basis found to apply, the debtor’s case may be dismissed or the debtor may be given the opportunity to convert to one of the reorganization chapters of the Bankruptcy Code and repay a portion of the debtor’s debts before being granted a discharge. The grounds on which a debtor may be precluded either from Chapter 7 or from a Chapter 7 discharge are each discussed later in this seminar. They may be summarized as follows:

• A debtor is simply ineligible for a Chapter 7 discharge if the debtor received a Chapter 7 discharge in a case commenced in the eight years prior to the filing date of the current case, or if the debtor received a Chapter 12 or 13 discharge in a case commenced in the six years prior to the filing date of the current case, although certain exceptions apply where the prior discharge was under Chapter 12 or 13. See Code § 727(a)(8) (prior Chapter 7 discharge), § 727(a)(9) (prior Chapter 12 or 13 discharge). Note that these waiting periods run from filing date to filing date.

• A debtor whose income is greater than the median income in the debtor’s state for the same family size will be

permitted to remain in Chapter 7, and receive a discharge, only if the debtor passes the so-called “means test.” Under the means test, for which the Bankruptcy Code prescribes a detailed formula, a debtor who has more than a specified amount in available income (which, under the circumstances, ranges from $117.08 to $195.41 per month) to pay unsecured, nonpriority creditors is precluded from Chapter 7 relief. See Code §§707(b)(1), (2). Almost all courts have ruled that a debtor who fails the means test is necessarily excluded from Chapter 7, although a small number of courts have found some discretion in this regard. This will be discussed in The Means Test.

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• Even if the debtor passes the means test, the debtor will not be permitted to continue in Chapter 7 if the court decides that, under the “totality of the circumstances,” granting the debtor a Chapter 7 discharge would amount to an “abuse.” While the manner in which this inquiry is formulated varies from court to court, the principal factors are the debtor’s honesty and neediness. See Code §§707(b)(1), (b)(3)(B). This will be discussed in The Totality of Circumstances Test, Bad Faith and Other Cause for Dismissal.

• Other provisions of the Bankruptcy Code permit the dismissal of a Chapter 7 case for “cause” (see Code § 707(a)) and

the dismissal or conversion of the case for filing the Chapter 7 petition in bad faith (see Code § 707(b)(3)(A)). These will also be discussed in Totality of Circumstances Test, Bad Faith and Other Cause for Dismissal.

• Finally, Code §§727(a)(2) through (a)(7) specify grounds involving debtor misconduct on the basis of which the debtor’s

discharge may be denied, and Code §§727(d)(1) through (d)(4) permit the revocation of a Chapter 7 discharge already granted. This will be discussed in Grounds for Denial of Discharge.

These bases for withholding a Chapter 7 discharge from a debtor are independent; a debtor will receive a discharge only if none of the grounds are established. As will be discussed in. Conversion or Dismissal of Case by Debtor, a debtor does not have an absolute right to dismiss a Chapter 7 case. Therefore, if a Chapter 7 debtor who has assets has been found ineligible for a Chapter 7 discharge, it is possible for the debtor to find himself or herself in the worst of all possible worlds: having to surrender his/her nonexempt assets to the Chapter 7 trustee for distribution to creditors, but not receiving a discharge of the debtor’s other debts. Filing a Chapter 7 case is not necessarily a “free shot” at a discharge.

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B. Official Forms and Court Rules Almost all filings in a bankruptcy case will be made using forms created by the federal courts. Forms for the most common purposes—such as the bankruptcy petition itself, and the numerous schedules that must be attached to the petition—are made available by the Administrative Office of the United States Courts after approval by the Judicial Conference of the United States. These are called the “official forms.” The forms are occasionally amended, or new forms may be created; changes are usually effective on December 1. Additionally, individual bankruptcy courts have created what are known as “local forms”; these forms will be available on the court’s website. Court rules generally require the use of a court-supplied form, whether an official form or a local one, if one exists for the purpose of an intended filing. Rules have also been enacted to govern the procedure in bankruptcy courts. Like forms, these come in both national and local flavors. The national rules are the Federal Rules of Bankruptcy Procedure, which are generally referred to as the “Bankruptcy Rules.” Like the official forms, the Bankruptcy Rules are promulgated by the Judicial Conference of the United States, with occasional amendments normally effective on December 1. Each bankruptcy court has also enacted a number of local rules to supplement the national rules. For links to online versions of the Bankruptcy Rules, the Official Forms, and local rules and forms, see Online Resources later in our presentation.

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C. Mechanics of Filing A Chapter 7 case is commenced by filing a bankruptcy petition designating Chapter 7 as the chapter under which is case is filed. (The first page of the official bankruptcy petition has a section for making this designation.) Electronic filing through the bankruptcy court’s CM/ECF system is mandatory in most circumstances. Be aware that a court’s Case Management/Electronic Case Filing system, which permits the electronic filing of case documents, is different from the court’s PACER (Public Access to Court Electronic Records) system, which allows the viewing and retrieval of documents, but not their filing. Upon filing you will receive a judge and Chapter 7 trustee assignment. Venue in bankruptcy cases is specified in 28 U.S.C. § 1408, which provides that (other than cases that are related to proceedings occurring outside the United States) a bankruptcy case may be commenced in the district in which the domicile, residence, principal place of business in the United States, or principal assets in the United States, of the debtor have been located for the 180 days immediately preceding the filing date. If the debtor’s domicile, residence, principal place of business in the United States, or principal assets in the United States were located in multiple districts during that 180-day period, venue is proper in the district in which the debtor’s domicile, residence, principal place of business in the United States, or principal assets in the United States were located for the longest period of time during those 180 days. May a court retain jurisdiction over a case filed in the incorrect judicial district, if the debtor claims that venue in the correct district is inconvenient? 28 U.S.C. § 1406(a) states that “[t]he district court of a district in which is filed a case laying venue in the wrong division or district shall dismiss, or if it be in the interest of justice, transfer such case to any district or division in which it could have been brought,” whereas 28 U.S.C. § 1412 provides that “[a] district court may transfer a case or proceeding under title 11 to a district court for another district, in the interest of justice or for the convenience of the parties.” Based on the latter statute, a number of cases have held that, for the convenience of the parties, a bankruptcy court may retain jurisdiction over a case filed in the wrong district. See, e.g., In re Capital Hotel Group, Inc., 206 B.R. 190 (Bankr. E.D. Mo. 1997); In re Lazaro, 128 B.R. 168 (Bankr. W.D. Tex. 1991). This appears to be the minority opinion, however. See Thompson v. Greenwood, 507 F.3d 416 (6th Cir. 2007); Swinney v. Turner, 309 B.R. 638 (M.D. Ga. 2004); In re Sorrells, 218 B.R. 580 (10th Cir. B.A.P 1998). As to change of venue, generally, see Bankruptcy Rule 1014. 28 U.S.C. § 1408 does not require the debtor to file his or her bankruptcy petition in the division (of the district) within which the debtor resides. See In re Perry, 2002 WL 31160132 (Bankr. W.D. Tenn. 2002); In re Stolicker Dairy Farms, 67 B.R. 459 (Bankr. E.D. Mich. 1986). However, local rules may establish such a requirement or provide for the transfer of a case filed in another division. Upon filing of the case, the court will mail a Notice of Chapter 7 Bankruptcy Case, Meeting of Creditors, & Deadline to all the creditors in the list of creditors that the debtor is required to provide under Bankruptcy Rule 1007(a)(1). Form 9A is used in no-asset cases and Form 9C in asset cases. For copies of the forms, see Appendix B.

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III. Filing of Required Documents A. Timeline Before filing the petition, the debtor’s attorney must provide the debtor with a copy of Director’s Form 201A (Notice to Individual Consumer Debtor). See Code § 342(b). Although this provision places the duty on the clerk of court, the official forms acknowledge that it is the duty of the debtor’s attorney to provide the required information. The petition incorporates an Exhibit B in which the attorney certifies that the debtor has been provided with this form. Code § 521(a)(1)(B)(iii)(I) requires the debtor’s attorney to provide this certification. In addition to the petition, the debtor must file a multiplicity of other documents. Copies of many of these forms are found in Appendix B. The following list encapsulates the requirements imposed by the Bankruptcy Code and the Bankruptcy Rules; be aware that local court rules and the preferences of individual judges, Chapter 7 trustees, and U.S. Trustees may modify these somewhat or impose additional requirements:

• With the petition:

o Either pay the filing fee of $299 or file an Application to Pay Filing Fee in Installments (Official Form 3A) or an Application for a Waiver of the Filing Fee (Official Form 3B). See Bankruptcy Rule 1006. The court has discretion whether to allow the debtor to pay the filing fee in installments, while 28 U.S.C. § 1930(f) permits a waiver of the filing fee in a Chapter 7 case.

o The list of creditors required under Bankruptcy Rule 1007(a)(1), along with the creditors’ mailing addresses. This is

used to create the creditors’ “mailing matrix”; local bankruptcy court rules will specify how this matrix is to be provided to the court. Bankruptcy Rule 1007(m) provides that, if the debtor knows that a person on the list of creditors is an infant or incompetent person, the debtor also shall include the name, address, and legal relationship of any person upon whom process would be served in an adversary proceeding against the infant or incompetent person.

o A Statement of Social Security Number (Official Form 21). See Bankruptcy Rule 1007(f). o A statement of compliance with the credit counseling requirement in Code § 109(h). See Bankruptcy Rule

1007(b)(3), (c). Exhibit D to the bankruptcy petition is used for this purpose. This exhibit is used whether the debtor has obtained the required counseling, is seeking a waiver under § 109(h)(4), or is applying for a determination of exigent circumstances under § 109(h)(3).

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o If the debtor’s landlord has obtained a prepetition judgment for possession of the debtor’s residential property, and the debtor desires to maintain the automatic stay in effect under Code §§362(b)(22), (l), a certification under penalty of perjury (also served on the landlord) that (A) under nonbankruptcy law applicable in the jurisdiction, there are circumstances under which the debtor would be permitted to cure the entire monetary default that gave rise to the judgment for possession, after that judgment for possession was entered; and (B) the debtor (or an adult dependent of the debtor) has deposited with the clerk of the court, any rent that would become due during the 30-day period after the filing of the bankruptcy petition.

• Within 15 days of the petition date:

o Schedules A through J, including the Summary of Schedules (Official Form 6—Summary) and the Declaration Concerning Debtor’s Schedules (Official Form 6—Declaration). See Bankruptcy Rule 1007(b), (c).

Bankruptcy Rule 1007(m) provides that, if the debtor knows that a person on the schedules is an infant or

incompetent person, the debtor also shall include the name, address, and legal relationship of any person upon whom process would be served in an adversary proceeding against the infant or incompetent person.

o A Statement of Financial Affairs (Official Form 7). See Bankruptcy Rule 1007(b)(1)(D), (c). o A Statement of Current Monthly Income and Means Test Calculation (Official Form 22A). See Bankruptcy Rule

1007(b)(4), (c). o Copies of all payment advices or other evidence of payment received in the 60 days prepetition from any employer of

the debtor. See Bankruptcy Rule 1007(b)(1)(E), (c). o A record of any interest that a debtor has in an education individual retirement account or under a qualified state

tuition program required under Code § 521(c). See Bankruptcy Rule 1007(b)(1)(F), (c). o A statement disclosing compensation paid or to be paid to the attorney for the debtor (Director's Form 203). See

Bankruptcy Rule 2016(b), which permits the court to prescribe a different due date.

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• Before the meeting of creditors:

o A copy of the federal income tax return required under applicable law for the most recent tax year ending immediately before the commencement of the case for which a federal income tax return was filed, required under Code § 521(e)(2), at least seven days before the meeting of creditors.

The courts disagree as to which tax year the provision applies. Compare In re Viola, 2010 WL 2653320 (D. Colo.

2010) (§ 521(e)(2)(A)(i) requires a debtor to submit to the court the most recent tax return that he or she has actually filed with the IRS); In re Casey, 274 Fed. Appx. 205 (3rd Cir. 2008) (same); and In re Merrill, 340 B.R. 671 (Bankr. D. N.H. 2006) (same) with In re Wandvik, 2009 WL 909260 (Bankr. S.D. Iowa 2009) (Code § 521(e)(2)(A)(i) obligates the debtor to provide the trustee only with a copy of the federal tax return for the tax year ending prior to the commencement of the debtor’s bankruptcy, and only if the debtor actually filed the return) and In re Dereve, 381 B.R. 309 (Bankr. N.D. Fla. 2007) (a debtor is required to provide a tax return only for the tax year ending immediately before the date of filing).

The courts appear to agree, however, that, whatever the applicable tax year, § 521(e)(2)(A) requires a debtor to

provide a copy of the return only if the debtor actually filed a return for that tax year; it does not require the debtor to prepare a previously-unfiled return. In re Casey, 274 Fed. Appx. 205 (3rd Cir. 2008); In re Wandvik, 2009 WL 909260 (Bankr. S.D. Iowa 2009).

o Submission to creditors: A copy of the tax return discussed just above, if requested by the creditor. See Code §

521(e)(2)(C). The creditor’s request is effective only if made before the debtor had provided a copy of the return to the Chapter 7 trustee. See In re Fontaine, 397 B.R. 191 (Bankr. D. Mass. 2008); In re Collins, 393 B.R. 835 (Bankr. E.D. Wis. 2008).

• No later than 30 days postpetition, or on the date of the meeting of creditors, whichever is earlier:

o File a statement of intention as to debts secured by property of the estate. See Code § 521(a)(2)(A). As to the debtor’s filing and performance of a statement of intention, see XI. Secured Debts: Reaffirmation, Redemption, and Surrender.

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• No later than 30 days postpetition:

o If the debtor’s landlord has obtained a prepetition judgment for possession of the debtor’s residential property, and the debtor desires to maintain the automatic stay in effect under Code §§362(b)(22), (l), file a certification under penalty of perjury (also served on the landlord) that the debtor (or an adult dependent of the debtor) has cured, under nonbankruptcy law applicable in the jurisdiction, the entire monetary default that gave rise to the judgment under which possession is sought by the landlord.

o If the debtor had one or more bankruptcy cases dismissed in the year prepetition and the debtor desires the

automatic stay to be in effect, a motion to continue the automatic stay under Code § 362(c)(3) if the debtor had one bankruptcy case dismissed in the year prepetition, or a motion to impose the automatic stay under Code § 362(c)(4) if the debtor had two or more bankruptcy cases dismissed in the year prepetition. A motion under § 362(c)(3) must be filed in time to permit the hearing on the motion to be completed within the 30 days postpetition; there is no similar requirement under § 362(c)(4).

• Not later than 30 days after the “first date set for the meeting of creditors” (or not later than 45 days after “the first meeting of creditors”):

o Perform the debtor’s statement of intention. The alternative deadlines exist because the two potentially applicable

statutory provisions are not consistent. See Code § 521(a)(2)(B) (requiring performance “within 30 days after the first date set for the meeting of creditors under section 341(a), or within such additional time as the court, for cause, within such 30-day period fixes”), § 531(a)(6) (requiring performance “not later than 45 days after the first meeting of creditors”).

• Not later than 45 days after the first date set for the meeting of creditors:

o Certificate of Completion of Instructional Course Concerning Financial Management (Official Form 23). See Bankruptcy Rule 1007(b)(7), (c). Code §§111, 727(a)(11) require the debtor to provide this certificate.

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B. Additional Considerations Under Bankruptcy Rule 1009(a), a voluntary petition, list, schedule, or statement may be amended by the debtor as a matter of course at any time before the case is closed. An amendment may not be allowed, however, if the debtor acted in bad faith or the allowance of the amendment would prejudice creditors. See, e.g., In re Cantor, 2008 WL 4561504 (Bankr. W.D. Pa. 2008) (as the trustee did not establish that the debtor acted in bad faith in valuing her interest in her residence at $1, nor did the trustee establish that permitting the debtor to amend the valuation would prejudice her creditors, the court held that the debtor was not precluded from amending her schedules so as to increase the claimed value of her interest in the residence). In addition, a debtor may be under a continuing duty to update his or her schedules, particularly to reflect new, or newly-discovered, assets. See Robinson v. Tyson Foods, Inc., 595 F.3d 1269 (11th Cir. 2010). Bankruptcy Rule 1007(h) specifically recognizes the debtor’s obligation to amend his or her schedules to reflect property acquired in the 180 days after the petition date that, under Code § 541(a)(5), becomes part of the debtor’s bankruptcy estate. Remember that, under Bankruptcy Rule 9037, certain information is to be redacted from all filings with the court:

• Only the last four digits should be given of a Social Security number, taxpayer identification number, or financial-account number (other than the debtor’s full Social Security number in Official Form 21).

• Only the year of a person’s birth should be given.

• Only a minor’s initials should be given.

All petitions, lists, schedules, statements and amendments thereto shall be verified or contain an unsworn declaration as provided in 28 U.S.C. § 1746. See Bankruptcy Rule 1008. If the debtor possesses a cause of action that arose prepetition, but fails to list that cause of action in the debtor’s schedules, the debtor may be judicially estopped from subsequently asserting that cause of action. See White v. Wyndham Vacation Ownership, Inc., 617 F.3d 472 (6th Cir. 2010) (a debtor who did not list her sexual harassment claim against her employer in the schedules accompanying her bankruptcy petition was judicially estopped from asserting the claim in subsequent litigation against the employer). Code § 521(i) provides that the debtor’s case “shall be automatically dismissed effective on the 46th day after the date of the filing of the petition” if the debtor does not provide the information required under Code § 521(a)(1). See generally Bankruptcy Rule 1017(c). However, a bankruptcy court has discretion, after the passing of the 45-day filing deadline, to “order[ ] otherwise” and thereby waive the § 521(a)(1) filing requirement. In re Warren, 568 F.3d 1113 (9th Cir. 2009).

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C. Issues Specific to Requirement of Prepetition Credit Counseling Code § 109(h) requires that the debtor obtain credit counseling from an approved agency in the 180 days prior to filing his or her bankruptcy petition, or be able to establish that either (1) exigent circumstances prevented the debtor from obtaining the counseling, or (2) a waiver of the counseling requirement was warranted on the basis of the debtor’s incapacity, disability, or military service in an active combat zone. Code § 109(h)(3) provides a three-part test to determine whether a temporary exemption from the credit counseling requirement is warranted on the ground of exigent circumstances. The debtor must file a certificate that: (1) describes exigent circumstances for not obtaining the counseling; (2) states that credit counseling was requested from a qualified provider and was unavailable within five (now seven) days from the date of the request; and (3) is satisfactory to the court. In re Childs, 335 B.R. 623 (Bankr. D. Md. 2005). Under the statute, the exigent circumstances much be such as to “merit” a waiver of the briefing requirements. In re Dixon, 338 B.R. 383 (8th Cir. B.A.P. 2006). Note that the existence of circumstances that would be recognized as exigent is not enough in itself; the debtor must also have attempted to obtain credit counseling. See In re Wright, 412 B.R. 767 (Bankr. E.D. Va., Oct. 10, 2008) (while an impending foreclosure sale of Chapter 13 debtor's home was the kind of circumstance that would generally satisfy the “exigent circumstances” prong of the three-part statutory test for obtaining a waiver of the prepetition credit counseling requirement, the pro se debtor's admission that he was not aware of this requirement demonstrated that he had never requested such counseling, as required for him to satisfy the additional requirement that he request credit counseling but be unable to obtain it within five days of his request). Even urgent circumstances may not be found to warrant a temporary waiver of the credit counseling requirement if the debtor had sufficient advance notice that the circumstances would arrive, but simply failed to act until the last minute. See In re Magnusson, 2007 WL 4877417 (Bankr. D. N.D. 2007) (a debtor waiting until the eve of foreclosure to file a bankruptcy petition, when the debtor had ample notice of the foreclosure, does not constitute exigent circumstances meriting the waiver of the prebankruptcy credit counseling requirement); In re Richardson, 2007 WL 4333227 (Bankr. E.D. Tex. 2007) (the foreclosure of the mortgage on the debtor’s home did not present exigent circumstances, as, in Texas, nonjudicial foreclosure sales were scheduled with at least 21 days' notice of the sale to the mortgagor, and the debtor in this case was aware of an impending sale of her home and was actively seeking, in state court, to prevent the foreclosure sale from proceeding).

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In applying the credit counseling requirement, courts disagree on a number of issues:

• Whether a court has the authority to waive the requirement so as to avoid an injustice; most do not believe that a court has such authority. For cases in which the court found a measure of discretion, see In re Enloe, 373 B.R. 123 (Bankr. D. Colo. 2007); In re Nichols, 362 B.R. 88 (Bankr S.D. N.Y. 2007); In re Kernan, 358 B.R. 537 (Bankr. D. Conn. 2007); In re Manalad, 360 B.R. 288 (Bankr. C.D. Cal. 2007); In re Hess, 347 B.R. 489 (Bankr. D. Vt. 2006).

• Whether a debtor’s imprisonment warrants waiver of the requirement on the ground of “disability” or “incapacity.”

Compare In re Lee, 2008 WL 696591 (Bankr. W.D. Tex. 2008) (incarceration was “disability”) and In re Gates, 2007 WL 4365474 (Bankr. E.D. Cal. 2007) (same) with In re Denger, 417 B.R. 485 (Bankr. N.D. Ohio, August 28, 2009) (incarceration was not “disability”) and In re Bristol, 2009 WL 238002 (E.D. N.Y. 2009) (incarceration was neither “disability” nor “incapacity”). See also In re Patasnik, 425 B.R. 916 (Bankr. S.D. Fla. 2010) (Bankruptcy Judge John K. Olson) (the debtor's incarceration in a facility that restricted telephone and Internet access was not a “disability” that would excuse him from complying with the prepetition credit counseling requirement; rather, the debtor's incarceration was an exigent circumstance that permitted the court to extend the time for him to obtain credit counseling after entering an order directing prison authorities to allow him to make a telephone call or to have Internet access for the purpose of obtaining such counseling).

• Whether exigent circumstances exist where credit counseling is available to the debtor within the seven-day period

referenced in Code § 109(h)(3), but the harm the debtor seeks to avoid requires the debtor to file for bankruptcy protection before the date on which the credit counseling will be available. Compare In re Otero, 2010 WL 580033 (Bankr. N.D. Cal. 2010) (requiring debtor to wait) and In re Mason, 412 B.R. 1 (Bankr. D. Dist. Col. 2009) (same) with In re Giambrone, 365 B.R. 386 (Bankr. W.D. N.Y. 2007) (finding such circumstances to present exigent circumstances).

Courts have also disagreed on whether credit counseling obtained on the same day as the filing date is acceptable. Compare In re Francisco, 390 B.R. 700 (10th Cir. B.A.P. 2008) (allowing same-day credit counseling) with In re Wise, 415 B.R. 579 (Bankr. N.D. Ala. 2009) (not allowing same-day credit counseling). However, the Bankruptcy Technical Corrections Act of 2010, which was effective in December 2010, resolves the matter by amending Code § 109(h)(1) to clarify that prepetition credit counseling may occur on the day on which the debtor files his or her bankruptcy petition.

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IV. The Bankruptcy Estate; Exemptions and Exclusions A. The Debtor’s Bankruptcy Estate, Generally When a person files a bankruptcy petition, a “bankruptcy estate” is created; the bankruptcy estate holds, with certain exclusions, all of the interests in property that the debtor owed at the moment the debtor’s bankruptcy petition was filed (but not, with certain exceptions, property the debtor acquires after the petition is filed). The notion of the bankruptcy estate is fundamental to a bankruptcy case. Control of the bankruptcy estate, and the assets encompassed in it, vests in the Chapter 7 trustee. The debtor may not dispose of estate property without the trustee’s permission. Section 541 of the Bankruptcy Code defines the property that becomes property of the debtor’s bankruptcy estate. Under section 541(a)(1), the estate holds “all legal or equitable interests of the debtor in property as of the commencement of the case.” While this is an extremely broad definition, a mere “expectancy” does not amount to an interest in property for the purpose of this provision. See Wornick v. Gaffney, 544 F.3d 486 (2nd Cir. 2008) (the inchoate interest that the debtor held as a beneficiary under a life insurance policy was not an asset of the debtor’s bankruptcy estate). The other subsections of § 541(a) specify additional property that becomes property of the estate:

• All interests of the debtor and the debtor's spouse in community property as of the commencement of the case that is (A) under the sole, equal, or joint management and control of the debtor; or (B) liable for an allowable claim against the debtor, or for both an allowable claim against the debtor and an allowable claim against the debtor's spouse, to the extent that such interest is so liable. Code § 541(a)(2).

• Property previously transferred by the debtor in transfers that the Chapter 13 trustee is able to avoid, as fraudulent or

otherwise. Code §§541(a)(3), (4). The majority rule holds that such property is not property of the estate until the trustee actually recovers the property. See In re Fehrs, 391 B.R. 53 (Bankr. D. Idaho 2008).

• Any interest in property that would have been property of the estate if the debtor had owned that interest on the

petition date, if the debtor acquires or becomes entitled to acquire the property interest within 180 days after the petition date (A) by bequest, devise, or inheritance; (B) as a result of a property settlement agreement with the debtor's spouse, or of an interlocutory or final divorce decree; or (C) as a beneficiary of a life insurance policy or of a death benefit plan. Code § 541(a)(5).

• Proceeds, product, offspring, rents, or profits of or from property of the estate, except earnings from services performed

by an individual debtor after the commencement of the case. Code § 541(a)(6).

• Any interest in property that the estate acquires after the commencement of the case. Code § 541(a)(7).

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If property comes within the definition of property of the debtor’s bankruptcy estate, the fact that the debtor is not in possession of the property on the petition date does not change things. See, e.g., In re Thompson, 2008 WL 2157163 (Bankr. N.D. Ill. 2008) (a motor vehicle repossessed prepetition by the creditor will be property of the estate until it is sold by the creditor). When a joint petition is filed, two separate bankruptcy estates—the husband's and the wife's—are created, and each estate contains only the corresponding spouse’s interests in property, not those of the other spouse. See, e.g., Wornick v. Gaffney, 544 F.3d 486 (2nd Cir. 2008) (each joint debtor’s interest in a reciprocal life insurance policy was property only of that debtor’s estate); In re Carlson, 394 B.R. 491 (8th Cir. B.A.P. 2008) (apportioning the joint debtors’ interests in a joint tax refund). In essence, two separate bankruptcy cases are administered simultaneously.

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B. Exclusions from the Bankruptcy Estate Property that would otherwise become property of the estate may be kept out of the estate under two related but distinct concepts: exclusions and exemptions. Exclusions are categories of property that, while otherwise within the definition of property of the estate in Code § 541(a), are nevertheless excluded from the estate. Exclusions may be expressly established in the Bankruptcy Code or arise under another federal statute. Exclusions established in the Bankruptcy Code are found in §§541(b)(1) to (9), 541(c)(2), 541(d). The most important are:

• Funds held in an ERISA-qualified retirement account. Code § 541(b)(7).

• Property held in a spendthrift trust. Code § 541(c)(2).

• Property to which the debtor holds only legal, and not equitable, title. Code § 541(d). As an example of an exclusion arising under another federal statute, a number of courts have held that the Social Security Act has the effect of excluding Social Security benefits from the estate. The Eighth Circuit Court of Appeals has embraced this view. See In re Carpenter, 614 F.3d 930 (8th Cir. 2010). Exclusions occur by operation of law and do not require debtor action. The exclusion in Code § 541(d) of property to which the debtor holds only legal, and not equitable, title generally comes into play when the debtor can be shown to hold property in a constructive or resulting trust for the benefit of another. Constructive and resulting trusts are distinct theories arising under state law. See, e.g., Perotti v. Perotti, 2009 WL 2422992 (M.D. Pa. 2009) (the bankruptcy court did not err in imposing both a resulting trust and a constructive trust on the joint debtors’ residential property in favor of the father of the debtor husband, with the result that the entire ownership interest in the property was not property of the debtors’ bankruptcy estate); In re Shinn, 2008 WL 2531443 (Bankr. E.D. Cal. 2008) (litigation would likely determine that the Chapter 7 debtor’s partial ownership interest in a house was held in resulting trust for the debtor’s parents and thus was not part of the debtor’s bankruptcy estate).

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C. Exemptions from the Bankruptcy Estate (1) In General Exemptions, on the other hand, represent property that the debtor may elect to withdraw from the bankruptcy estate. As such, exemptions require affirmative conduct by the debtor. Section 522 of the Bankruptcy Code establishes the right to exempt property from the estate. In general, a debtor may choose to apply either the exemptions provided in Code § 522(d), which are known as the “federal exemptions,” or the exemptions available under state law. However, the Bankruptcy Code permits a state to “opt out,” as it is called, from the federal exemptions. Where the state has done so, the debtor is required to use the exemptions available under state law. Note that the state whose exemption law applies is not necessarily the state in which the debtor resides when he or she files a bankruptcy petition. Code § 522(b)(3)(A) establishes the rule for determining the state whose exemption law applies. If the debtor was domiciled in the same state for the 730 days prior to filing the petition, that state’s law applies. If the debtor was domiciled in two or more states during that period, then the state whose law applies is the state in which the debtor was domiciled for the 180 days before that 730-day interval. If the debtor was domiciled in multiple states during that 180-day period, the state whose law applies is the state in which the debtor was domiciled for the larger portion of the 180 days. Once you have determined the state whose exemption law applies, that state’s law controls whether the debtor is permitted to elect federal exemptions. That state’s law also determines whether the debtor may exempt property located outside the state; the need to do so often arises where the state whose law applies is not the state in which the debtor resides when the petition is filed. Exemptions Express, a website created by debtors’ attorney John Bates, collects a wealth of information on exemptions in bankruptcy cases. The exemptions available to a debtor who elects or is required to apply state exemption law are specified in Code § 522(b)(3). These are not limited to exemptions available under state law and include as well:

• Exemptions under federal nonbankruptcy law. See Code § 522(b)(3)(A). For an example, see In re Anderson, 410 B.R. 289 (Bankr. W.D. Mo. 2009) (5 U.S.C. § 8346(a) creates a federal nonbankruptcy exemption available to debtors who elect state law exemptions).

• “[A]ny interest in property in which the debtor had, immediately before the commencement of the case, an interest as a

tenant by the entirety or joint tenant to the extent that such interest as a tenant by the entirety or joint tenant is exempt from process under applicable nonbankruptcy law.” See Code § 522(b)(3)(B).

• “[R]etirement funds to the extent that those funds are in a fund or account that is exempt from taxation under section

401, 403, 408, 408A, 414, 457, or 501(a) of the Internal Revenue Code of 1986.” See Code § 522(b)(3)(C).

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Exemptions under state law are limited under § 522(o) (reducing the value of property exempted under a homestead or a related exemption “to the extent that such value is attributable to any portion of any property that the debtor disposed of in the 10-year period ending on the date of the filing of the petition with the intent to hinder, delay, or defraud a creditor”), § 522(p) (limiting to $146,450 the property that may be exempted under a homestead or related exemption to the extent the property was acquired in the 1,215 days before the bankruptcy filing), and § 522(q) (limiting to $146,450 the property that may be exempted under a homestead or related exemption where the debtor has been convicted of a felony demonstrating that the filing of the case was an abuse of the provisions of Chapter 7, or where the debtor owed certain debts). Objections to exemptions claimed by the debtor are controlled by Bankruptcy Rule 4003(b). In general, a party in interest may file an objection to the list of property claimed as exempt within 30 days after the meeting of creditors is concluded. If the debtor amends his or her exemptions after the meeting of creditors is concluded, a party in interest has 30 days in which to object to any amendments. The court may, for cause, extend the time for filing objections if, before the time to object expires, a party in interest files a request for an extension. As to when the meeting of creditors has “concluded,” see In re Dutkiewicz, 408 B.R. 103 (6th Cir. B.A.P. 2009) (courts have developed at least three approaches to determine whether a meeting of creditors has concluded: the bright-line, the debtor's burden, and the case-by-case approach). An exemption may not be challenged after the time for filing an objection has expired. Taylor v. Freeland & Kronz, 503 U.S. 638, 112 S.Ct. 1644, 118 L.Ed.2d 280 (1992). However, the trustee is under no duty to object if the debtor's claimed exemption is facially lawful. See Schwab v. Reilly, 130 S.Ct. 2652, 177 L.Ed.2d 234 (2010). (2) For example, let’s look at the Exemptions under California Law California has two sets of exemptions. Cal. Civ. Proc. Code § 703.140 establishes a set of exemptions available only to debtors in bankruptcy, while Cal. Civ. Proc. Code § 704.010 et seq. establishes a set of exemptions available to all debtors, including those in bankruptcy. Under § 703.140(a), the debtor must elect the set of exemptions that the debtor desires to apply; note the requirement in § 703.140(a)(2) where a married debtor files an individual bankruptcy petition. The exemptions available under § 703.140 are similar (but not identical) to the federal exemptions established in Bankruptcy Code § 522(d). Cal. Civ. Proc. Code § 703.130 specifies that California is an opt-out state, so that debtors do not have the option of electing federal exemptions. Because the text of this statute is not limited to California residents, it applies as well to nonresidents who are required to apply California exemption law due to the 730-day requirement.

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There is some disagreement as to whether § 703.140, the bankruptcy-only exemption statute, is constitutional. Compare In re Applebaum, 2009 WL 1064154 (Bankr. D. Or. 2009), aff’d, 422 B.R. 684 (9th Cir. B.A.P. 2009) (§ 703.140 is constitutional) and In re Petsco, Case No. 2:08-bk-03324-RTBP (Bankr. D. Ariz., Jan. 27, 2009) (Chief Judge Baum) (same) with In re Regevig, 389 B.R. 736 (Bankr. D. Ariz. 2008), reconsideration denied, 394 B.R. 498 (2008) (§ 703.140 is unconstitutional). This disagreement mirrors the debate that has arisen with respect to other state bankruptcy-specific exemption statutes. For a definitive ruling upholding West Virginia’s statute, see Sheehan v. Peveich, 574 F.3d 248 (4th Cir. 2009), cert. den., Sheehan v. Jackson, 130 S.Ct. 1066 (2010). For the disagreement with respect to Michigan’s bankruptcy-only exemption statute, compare In re Trofatter, 424 B.R. 247 (Bankr. W.D. Mich. 2010) (statute is constitutional) and In re Jones, 428 B.R. 720 (Bankr. W.D. Mich. 2010) (same) with In re Wallace, 347 B.R. 626 (Bankr. W.D. Mich. 2006) (statute is unconstitutional) and In re Pontius, 421 B.R. 814 (Bankr. W.D. Mich. 2009) (same). A debtor, for example, who elects to claim exemptions under § 703.140, the bankruptcy-only statute, may also be able to claim exemptions available under California statutes other than those found in Cal. Civ. Pro. Code § 703.010 et seq. and § 704.010 et seq. This is because § 703.140(a) states that “the exemptions provided by subdivision (b) may be elected in lieu of all other exemptions provided by this chapter,” and in In re Lantz, 2009 WL 113729 (Bankr. E.D. Cal. 2009) the court construed the word “chapter” to mean Chapter 4 (“Exemptions”) of Division 2 (“Enforcement of Money Judgment”) of Title 9 of Part 2 of the Code of Civil Procedure. Thus, the debtor in that case was permitted to claim an exemption in earned but unpaid wages under Cal. Civ. Pro. Code § 706.050, which is found in Chapter 5 (“Wage Garnishment”) of Division 2, Title 9, Part 2. Chapter 4 encompasses § 703.010 et seq. and § 704.010 et seq., and, under this reasoning, the debtor may claim exemptions provided elsewhere in California statutes. For debtors claiming exemptions under Cal. Civ. Proc. Code § 704.010 et seq., which includes California’s homestead exemption statute, § 704.710 et seq., the latter statute permits a debtor to exempt property located outside of California. In re Arrol, 170 F.3d 934 (9th Cir. 1999). The same result would probably be reached with respect to California’s personal property exemptions. (The bankruptcy-only exemption statute has a “residence” exemption in § 703.140(b)(1), which is currently limited to $17,425. In contrast, the minimum homestead exemption available under § 704.710 is $75,000.)

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D. Particular Kinds of Property Cause of action A cause of action will be property of the estate if it is “sufficiently rooted in the pre-bankruptcy past.” See Segal v. Rochelle, 382 U.S. 375, 86 S. Ct. 511, 15 L. Ed. 2d 428 (1966). Compare In re Borchert, 2010 WL 153384 (Bankr. N.D. N.Y. 2010) (the Chapter 7 debtor’s recovery under a class action on behalf of Vioxx users was property of his estate, although his heart attack from his Vioxx use occurred two months postpetition, and he was not certified as a member of the class until four years postpetition, where seven of the nine months during which he had taken Vioxx were prepetition months) with In re Holstein, 321 B.R. 229 (Bankr. N.D. Ill. 2005) (the debtor’s cause of action for legal malpractice was not property of the estate, although the alleged negligence occurred prepetition, because the cause of action had not accrued under state law as of the petition filing date). Checking account balance Funds in the debtor’s bank account on the petition date are property of the estate, even if those funds are subsequently depleted by the bank’s payment of outstanding checks the debtor wrote before filing the bankruptcy petition. See, e.g., In re Brubaker, 426 B.R. 902 (Bankr. M.D. Fla. 2010); In re Parker, 2008 WL 906570 (Bankr. N.D. N.Y. 2008). The real question in this situation is whether the Chapter 7 trustee can require the debtor to return (or “turnover”) the depleted funds to the trustee. Compare Yoon v. Minter-Higgins, 399 B.R. 34 (N.D. Ind. 2008) (allowing recovery from the debtor) and In re Parker, 2008 WL 906570 (Bankr. N.D. N.Y. 2008) (same) with In re Taylor, 332 B.R. 609 (Bankr. W.D. Mo. 2005) (the amount of funds in the debtor's bank account at the time of filing was not actually cash, but rather was a debt owed to the debtor by the bank; the case trustee had the responsibility to either notify the bank of the bankruptcy filing so that the bank no longer had the ability to honor outstanding checks postpetition, or to issue a stop payment on any outstanding checks) and In re Pyatt, 486 F.3d 423 (8th Cir. 2007) (Code § 542 requires turnover only when the person receiving the turnover demand still has possession of the property whose turnover is ordered). Child support arrearage Past-due child support may be the debtor’s property or the child’s property on the petition date, depending on its status under state law, and only in the former case will it be property of the estate. See In re Strickland, 2010 WL 1417030 (Bankr. N.D. Ala. 2010) (a payment of $11,207.64 the debtor received postpetition from the Alabama Department of Human Resources for child support arrears belonged to the debtor, rather than her now-adult son, and thus was property of her estate).

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Earnings received postpetition Earnings received postpetition will be property of the estate if the right to receive the earnings accrued prepetition. See, e.g., In re Smith, 402 B.R. 887 (8th Cir. B.A.P. 2009) (commissions on two sales arranged prepetition by the Chapter 7 debtor, a real estate agent, were property of the estate, even though the debtor continued to work postpetition to ensure that the sales were completed, and the debtor received the two commissions postpetition). Motor vehicle A motor vehicle will be property of the estate if, on the petition date, the debtor is considered the owner of the vehicle under state law. Compare In re Drahn, 405 B.R. 470 (Bankr. N.D. Iowa 2009) (under Iowa law, a seller of property that has listed itself as the owner of the property, despite the conveyance of the property to the buyer, retains a security interest in the property but is not the owner of the property; thus, here, a mobile home purchased by the debtor prepetition was property of the estate, although the seller was listed as the owner on the certificate of title to the vehicle) with In re Woods, 386 B.R. 758 (Bankr. D. Idaho 2008) (a motor vehicle that the debtors agreed to sell prepetition was property of the estate, even though the purchasers had completed making the payments to the debtors for the vehicle, and the debtors had transferred physical possession of the vehicle to the purchasers, where, when the debtors filed their Chapter 7 petition, the state had not yet issued a title to the vehicle in the purchasers’ names). Pawned property Code § 541(b)(8) explicitly excludes from the estate tangible personal property in the possession of the pledgee or transferee where (1) the debtor has no obligation to repay the money, redeem the collateral, or buy back the property at a stipulated price; and (2) neither the debtor nor the trustee has timely exercised the right to redeem the property. Right to equitable distribution of marital assets Where the debtor is involved in martial dissolution proceedings on the petition date, the debtor’s right to an equitable distribution of marital assets will be property of the debtor’s bankruptcy estate if, under state law, that right vested prior to the bankruptcy filing. Compare In re Radinick, 419 B.R. 291 (Bankr. W.D. Pa. 2009) (under Pennsylvania law, a marital interest in property vests immediately upon the initiation of a divorce action, coupled with the request for equitable distribution of marital assets; thus, here, the debtor’s marital interest in her estranged spouse's individual retirement account was property of the estate, where the debtor filed for divorce and requested equitable distribution of marital assets owned by herself and her estranged spouse prior to filing her bankruptcy petition, although on the petition date the state had neither granted a divorce nor resolved the debtor's request for equitable distribution) with Kane v. Kane, 2009 WL 3208653 (D. N.J. 2009) (a Chapter 7 debtor’s interest in an equitable distribution award to be made to the debtor in a divorce action pending in New Jersey on the petition date is not part of the debtor’s bankruptcy estate).

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Note, however, that, under Code § 541(a)(5)(B), an award made in an interlocutory or final divorce decree issued in the 180 days postpetition will become part of the estate. Right to redeem repossessed property, or property subject to foreclosure proceedings The debtor’s right to redeem repossessed property, such as a motor vehicle or other personal property standing as collateral for a loan, and the right to redeem real property subject to foreclosure proceedings is property of the estate so long as the right of redemption continues to exist under state law on the petition date. See, e.g., In re Parish, 2010 WL 1372387 (Bankr. D. Hawai'i 2010) (under Hawaii law, when a judicial foreclosure action has taken place, the homeowner retains an equitable right to reinstate the mortgage until the court enters a written order confirming the sale; the right of redemption is an equitable interest that is included in the bankruptcy estate under Code § 541(a)(1)). Tax refunds Two issues frequently arise with respect to a tax refund received postpetition but due to, at least in part, a prepetition tax year. One issue is how to allocate the refund between the prepetition and postpetition portions of the tax year; the amount of the refund corresponding to the prepetition portion of the tax year is property of the estate, while the amount of the refund corresponding to the postpetition portion of the tax year is not. Most courts apply the “pro rata by days method,” under which the number of days in each period is determined and the refund is allocated proportionally. The other issue is how to allocate a tax refund between spouses who filed a joint tax return. Three rules have emerged for making this allocation: The refund may be apportioned on the basis of each spouse's withholding, allocated on the basis of the income earned by each spouse, or split equally between the spouses (the so-called “50/50 refund rule”).

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E. Trustee’s Collection of Property Belonging to the Estate A primary goal of the Chapter 7 trustee is to collect property that belongs to the debtor’s bankruptcy estate. There are two principal procedural avenues that the trustee uses to accomplish this task. One is a motion for turnover under Code § 542; the other is an adversary proceeding to set aside certain transfers and liens that the Bankruptcy Code empowers the trustee to avoid. Turnover is discussed here; avoidable transfers and liens are covered later in the seminar under XII. Preferential, Fraudulent, and Other Avoidable Transfers. The trustee’s right to seek turnover of estate property is found in § 542(a), which provides that, with certain exceptions, “an entity, other than a custodian, in possession, custody, or control, during the case, of property that the trustee may use, sell, or lease under section 363 of this title, or that the debtor may exempt under section 522 of this title, shall deliver to the trustee, and account for, such property or the value of such property, unless such property is of inconsequential value or benefit to the estate.” Because property that “the trustee may use, sell, or lease under section 363” encompasses almost all estate property, the trustee’s right to turnover under § 542(a) is equally broad. Where the estate property whose turnover is sought is in the form of the right to receive payment of a debt, rather than tangible property, § 542(b) extends the trustee’s turnover authority by providing that “an entity that owes a debt that is property of the estate and that is matured, payable on demand, or payable on order, shall pay such debt to, or on the order of, the trustee, except to the extent that such debt may be offset under section 553 of this title against a claim against the debtor.” A central issue on which courts disagree is whether an order of turnover may be entered against a person or entity that no longer has possession of the estate property that the trustee is attempting to collect. Under the majority view, a person who had “possession, custody, or control” of the property at any time “during the case” may be subject to a turnover order relating to that property. See, e.g., In re Shearin, 224 F.3d 353 (4th Cir. 2000); In re Bailey, 380 B.R. 486 (6th Cir. B.A.P. 2008). If the party no longer has possession of the property, the court will enter a money judgment for the value of the property. See, e.g., In re Borowiec, 396 B.R. 598 (Bankr. W.D. N.Y. 2008); In re Fleming, 424 B.R. 795 (Bankr. W.D. Mich. 2010). A minority of courts hold that Code § 542 requires turnover only when the recipient of the turnover demand still has possession of the property whose turnover is ordered. See, e.g., In re Pyatt, 486 F.3d 423 (8th Cir. 2007). See also In re Gallo, 573 F.3d 433 (7th Cir. 2009) (the bankruptcy court was under no obligation to ensure that the debtor’s former wife had the ability to comply with a turnover order prior to issuing the order; if the bankruptcy court later attempted to hold the former wife in civil contempt for failing to comply with its order, then she could put forth evidence that she attempted to comply with the order, but lacked the financial resources to do so).

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F. Co-owned Property; Sale by Trustee Where the debtor is merely a co-owner of certain property, only the debtor’s interest in the property becomes property of the debtor’s bankruptcy estate. While the Chapter 7 trustee can attempt to sell the estate’s fractional ownership interest, such an interest might well have little value. But, Code § 363(h) allows the Chapter 7 trustee to sell the entire ownership interest in the property under specified conditions, although the other co-owner(s) will receive a proportionate share of the proceeds. The trustee must establish that:

• Partition in kind of the property among the estate and the co-owners is impracticable.

• The sale of the estate's undivided interest in the property would realize significantly less for the estate than the sale of the property free of the interests of the co-owners.

• The benefit to the estate of a sale of the property free of the interests of co-owners outweighs the detriment to the co-

owners. (An additional requirement found in § 363(h)(4), that the property is not used in the production, transmission, or distribution, for sale, of electric energy or of natural or synthetic gas for heat, light, or power, will not be applicable in consumer bankruptcy cases.) The trustee must offer corroborating evidence, beyond his or her own professional belief, that partition of the property is not practical and that a sale free from the interest of the co-owner is necessary to maximize the value to the estate. In re Missler, 418 B.R. 259 (Bankr. N.D. Ohio 2009). While bankruptcy courts commonly grant trustee requests for sale under § 363(h), it is not impossible for the debtor to show that the detriment to the co-owners outweighs the benefit to the estate. See, e.g., In re Westgate, 2008 WL 3887607 (Bankr. D. N.J. 2008) (the Chapter 7 trustee’s motion under Code § 363(h) to sell a single-family residence, owned by the debtor and her boyfriend, would be denied, where the financial burden on the boyfriend, coupled with the fact that the family, including a young child, would be uprooted from their home, compelled the conclusion that the burden to the nondebtor outweighed the benefit to the estate); In re Iwanski, 2009 WL 1073110 (Bankr. D. Neb. 2009) (the detriment to the co-owner of a vehicle outweighed the benefit to the Chapter 7 debtor's estate of a sale of the co-owner's interest in the vehicle).

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Code § 363(h) applies, by its terms, to property owned in tenancy in common, joint tenancy, and tenancy by the entireties. Note, however, that, under Code § 522(b)(3)(B), debtors electing state exemptions may exempt, from the bankruptcy estate, property held in joint tenancy or tenancy by the entireties to the extent the property is exempt from execution under state law. If the debtor is able to exempt his or her interest in the jointly-owned property, then the estate will not hold any interest in the property and the trustee will not be authorized by § 363(h) to sell it. Code § 363(h) has no application to community property because, under Code § 541(a)(2), both spouses’ interests in community property become property of the estate even where only one spouse files bankruptcy, so long as that spouse has sole, equal, or joint management and control of the community property. Conversely, if the community property is under the sole control of the nonfiling spouse, then the bankruptcy estate has no interest in the property. In either situation, there is no property in which the bankruptcy estate holds only partial ownership.

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G. Trustee’s Sale of Partially-Exempt Property The debtor’s exemption of all of the equity in certain property does not serve to remove the property itself from the bankruptcy estate. If the Chapter 7 trustee later determines that the property has value that may be realized for the estate, that is, value beyond the debtor’s equity and the amount of any encumbrances, the trustee may be able to sell the property and pay the debtor the amount of the debtor’s exemption. That’s what happened to the debtor in Schwab v. Reilly, 130 S.Ct. 2652, 177 L.Ed.2d 234 (2010). The owner of a failed catering business, the debtor was intent on retaining her business equipment, which her parents purchased for her despite their own financial difficulties, and which she described as having “extraordinary sentimental value” to her. She listed her business equipment as an asset, valued it at $10,718, and claimed two facially-valid exemptions totaling that amount. She thought that she had fully exempted the equipment, but the Chapter 7 trustee, who believed the equipment to be worth some $17,000, sought to auction it and then pay the debtor the amount of her exemption. Ultimately, the Supreme Court sided with the trustee. In re Gebhart, 621 F.3d 1206 (9th Cir. 2010) took the Schwab decision and ran with it. In a case that poses a real threat to Chapter 7 debtors who hope to retain their homes, the Ninth Circuit Court of Appeals held that, even though a Chapter 7 debtor has validly exempted all of the equity the debtor has in the home on the petition date, the Chapter 7 trustee may hold the case open for an extended period of time, wait for the property to appreciate, and then sell it and pay the debtor the amount exempted. The court reasoned that, under Schwab v. Reilly, the debtor’s exemption removed only an “interest” in the property equal to the amount exempted from the debtor’s bankruptcy estate; the property itself, subject to the debtor’s exemption, remained property of the estate. The value of the property was not fixed on the petition date; only the amount of the debtor’s exemption was. Therefore, appreciation in the value of the property belonged to the estate. The trustee was not estopped, by his long delay in selling the house (three years after discharge in one case, 22 months in the other), from proceeding with the sale, as the debtor made no showing that the trustee intended for the debtor to act as if he would be able to retain the homestead property permanently. As the Court of Appeals noted, there is at least one thing the debtor can do, if the debtor believes that the Chapter 7 trustee is holding the case open for too long: Move for an order compelling the trustee’s abandonment of the property under Code § 554(b). For more on this, see the next subdivision. The court made the same observation in In re Hyman, 967 F.2d 1316 (9th Cir. 1992). See also In re Pauline, 119 B.R. 727 (9th Cir. B.A.P. 1990) (affirming a bankruptcy court order, issued in response to the debtor’s motion under § 554(b), requiring the Chapter 7 trustee to sell the debtor’s residence within 60 days or abandon it).

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H. Trustee’s Abandonment of Property of the Estate Property leaves the bankruptcy estate either by being sold or otherwise disposed of by the Chapter 7 trustee or by being “abandoned” by the trustee, in which case the property revests in the debtor. Code § 554 controls abandonment. Abandonment may occur as to specific items of property during the pendency of the case or as to the entire estate upon the closing of the case. Abandonment of individual items of estate property occurs under § 554(a) if the trustee voluntarily abandons the property or under § 554(b) if the court orders abandonment following application by a party in interest. In either case, abandonment is permissible only where the property is either burdensome to the estate or of inconsequential value and benefit to the estate. Note that these are alternative bases for compelling abandonment. Abandonment of the entire estate occurs under § 554(c) upon the closing of the case. However, this is limited to property that the debtor “scheduled.” Unscheduled property remains property of the estate even beyond the closing of the case, potentially forever, under §§554(c), (d). See, e.g., In re Erwin, 35 Fed. Appx. 555 (9th Cir. 2002) (because the Chapter 7 debtor’s prepetition wages that a credit union garnished postpetition, allegedly in violation of the automatic stay, were property of the estate, and the debtor did not schedule the wages as an asset, under Code § 554(d) the wages remained property of the estate after the closing of the case, and the debtor lacked standing to subsequently seek recovery of the wages). This may occur, for example, if the debtor did not schedule a prepetition cause of action, even where the debtor was not aware of the existence of the cause of action. Property that is not abandoned remains vested in the Chapter 7 trustee so that, for example, the debtor lacks standing to later assert a prepetition cause of action that the debtor failed to list in his or her bankruptcy schedules. See, e.g., In re Robbins, 398 B.R. 442 (Bankr. W.D. Ky. 2008). Under these circumstances, the debtor will usually also be held to be estopped from asserting the cause of action, aside from the issue of lack of standing. In re Robbins, supra. While some cases hold that abandonment under § 554(c), which is called a “technical” abandonment, is irrevocable, most courts appear to recognize that, after a Chapter 7 case is reopened, the court may revoke the trustee’s prior abandonment where it is equitable to do so. See, e.g., LPP Mortg., Ltd. v. Brinley, 547 F.3d 643 (6th Cir. 2008); In re Woods, 173 F.3d 770 (10th Cir. 1999).

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I. Avoidance of Liens Impairing Exemptions (1) In General; Judicial Liens One of the maxims of bankruptcy is that liens pass through unaffected. Happily, there are occasional exceptions to this rule, and one is found in Code § 522(f), which entitles a debtor to set aside two types of liens--judicial liens and liens securing nonpossessory, nonpurchase-money security interests in certain kinds of personal property--to the “extent” that the lien “impairs” an exemption of the debtor. Code § 522(f)(2)(A) defines impairment for the purpose of this provision. The debtor simply adds the amounts of the debts secured by all of the liens (judicial, consensual, and otherwise) on the property, plus the value of the exemption the debtor is entitled to claim, and compares that to the fair market value of the debtor’s interest in the property, ignoring all liens. All values are as of the petition date. The debtor may avoid the lien to the extent that the total of the liens and the debtor’s exemption exceeds the value of the debtor’s interest in the property (which, in the case of property wholly owned by the debtor, will simply be the property’s value). To give some simple examples, consider real property worth $ 300,000 in which the debtor is entitled to a homestead exemption of $40,000:

• If the property is subject to a $260,000 mortgage, a judicial lien in any amount could be avoided, because the total of the consensual liens and the debtor’s exemption already equals the entire value of the property.

• If the property is subject to a $200,000 mortgage, on the other hand, a judicial lien could be avoided to the extent that

the lien exceeds $60,000. A lien of less than that amount could not be avoided at all. One might note that the statutory formula does not require that there be any actual impairment of the debtor’s exemption. For instance, a judicial lien will be fully avoidable even where the total of the (unavoidable) consensual mortgage liens on the property exceeds the value of the property, so that the debtor has no equity that his or her exemption could protect. See In re Morais, 2009 WL 3054059 (Bankr. D. Mass. 2009).

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There are important limitations on this avoidance power:

• The lien may not secure a domestic support obligation.

• Because the statute permits the avoidance of the “fixing” of a lien, and the “fixing” of a lien can only occur where the debtor’s property interest exists prior to the attachment of the lien, the debtor may avoid a lien only where “the debtor had the property interest to which the lien attached at some point before the lien attached to that interest.” Farrey v. Sanderfoot, 500 U.S. 291, 111 S. Ct. 1825, 114 L. Ed. 2d 337 (1991) (the debtor could not avoid a lien that attached to property the debtor received in the distribution of the marital assets in a marital dissolution proceeding).

• Code § 522(f)(2)(C) states that “This paragraph shall not apply with respect to a judgment arising out of mortgage foreclosure,” and courts have struggled with its meaning. The issue is whether this provision precludes avoidance of a lien securing a mortgage foreclosure judgment. Most courts hold that it does not. See, e.g., In re Hart, 328 F.3d 45 (2003); In re Anderson, 2010 WL 322167 (Bankr. N.D. Ill. 2010); In re Linane, 291 B.R. 457 (Bankr. N.D. Ill. 2003); In re Carson, 274 B.R. 577 (Bankr. D. Conn. 2002). For a recent case that reached the opposite conclusion, see In re Criscuolo, 386 B.R. 389 (Bankr. D. Conn. 2008).

A proper motion to avoid a lien under Code § 522(f) will (1) specify and adequately identify the property that is involved; (2) specify the exemption that is claimed; (3) assert the property's fair market value as of the petition date; (4) identify the existence and amount of any consensual secured creditors with unavoidable interests in the property; and (5) present the statutory analysis specified in § 522(f)(2) establishing that the contested lien in fact “impairs” the claimed exemption and, importantly, the “extent” to which the various lien impairs the exemption. In re Parker, 2008 WL 4545208 (Bankr. D. Idaho 2008). The debtor also has to show that the lien does not secure a domestic support obligation. In re Deangelis, 2010 WL 1509111 (Bankr. M.D. Pa. 2010). The debtor has the burden of proof on all elements of the motion. In re Ford, 415 B.R. 51 (Bankr. N.D. N.Y. 2009). A debtor may avoid a judicial lien that affixed postpetition, at least if the underlying claim arose prepetition. In re Corio, 371 Fed. Appx. 352 (3rd Cir., March 24, 2010).

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(2) Nonpossessory, Nonpurchase-Money Security Interests The other type of lien that is avoidable under § 522(f) is a nonpossessory, nonpurchase-money security interest in specified types of personal property. Impairment is calculated in the same manner as with a judicial lien. The personal property as to which a security interest may be avoided consists of:

• Household furnishings, household goods, wearing apparel, appliances, books, animals, crops, musical instruments, or jewelry that are held primarily for the personal, family, or household use of the debtor or a dependent of the debtor.

• Implements, professional books, or tools, of the trade of the debtor or the trade of a dependent of the debtor

• Professionally prescribed health aids for the debtor or a dependent of the debtor.

In this listing, “household goods” is defined to mean (i) clothing; (ii) furniture; (iii) appliances; (iv) one radio; (v) one television; (vi) one VCR; (vii) linens; (viii) china; (ix) crockery; (x) kitchenware; (xi) educational materials and educational equipment primarily for the use of minor dependent children of the debtor; (xii) medical equipment and supplies; (xiii) furniture exclusively for the use of minor children, or elderly or disabled dependents of the debtor; (xiv) personal effects (including the toys and hobby equipment of minor dependent children and wedding rings) of the debtor and the dependents of the debtor; and (xv) one personal computer and related equipment. To give an example of an impairment calculation involving personal property subject to a nonpossessory, nonpurchase-money security interest, if the debtor is entitled to claim a $2,400 exemption in a vehicle worth $5,000, and they only lien on the vehicle is a $6,000 nonpossessory, nonpurchase-money security interest, that lien is avoidable to the extent of $3,400, i.e., the total ($8,400) of the lien ($6,000) and the debtor’s exemption ($2,400) exceeds the value of the vehicle ($5,000) by $3,400. This leaves $2,600 of the lien unavoided. Of course, a simpler way to get to this result is to calculate that the debtor’s exemption leaves $2,600 of the equity in the vehicle available for attachment by the lien.

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(3) Co-owned Property A complication arises where the property is co-owned by the debtor and one or more others. The literal language of the statute calls for the use of the full amount of the debts secured by other liens on the property, but only the debtor’s proportional share of the value of the property, in the calculation of impairment. See, e.g., In re White, 337 B.R. 686 (Bankr. N.D. Cal. 2005); In re Cozad, 208 B.R. 495 (10th Cir. B.A.P. 1997). This greatly favors the debtor. Quite a few courts have chosen to calculate impairment under these circumstances by employing only a proportional amount of the debts secured by the other liens. See, e.g., In re Armenakis, 406 B.R. 589 (Bankr. S.D. N.Y. 2009) (where the debtor was a 50% owner of the property, the calculation was (one-half value of property) – (one half of all other liens) – (amount of lien to be avoided) – (amount of homestead exemption) equaled the amount of the lien that could be avoided, so long as the calculation resulted in a negative number). See also In re Meyer, 373 B.R. 84 (9th Cir. B.A.P. 2007) (applying the proportional approach).

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V. The Automatic Stay A. Existence of the Stay (1) Protection Afforded under Stay The automatic stay, which arises under Code § 362(a), is foundational to a bankruptcy case. It goes into effect immediately upon the filing of the debtor’s bankruptcy petition, even though the debtor’s creditors will not yet have been informed of the bankruptcy filing. The automatic stay is broadly defined and precludes (with certain exceptions to be discussed):

• The commencement or continuation, including the issuance or employment of process, of a judicial, administrative, or other action or proceeding against the debtor that was or could have been commenced before the commencement of the case under this title, or to recover a claim against the debtor that arose before the commencement of the case under this title. See Code § 362(a)(1).

• The enforcement, against the debtor or against property of the estate, of a judgment obtained before the

commencement of the case under this title. See Code § 362(a)(2).

• Any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate. See Code § 362(a)(3).

• Any act to create, perfect, or enforce any lien against property of the estate. See Code § 362(a)(4).

• Any act to create, perfect, or enforce against property of the debtor any lien to the extent that such lien secures a claim

that arose before the commencement of the case under this title. See Code § 362(a)(5).

• Any act to collect, assess, or recover a claim against the debtor that arose before the commencement of the case under this title. See Code § 362(a)(6).

• The setoff of any debt owing to the debtor that arose before the commencement of the case under this title against any

claim against the debtor. See Code § 362(a)(7).

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Note that there are three entities protected in various ways by these provisions: the debtor, the property of the debtor, and the property of the debtor’s bankruptcy estate. It’s important that, in understanding these provisions, you differentiate between the protections offered to each one. Note also that, in general, the stay applies only to prepetition claims, i.e., claims in existence on the petition date. Under Code § 362(c), the stay remains in effect as to property of the estate until the property is no longer property of the estate. The stay remains in effect as to actions against the debtor, or the debtor’s property, until the case is closed or dismissed, or the debtor is granted or denied a discharge.

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(2) Exceptions to Stay Code § 362(b) defines 28 different exceptions to the automatic stay. The most important are:

• The commencement or continuation of a criminal action or proceeding against the debtor, found in § 362(b)(1).

• Various matters related to marital dissolution and spousal and child support found in § 362(b)(2):

o The commencement or continuation of a civil action or proceeding (i) for the establishment of paternity; (ii) for the establishment or modification of an order for domestic support obligations; (iii) concerning child custody or visitation; (iv) for the dissolution of a marriage, except to the extent that such proceeding seeks to determine the division of property that is property of the estate; or (v) regarding domestic violence.

o The collection of a domestic support obligation from property that is not property of the estate.

o The withholding of income that is property of the estate or property of the debtor for payment of a domestic support

obligation under a judicial or administrative order or a statute.

• An action to enforce a governmental unit's or organization's police and regulatory power, including the enforcement of a judgment other than a money judgment, found in Code § 362(b)(4).

• A governmental unit’s audit to determine tax liability, issuance to the debtor of a notice of tax deficiency, demand for

tax returns, making of an assessment for any tax and issuance of a notice and demand for payment of such an assessment, found in Code § 362(b)(9).

• The creation or perfection of a statutory lien for an ad valorem property tax, or a special tax or special assessment on

real property whether or not ad valorem, imposed by a governmental unit, if such tax or assessment comes due after the date of the filing of the petition, found in Code § 362(b)(18).

• The continuation of any eviction, unlawful detainer action, or similar proceeding by a lessor against a debtor involving

residential property in which the debtor resides as a tenant under a lease or rental agreement and with respect to which the lessor has obtained before the date of the filing of the bankruptcy petition, a judgment for possession of such property against the debtor, found in Code § 362(b)(22), although this is subject to the safe harbor provision found in Code § 362(l).

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(3) Special Requirements for Debtor with Recently-Dismissed Case(s) BAPCPA made a significant change to the automatic stay. Now, under Code § 362(c)(3), if the debtor had one bankruptcy case dismissed in the year before filing the present case, the automatic stay terminates by operation of law on the 30th day postpetition if the stay is not extended. The stay may be extended only by order following a properly noticed hearing completed by the 30th day, which means that the debtor must request such a hearing as soon as possible after filing his or her bankruptcy petition. At the hearing, the debtor must establish that the present case was filed in good faith. However, if the stay is not extended, a large number of courts hold that the stay terminates only in part. These courts hold that the stay terminates with respect to the debtor and property of the debtor, but not as to property of the estate. A number of courts also hold that the stay is terminated only as to actions pending prepetition. Other courts disagree with both propositions, however, and find the stay terminated in its entirety. Moreover, if the debtor had two or more bankruptcy cases dismissed in the year prepetition, Code § 362(c)(4) provides that the automatic stay does not go into effect at all. The court may impose a stay following a properly noticed hearing if the debtor files a motion for imposition of the stay within 30 days of his or her petition and, at the hearing, establishes that the case was filed in good faith. Unlike § 362(c)(3), there is no requirement that the hearing itself take place within the 30-day period.

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B. Relief from the Stay (1) In General A creditor may petition the court to exempt the creditor’s debt from the automatic stay; this is called moving for “relief” from stay. In a Chapter 7 case, relief from stay is usually predicated on Code § 362(d)(1), which permits lifting of the stay for “cause.” Cause typically exists where the debtor has failed to pay a secured debt, and the creditor seeks to foreclose, or where the creditor seeks to continue pre-existing state court litigation against the debtor. However, in the latter situation, relief from stay generally be limited to a determination of the debtor’s liability, but not the execution of a judgment against the debtor. Code § 362(d)(2) allows relief from stay where the debtor has no equity in the property and the property is not necessary to the debtor’s effective reorganization. Since a debtor in Chapter 7 is not attempting a reorganization, a lack of equity is the only real requirement. Code § 362(d)(4) authorizes relief from stay in favor of a creditor holding a security interest in real property where the debtor’s bankruptcy petition was “part of a scheme to delay, hinder and defraud creditors.” In deciding whether to grant a motion for relief from stay, a bankruptcy judge may consider issues that go to the enforceability of the creditor’s security interest. See In re Hubbel, 427 B.R. 789 (N.D. Cal. 2010) (where the self-executing rescission provision of the Truth in Lending Act cast serious doubt on the creditor’s rights, the bankruptcy court did not err in denying the creditor’s motion for relief from stay and inviting the creditor to litigate the issue in an adversary proceeding). An order granting relief from stay may be limited in the scope of relief granted. The creditor must confine his or her debt collection activities to the sphere authorized in the court’s order. See, e.g., In re Wardrobe, 559 F.3d 932 (9th Cir. 2009) (an order granting limited relief from an automatic stay to allow a creditor to proceed to judgment in a pending state court action is effective only as to those claims actually pending in the state court at the time the order modifying the stay issues, or that were expressly brought to the attention of the bankruptcy court during the relief from stay proceedings). While stay relief generally is prospective, bankruptcy courts have broad discretion to retroactively annul the automatic stay. See, e.g., In re Williford, 294 Fed. Appx. 518 (11th Cir. 2008) (because the bankruptcy court held a hearing, considered all of its options, and chose a course of action that comported with the purposes of the automatic stay, that court did not abuse its discretion in annulling the automatic stay and thereby validating a divorce decree entered postpetition in violation of the stay).

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(2) Standing A creditor seeking relief from stay must establish its standing to do so. This requires showing that the creditor has the right to enforce the debtors’ mortgage note. See, e.g., In re Hill, 2009 WL 1956174 (Bankr. D. Ariz. 2009) (a party seeking relief from stay must have the right to enforce the debtors’ note under Arizona law); In re Wilhelm, 407 B.R. 392 (Bankr. D. Idaho 2009) (the parties moving for relief from stay to enforce the debtors' obligations under the mortgage notes did not have the right to enforce the notes under Idaho law and therefore were not “real parties in interest” entitled to seek relief from stay). It is not sufficient for the creditor to show merely that it has been assigned the mortgage or deed of trust. See In re Mitchell, 2009 WL 1044368 (Bankr. D. Nev. 2009), aff’d sub nom., Mortgage Electronic Registration Systems, Inc. v. Medina, 2009 WL 4823387 (D. Nev. 2009) (“Simply being a beneficiary or having an assignment of a deed of trust is not enough to be entitled to foreclose on a deed of trust. For there to be a valid assignment for purposes of foreclosure both the note and the deed of trust must be assigned”). However, depending on state law, it may be necessary for the creditor to establish a valid assignment of the mortgage as well as the right to enforce the note. Compare In re Relka, 2009 WL 5149262 (Bankr. D. Wyo. 2009) (Wyoming state law required that a mortgage, and any assignments of the mortgage, be recorded before any foreclosure action) and In re Mitchell, supra (requiring assignment of both the note and the deed of trust) with In re Hill, 2009 WL 1956174 (Bankr. D. Ariz. 2009) (Under Arizona law, a party that becomes the holder of a note secured by a deed of trust also acquires all of the rights under the deed of trust). A note is a negotiable instrument, and, under Uniform Commercial Code § 3-301, a person is entitled to enforce a negotiable instrument only if the person is either:

• A holder of the instrument.

• A nonholder in possession of the instrument who has the rights of a holder.

• A person not in possession of the instrument who is entitled to enforce the instrument pursuant to § 673.3091, relating to lost instruments, or § 673.4181(4), relating to instruments that are paid by mistake.

The third possibility is rarely applicable, and, of the other two, in most cases the creditor attempts to show that it is the holder of the note.

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It may be possible for a mortgage servicer to file the motion for relief from stay as agent for the actual holder of the note. Compare In re Jacobson, 402 B.R. 359 (Bankr. W.D. Wash. 2009) (even if a servicer or agent has authority to bring the motion on behalf of the holder, it is the holder, rather than the servicer, that must be the moving party, and so identified in the papers and in the electronic docketing done by the moving party's counsel) with In re Burretto, Case No. 05-07146-JW (Bankr. D. S.C., July 23, 2008) (a mortgage loan servicer has standing to file a motion for relief from stay). Where the servicer files the motion, the servicer must show that its principal is entitled to enforce the note. See, e.g., In re Jones, 2010 WL 358494 (Bankr. E.D. N.C. 2010) (although the mortgage servicer claimed that HSBC was the current note holder, there was nothing before the court establishing that HSBC, in fact, had a legal interest to enforce the note); In re Sheridan, 2009 WL 631355 (Bankr. D. Idaho 2009) (MERS, which filed a motion for relief from stay “as nominee HSBC Bank USA, National Association, as Indenture Trustee of the Fieldstone Mortgage Investment Trust Series 2006-3,” did not establish its standing to prosecute such a motion, even assuming that MERS as a “nominee” had sufficient rights and ability as an agent to advance its principal's stay relief request; the motion provided no explanation, much less documentation or other evidence, to show that the Fieldstone Mortgage Investment Trust Series 2006-3 (as an entity) or HSBC Bank USA (as that entity's “indenture trustee”) had any interest in the subject note or the subject deed of trust). The servicer also has to show that it is authorized to bring the motion on behalf of the principal. See In re Jacobson, supra (the court denied a motion for relief from stay filed by “UBS AG, as servicing agent for ACT Properties, LLC” where UBS AG submitted no evidence that it was authorized to act for whoever held the note). In any event, a motion for relief from stay may not be filed on behalf of unnamed movants. See In re Vargas, 396 B.R. 511 (Bankr. C.D. Cal. 2008) (the court could not grant a motion for relief from stay that identified the movant as “Mortgage Electronic Registrations System, Inc., its assignees and/or successors in interest,” as the mandated local form required that the name of the movant be stated, and here the motion did not identify the “assignees and/or successors in interest”); In re Mitchell, 2009 WL 1044368 (Bankr. D. Nev. 2009), aff’d sub nom., Mortgage Electronic Registration Systems, Inc. v. Medina, 2009 WL 4823387 (D. Nev. 2009) (a motion for relief from stay brought in the name of the lender and “its successors and/or assigns” did not comply with Fed. R. Civ. P. 17, requiring that an action be prosecuted in the name of the real party in interest.).

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There are two requirements for a person to be the “holder” of an instrument: (1) The person must possess the note, and (2) the note must be payable either to the person in possession of the note or to the bearer. See UCC § 1-201(b)(21)(A). A note is payable to the bearer when the note is indorsed “in blank,” which means that the note bears an indorsement that does not identify the person to whom the indorsement makes the instrument payable. See UCC § 3-204(b). A note may be indorsed several times; where this is the case, the validity of each indorsement must be established. A note may be indorsed on an allonge, which is a paper “affixed to the instrument.” The allonge then becomes part of the instrument. See UCC § 3-204(a), which states that “for the purpose of determining whether a signature is made on an instrument, a paper affixed to the instrument is a part of the instrument.” For cases in which the creditor was able to establish that it was the holder, see In re Relka, 2009 WL 5149262 (Bankr. D. Wyo. 2009) and In re Hill, 2009 WL 1956174 (Bankr. D. Ariz. 2009). For cases in which the creditor was unable to establish its status as the holder of the note, see In re Jones, 2010 WL 358494 (Bankr. E.D. N.C. 2010); In re Wilhelm, 407 B.R. 392 (Bankr. D. Idaho 2009); In re Canellas, 2010 WL 571808 (Bankr. M.D. Fla. 2010). A “nonholder in possession of the instrument who has the rights of a holder” means a person who acquires physical possession of a note payable to a specified party other than the holder. Such a nonholder must “prove the transaction” by which it acquired the note from the holder. See UCC § 3-203, Comment 2. The nonholder must identify each step in the transfer of the note from the original payee to the nonholder and show that the party transferring the note had the authority to do so. For a case in which the creditor tried and failed to show that it was a “nonholder in possession of the instrument who has the rights of a holder,” see In re Wilhelm, 407 B.R. 392 (Bankr. D. Idaho 2009). Observe that, in either case, an entity must have possession of the note in order to enforce it. Mere ownership of a note is insufficient to permit the owner to enforce the note. Adams v. Madison Realty & Development, Inc., 853 F.2d 163 (3rd Cir. 1988). For that reason, an assignment of a note, or of the rights under a note, without physical delivery of the note to the assignee is ineffective to permit the assignee to enforce the note. In re Wells, 407 B.R. 873 (Bankr. N.D. Ohio 2009). In other words, a note is transferred by negotiation, not assignment. When a note has been indorsed, a critical issue is often whether an agent of making the indorsement had the authority to indorse the note on behalf of the holder. The debtor must carefully examine the note, the mortgage and the agent’s power of attorney, if any, to see if the agent had the authority to indorse the note under the conditions present at the time of the transfer. Several courts have held, for example, where a mortgage or deed or trust had been assigned to Mortgage Electronic Registration Systems, or MERS, that language in that document giving MERS the right to foreclose the mortgage did not authorize MERS to transfer the note. See In re Wilhelm, 407 B.R. 392 (Bankr. D. Idaho 2009); Saxon Mortgage Services v. Hillery, 2008 WL 5170180 (N.D. Cal. 2008); Bellistri v. Ocwen Loan Servicing, LLC, 284 S.W.3d 619 (Mo. Ct. App. 2009).

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When a creditor’s chain of indorsements on a note is challenged, the creditor may be tempted to create after-the-fact documents that attempt to fill in the holes. For example, in In re Canellas, 2010 WL 571808 (Bankr. M.D. Fla. 2010), the court commented that, while the movant submitted an allonge and an assignment in support of its motion, the veracity of both were questionable. It appeared that they were created postpetition, the court said, for the purpose of the relief from stay proceeding, and the movant did not establish that the individuals who executed the documents had authority to do so. Courts are sometimes willing to conduct a minute examination of the power of attorney held by an agent for the holder of a note. For example, in In re Wells, 407 B.R. 873 (Bankr. N.D. Ohio 2009), in which the court held that the limited power of attorney given to Ocwen by U.S. Bank was ineffective to authorize Ocwen’s filing of a proof of claim (rather than a motion for relief from stay) on behalf of the bank, the court reasoned that:

• The limited power of attorney provided by Ocwen in support of the claim was internally inconsistent because it was purportedly given by “U.S. Bank National Association,” but was executed by “U.S. Bank National Association, as Trustee.”

• The authority granted to Ocwen in the power of attorney was limited to acting on behalf of the entities listed in an

exhibit, and the creditor on whose behalf Ocwen purported to act, “U.S. Bank National Association, as Trustee for the Registered Holders of Aegis Asset Backed Securities Trust Mortgage Pass-Through Certificates, Series 2005-4” was not among those listed.

• The limited power of attorney permitted Ocwen to act only through officers appointed by its board of directors, and there

was no showing that Jacqueline Bailey, who signed the proof of claim as “Quality Control, Bankruptcy Department,” was a duly appointed officer of Ocwen.

• The limited power of attorney stated that actions taken by Ocwen needed to be consistent with its servicing

responsibilities, but there was nothing in the record spelling out those responsibilities. Note that one local bankruptcy judge is disinclined to carefully examine questions of standing when it comes to motions for relief from stay. See In re Emrich, 2009 WL 3816174 (Bankr. N.D. Cal. 2009) (a mortgage creditor that had filed a motion for relief from stay was not required to prove that it held a valid note and deed of trust to the debtor’s property) (decision by Judge Alan Jaroslovsky).

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C. Violation of the Stay Code § 362(k) explicitly provides for an award of damages when a creditor has willfully violated the automatic stay. A violation of the automatic stay is “willful” so long as the creditor had notice of the bankruptcy filing. In re Glanzer, 2008 WL 938590 (Bankr. N.D. Ohio 2008). Even if a creditor’s initial violation of the stay was not willful, because the creditor did not know of the debtor’s bankruptcy filing, the creditor has an affirmative duty to remedy its stay violation and restore the prepetition status quo. In re Thorne, 2008 WL 2385991 (Bankr. M.D. N.C. 2008). Observe that Code § 342, which specifies how notice is to be given to creditors, also provides, in § 342(g)(2), that a monetary penalty may not be imposed on a creditor for a violation of a stay unless the conduct that is the basis of the violation occurs after the creditor receives notice of the order for relief that complies with § 342. However, in In re Harvey, 388 B.R. 440 (Bankr. D. Me. 2008) the court said that the debtor scheduled an active business address for the creditor, and § 342 required no more. A debtor who has established a willful violation of the stay is entitled to recover the actual damages sustained by the debtor. While there is some disagreement as to whether the debtor, in order to recover attorney’s fees, must establish an actual injury other than having incurred attorney’s fees, most courts consider attorney’s fees to be part of the debtor’s actual damages. See, e.g., In re Cousins, 404 B.R. 281 (Bankr. S.D. Ohio 2009) (most bankruptcy courts in the Sixth Circuit had concluded that attorney fees are not in addition to actual damages under Code § 362(k)(1) but are a component of the actual damages recoverable under the language of the statute). For a contrary view, see In re Alcantara, 389 B.R. 270 (Bankr. M.D. Fla. 2008) (the debtors did not state a claim for violation of the automatic stay, where the debtors alleged only that they “suffered damages and incurred attorneys' fees and costs” as a result of the creditor’s purported violation of the stay, but the debtors did not specify the injury that they allegedly sustained; there were many cases requiring an injury to the debtor—other than the attorney’s fees to bring the action—in order for the debtor to recover damages for violation of the automatic stay). Most courts hold that the debtor’s actual damages include both the attorney’s fees incurred in remedying the stay violation and the attorney’s fees incurred in prosecuting an adversary proceeding in order to recover damages. See, e.g., In re Repine, 536 F.3d 512 (5th Cir. 2008) (it is proper to award attorney's fees that were incurred prosecuting a successful § 362(k) claim). The Ninth Circuit, however, has issued a controversial decision holding that a debtor is entitled to recover attorney’s fees only for work associated with enforcing the automatic stay and remedying the stay violation, but not the fees incurred in prosecuting the adversary proceeding in which debtor pursued his claim for those damages. See Sternberg v. Johnston, 595 F.3d 937 (9th Cir. 2010). Both parties filed petitions for a writ of certiorari with the U.S. Supreme Court, but the Court denied the petitions.

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Where proven, a debtor may recover emotional distress damages as part of the debtor’s actual damages. See, e.g., In re Burkart, 2010 WL 502945 (Bankr. N.D. N.Y. 2010); In re Anderson, 430 B.R. 882 (Bankr. S.D. Iowa 2010); In re Wingard, 382 B.R. 892 (Bankr. W.D. Pa. 2008). The debtor will need to provide “specific information” concerning the damages caused by the emotional distress. Fleet Mortg. Group, Inc. v. Kaneb, 196 F.3d 265 (1st Cir. 1999); In re Repine, 536 F.3d 512 (5th Cir., 2008). Emotional injury is compensable under § 362(k) even if the emotional injury is not linked to some other financial injury. See In re Dawson, 390 F.3d 1139 (9th Cir. 2004) (to be entitled to damages for emotional distress under § 362(k), an individual must (1) suffer significant harm, (2) clearly establish the significant harm, and (3) demonstrate a causal connection between that significant harm and the violation of the automatic stay). A court also has authority to award punitive damages under appropriate circumstances. See, e.g., In re White, 410 B.R. 322 (Bankr. M.D. Fla. 2009) (adopting the standard expounded in In re Wagner, 74 B.R. 898 (Bankr. E.D. Pa. 1987) for determining when punitive damages are appropriate); In re Burkart, 2010 WL 502945 (Bankr. N.D. N.Y. 2010) (punitive damages for a willful violation of the automatic stay are warranted only where there is an actual finding of maliciousness or bad faith on the part of the offending creditor). Damages awards for violation of the automatic stay may be substantial. See America's Servicing Co. v. Schwartz-Tallard, --- B.R. ----, 2010 WL 3724187 (D. Nev. 2010) (where the mortgage creditor violated the automatic stay and foreclosed on the Chapter 13 debtor’s mortgage, the court affirmed the bankruptcy court’s award of $40,000 in emotional distress and economic damages and $20,000 in punitive damages). Recovery of damages for a creditor’s willful violation of the automatic stay is generally sought via an adversary proceeding. In some districts, it may be possible to secure this relief by filing a motion to hold the creditor in contempt of court. The circuits disagree on the status of an action taken in violation of the automatic stay. A majority of circuits hold that actions taken in violation of the automatic stay are void, not merely voidable. See, e.g., In re Soares, 107 F.3d 969 (1st Cir. 1997); In re Myers, 491 F.3d 120 (3rd Cir. 2007); In re Schwartz, 954 F.2d 569 (9th Cir. 1992); Borg-Warner Acceptance Corp. v. Hall, 685 F.2d 1306 (11th Cir. 1982). At least two circuits view such actions as voidable rather than void. See Sikes v. Global Marine, Inc., 881 F.2d 176 (5th Cir. 1989); Easley v. Pettibone Michigan Corp., 990 F.2d 905 (6th Cir. 1993).

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VI. Scope of a Chapter 7 Discharge A. In General The Bankruptcy Code provisions that govern the effect of a Chapter 7 discharge are sections 523 (designating the debts that are not dischargeable), 524 (establishing the effect of a discharge in bankruptcy) and 727 (providing for a discharge in a Chapter 7 case). There are two fundamental principles to keep in mind with respect to the debts discharged in a Chapter 7 discharge. First, with one exception, the debtor’s discharge extends only to prepetition debts—liabilities that, even if contingent, are based on conduct occurring, or a contract entered into, before the debtor filed his or her bankruptcy petition. See Code § 727(b) (the discharge extends to “all debts that arose before” the petition date). See, e.g., In re Emery, 428 B.R. 709 (W.D. Mich. 2010) (the Chapter 7 debtor’s obligation to her former husband to pay 46 percent of the parties’ consolidated student loan debt was a postpetition debt, and thus not within the debtor’s discharge, where the obligation was imposed in a postpetition divorce decree, even though the student loan debt itself predated the debtor’s bankruptcy filing); In re Cory, 2008 WL 5157515 (Bankr. W.D. Mo. 2008) (the debtors’ potential liability for malicious prosecution of a person against whom they caused criminal charges to be lodged was a postpetition debt not subject to the debtors’ discharge, as the criminal case was dismissed after the date on which the debtors filed their bankruptcy petition, and, under Missouri law, a claim for malicious prosecution accrued when the allegedly spurious litigation was dismissed). A debt arising postpetition under a prepetition contract may constitute a prepetition debt. Compare In re SNTL Corp., 571 F.3d 826 (9th Cir. 2009) (an unsecured creditor may include, as part of its claim, attorney’s fees incurred postpetition but based on a prepetition contract) with In re Weeks, 400 B.R. 117 (Bankr. W.D. Mich. 2009) (a debtor has no “liability on a claim,” or “debt,” to a creditor flowing from the postpetition operation of a prepetition guaranty). The one exception to the limitation to prepetition debts recognized in Code § 727(b) involves debts that, under Code § 502, are treated as though they arose prepetition. These debts include certain debts for reimbursement or contribution (§ 502(e)), a claim arising from the rejection of an executory contract or unexpired lease of the debtor (§ 502(g)), certain claims arising from the recovery of property (§ 502(h)), and a claim for a tax entitled to priority under Code § 507(a)(8) that does not arise until after the commencement of the case (§ 502(i)). The second fundamental principle of a Chapter 7 discharge is that it extends only to the debtor’s personal liability; the discharge does not void a lien securing the debt or otherwise diminish the creditor’s in rem rights. See Code §§524(a)(1), (2) (specifying that a discharge eliminates “the personal liability of the debtor”). See, e.g., In re Crabtree, 2008 WL 5339108 (Bankr. E.D. Okla. 2008) (a state court action for replevin of certain property in which the creditor held a security interest was an action in rem, not in personam, and was not precluded by the debtor’s discharge).

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B. Debts Excepted from Discharge Code § 523(a) defines 21 different kinds of unsecured debts that are not dischargeable. The most important include:

• Many tax debts. See § 523(a)(1). The tax debts that are nondischargeable are the following:

o An unsecured tax debt (1) for a taxable year ending on or before the petition date, (2) for which the filing of a return was required, and (3) for which the return was due, taking extensions into account, in the three years before the petition date.

o An unsecured debt (1) for a tax that was assessed in the 240 days before the petition date and (2) that was for a

taxable year ending on or before the petition date. o An unsecured debt (1) for a tax that was not assessed prepetition, but that was assessable following the petition

date, and (2) that was for a taxable year ending on or before the petition date. o A secured or unsecured debt for taxes (1) for which the filing of a return, or the giving of an “equivalent report or

notice,” was required, and (2) for which the required document was not filed or given. o A secured or unsecured debt for taxes (1) for which the filing of a return, or the giving of an “equivalent report or

notice,” was required, and (2) for which the required document was filed or given in an untimely manner but in the two years preceding the debtor’s bankruptcy filing.

o A secured or unsecured debt for taxes for which the debtor filed a fraudulent return. o A secured or unsecured debt for taxes that the debtor “willfully attempted in any manner to evade or defeat.” o An unsecured debt that arose in an involuntary case and in the ordinary course of the debtor's business or financial

affairs after the commencement of the case but before the earlier of the appointment of a trustee and the order for relief.

• A debt for money, property, or services, or an extension, renewal, or refinancing of credit, obtained by fraud. See §

523(a)(2). Note that the elements of nondischargeability under § 523(a)(2)(A) are different from those under § 523(a)(2)(B).

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• Debts not scheduled by the debtor, unless the creditor has actual knowledge of the bankruptcy case. See § 523(a)(3).

The Ninth Circuit Court of Appeals has limited this provision to cases in which there are assets to distribute, unless the debt is asserted to be nondischargeable under § 523(a)(2), (4) or (6). See In re Beezley, 994 F.2d 1433 (9th Cir. 1993).

• A debt for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny. See § 523(a)(4).

• A debt for a domestic support obligation. See § 523(a)(5). The term “domestic support obligation” is defined in Code §

101(14A) as follows:

(14A) The term “domestic support obligation” 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.

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• A debt for willful and malicious injury by the debtor. See § 523(a)(6).

• Certain debts for a fine, penalty, or forfeiture payable to and for the benefit of a governmental unit that are not

compensation for actual pecuniary loss. See § 523(a)(7).

• A student loan debt, unless the debtor establishes that excepting the debt from discharge would impose an undue hardship on the debtor and the debtor's dependents. See § 523(a)(8).

• A debt for death or personal injury caused by the debtor's operation of a motor vehicle, vessel, or aircraft if the

operation was unlawful because the debtor was intoxicated from using alcohol, a drug, or another substance. See § 523(a)(9).

• A debt for payment of an order of restitution issued under the federal criminal code. See § 523(a)(13).

• A debt incurred in order to pay a nondischargeable tax. See §§523(a)(14) (debt incurred to pay federal tax), (14A)

(debt incurred to pay state or local tax).

• A debt to a spouse, former spouse, or child of the debtor that is not a domestic support obligation and that is incurred by the debtor in the course of a divorce or separation or in connection with a separation agreement, divorce decree or other order of a court of record, or a determination made in accordance with state or territorial law by a governmental unit. See § 523(a)(15). This provision, together with § 523(a)(5), which makes domestic support obligations nondischargeable, effective render nondischargeable all debts to the debtor’s spouse, former spouse, or child arising from a divorce or separation. The distinction between support and property settlements is immaterial in Chapter 7.

• A debt for a fee or assessment that becomes due and payable, after the petition date, on behalf of the debtor’s interest

in a unit in a condominium, cooperative, or homeowners’ association. See § 523(a)(16).

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C. Necessity of Determination of Nondischargeability While the creditor has to establish that a debt is nondischargeable under one or more of the provisions listed above in order to collect the debt, in general there is no deadline for the creditor’s commencing an action to do so. See Bankruptcy Rule 4007(b) (“[a] complaint other than under § 523(c) may be filed at any time”). However, Code § 523(c)(1) requires the creditor to affirmatively act to establish that a debt is nondischargeable if the creditor asserts that § 523(a)(2), (4) or (6) apply. Under Bankruptcy Rule 4007(c), a complaint to determine the dischargeability of a debt under one of these provisions must be filed no later than 60 days after the first date set for the meeting of creditors. Note, however, that if the debtor fails to schedule a debt that is nondischargeable under § 523(a)(2), (4) or (6), and the creditor does not have actual knowledge of the bankruptcy case, the debt will be nondischargeable under § 523(a)(3)(B) as an unlisted debt and these time limits will not apply. In re Staffer, 306 F.3d 967 (9th Cir. 2002) (there is no time limit for bringing a nondischargeability complaint under § 523(a)(3)(B)).

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D. The Discharge Injunction Under § 524(a)(2), the debtor’s discharge “operates as an injunction against the commencement or continuation of an action, the employment of process, or an act, to collect, recover or offset” any debt encompassed by the debtor’s discharge as a personal liability of the debtor. This gives rise to the “discharge injunction”; a creditor’s attempt to collect a discharged debt violates the discharge injunction. Since the injunction prohibits only the collection of a discharged debt from the debtor personally, a creditor’s exercise of its in rem rights relating to a discharged debt is not a violation of the discharge injunction. Most courts hold that there is no private right of action under § 524; rather, the discharge injunction is enforced by a proceeding to hold the violator in contempt of court. See,, e.g., Pertuso v. Ford Motor Credit Co., 233 F.3d 417 (6th Cir. 2000); Walls v. Wells Fargo Bank, N.A., 276 F.3d 502 (9th Cir. 2002). Under Bankruptcy Rule 9020, a claim of civil contempt is a contested matter initiated by a motion. This is true even where the motion seeks an award of damages. In re Englund, 401 B.R. 377 (8th Cir. B.A.P. 2009). A claim that a creditor violated the discharge injunction may not be asserted via an adversary proceeding. Barrientos v. Wells Fargo Bank Nat. Ass'n, 2009 WL 1438152 (S.D. Cal. 2009). A court may award both compensatory damages, including damages for emotional distress, and punitive damages for a violation of the discharge injunction. See, e.g., In re Nibbelink, 403 B.R. 113 (Bankr. M.D. Fla. 2009), in which the court held that the creditor’s conduct warranted an award of punitive damages in the amount of $15,000, where the creditor (1) charged improper fees during the debtors’ Chapter 13 case; (2) attempted to collect those improper fees after the debtors received their discharge by making numerous telephone calls and sending numerous ominous letters demanding that the debtors become current or face foreclosure; (3) ignored two letters sent by the debtors’ counsel attempting to resolve the matter; (4) made false entries on the debtors’ credit reports; (5) overcharged the debtors when they sold their house; and (6) completely ignored the complaint in this adversary proceeding, opting not to file an answer or to become otherwise involved until after the entry of a default.

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VII. Bankruptcy Trustees Two trustees will be involved in a Chapter 7 case, the case trustee and the United States Trustee. The case trustee will be randomly assigned from the court’s pool of Chapter 7 trustees. Unlike Chapter 13 cases, in which most districts have one, or a very small number, of “standing” Chapter 13 trustees, who have responsibility for all of the Chapter 13 cases in that district, bankruptcy courts have pools of Chapter 7 trustees, all of whom have been appointed to the pool by the U.S. Trustee. The Chapter 7 trustee will handle almost all aspects of the debtor’s case except application of the means test. The Executive Office of the U.S. Trustees has compiled an extensive Handbook for Chapter 7 Trustees. The U.S. Trustee is responsible for making determinations under the means test. The U.S. Trustee is the “big dog” in the administration of the Bankruptcy Code. The United States Trustee Program describes its function as follows: “The United States Trustee Program is a component of the Department of Justice that seeks to promote the efficiency and protect the integrity of the Federal bankruptcy system. To further the public interest in the just, speedy and economical resolution of cases filed under the Bankruptcy Code, the Program monitors the conduct of bankruptcy parties and private estate trustees, oversees related administrative functions, and acts to ensure compliance with applicable laws and procedures. It also identifies and helps investigate bankruptcy fraud and abuse in coordination with United States Attorneys, the Federal Bureau of Investigation, and other law enforcement agencies.” In two states—Alabama and North Carolina—there is no U.S. Trustee. In bankruptcy courts within those states, the role of the U.S. Trustee is approximated by the Bankruptcy Administrator. United States Trustee Program Information on Bankruptcy Administrators

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VIII. The Meeting of Creditors Between 20 and 40 days after the debtor’s bankruptcy petition is filed, the “meeting of creditors” will be scheduled in a Chapter 7 case. See Bankruptcy Rule 2003(a). This meeting is also called the “341 meeting,” or the “section 341 meeting,” because it occurs under the authority of section 341 of the Bankruptcy Code. The debtor must attend, and this generally will be the debtor’s first exposure to the bankruptcy process. Although § 341(a) states that the U.S. Trustee will preside at the meeting of creditors, the U.S. Trustee has appointed the Chapter 7 trustee to attend as the U.S. Trustee’s designee. While this meeting is called the meeting of creditors, as all of the debtor’s creditors are notified of the meeting and permitted to attend, in fact it is likely that the only participants will be the Chapter 7 trustee, the debtor, and the debtor’s attorney. The purpose of the 341 meeting is two-fold: to ensure that the debtor has completed all the forms required either under the Bankruptcy Code or by the trustee’s office, and to allow the trustee to question the debtor regarding the debtor’s assets, both those revealed on the schedules and forms already filed by the debtor and those not acknowledged in those documents. As noted in the last section, the Executive Office of the U.S. Trustee has published a handbook for Chapter 7 trustees. Chapter 7 of the handbook discusses the conduct of the meeting of creditors, and Appendix A specifies a number of questions that trustees are required to ask debtors, and a second group of questions that may be asked. A debtor should be able to answer these questions, and it is essential that the debtor answer these questions truthfully, as the trustee’s examination of the debtor is conducted under the penalty of perjury.

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IX. The Means Test A. In General The means test is at the heart of Chapter 7 eligibility. Code § 707(b)(1) states that the court may dismiss or (with the debtor’s approval) convert a case in which granting the debtor a Chapter 7 discharge would be an “abuse” of the provisions of Chapter 7, and § 707(b)(2) provides that the court shall “presume” that abuse exists if the debtor fails the means test. The means test calculates an approximation of the amount of money that the debtor should have available each month to pay nonpriority unsecured creditors, taking into account the debtor’s income and allowable expenses. The means test also sets a maximum allowable amount of available funds, which varies only slightly, depending on the total amount of the debtor’s nonpriority unsecured debts; the debtor is said to “fail” the means test if the debtor’s available funds, as calculated in the means test, is above this maximum. If the debtor “fails” the means test, so that a presumption of abuse arises, the debtor has the opportunity to show that “special circumstances” rebut the presumption, as discussed below. It is essential to remember, however, that a debtor is not subject to the means test if any of the following are true:

• The debtor’s “current monthly income” (which is defined in § 101(10A)) is less than or equal to the median income for the debtor’s state for a family of the same size as the debtor. If a married debtor files a Chapter 7 petition in which his or her spouse does not join, and the spouses do not maintain separate households, the spouse’s income may need to be included in this calculation. See the discussion below.

• The debtor’s debts are not primarily consumer debts. See Code § 707(b)(1).

• The debtor is a disabled veteran (as defined in 38 U.S.C. § 3741(1)), and the indebtedness occurred primarily during a

period during which he or she was (1) on active duty (as defined in 10 U.S.C. § 101(d)(1)) or (2) performing a homeland defense activity (as defined in 32 U.S.C. § 901(1)). See Code § 707(b)(2)(D)(i).

• The debtor is a member of a reserve component of the Armed Forces or a member of the National Guard who is on

active duty or is performing a homeland defense activity, for a period of at least 90 days, or the debtor was on such active duty, or performed such a homeland defense activity, in the 540 days before the petition date. See Code § 707(b)(2)(D)(ii).

• The debtor establishes by a preponderance of the evidence that the filing of a case under Chapter 7 is necessary to

satisfy a claim for a domestic support obligation. See Code § 707(c)(3).

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Under the statutory formula, a debtor fails the means test when the debtor’s available monthly income, when multiplied by 60, is equal to or greater than the lesser of (1) the greater of $7,025 and 25 percent of the debtor's nonpriority unsecured claims, and (2) $11,725. (These figures are updated every three years.) On a monthly basis, this figure will be:

• $117.08 per month if the debtor's nonpriority unsecured claims total less than $28,100

• The total of the debtor's nonpriority unsecured claims divided by 240 if the claims total between $28,100 and $46,900

• $195.41 per month if the debtor's nonpriority unsecured claims total more than $46,900 As noted above, the means test does not apply if a debtor’s debts are not primarily consumer debts. Under Code § 101(8), a consumer debt is a “debt incurred by an individual primarily for a personal, family, or household purpose.” This includes all secured debt incurred for personal, family, or household purposes, such as the debtor’s residential mortgage. In re Price, 353 F.3d 1135 (9th Cir. 2004). The term “primarily” in the context of § 707(b) means consumer debt exceeding 50 percent of the total debt. In re Kelly, 841 F.2d 908 (9th Cir. 1988); In re Stewart, 175 F.3d 796 (10th Cir. 1999). Courts are fairly evenly divided on the question of whether the means test applies to a debtor who converted to Chapter 7 from Chapter 13, rather than filing under Chapter 7 originally, with a small majority favoring the view that it is not applicable:

• Cases holding the means test applicable: In re Willis, 408 B.R. 803 (Bankr. W.D. Mo. 2009); Justice v. Advanced Control Solutions, Inc., 2008 WL 4368668 (W.D. Ark. 2008); In re Kellett, 379 B.R. 332 (Bankr. D. Or. 2007); In re Kerr, 2007 WL 2119291 (Bankr. W.D. Wash. 2007); In re Perfetto, 361 B.R. 27 (Bankr. D. R.I. 2007).

• Cases holding the means test not applicable: In re Chapman, 431 B.R. 216 (Bankr. D. Minn. 2010); In re Cruse, Case

No. 4:06-bk-2892 (Bankr. S.D. Iowa 2010); In re Guarin, 2009 WL 4500476 (Bankr. D. Mass. 2009); In re Ryder, 2008 WL 3845246 (Bankr. N.D. Cal. 2008); In re Dudley, 405 B.R. 790 (Bankr. W.D. Va. 2009); In re Fox, 370 B.R. 639 (Bankr. D. N.J. 2007). See also In re Miller, 381 B.R. 736 (Bankr. W.D. Ark. 2008) (means test may not be applicable).

The U.S. Trustee has the initial burden of proof on the issue of presumed abuse under the means test. The UST’s establishing a prima facie case of abuse shifts the burden to the debtor to rebut the prima face case and shift the ultimate burden of proof back to the Trustee. In re Williams, 424 B.R. 207 (Bankr. W.D. Va. 2010); In re Perelman, 419 B.R. 168 (Bankr. E.D. N.Y. 2009). See also In re Meade, 420 B.R. 291 (Bankr. W.D. Va. 2009) (as a general proposition, the burden of proof should be imposed upon the party asserting that a Chapter 7 filing is abusive to prove that contention; however, when the debtor asserts that other “necessary expenses” or permitted deductions for debt repayment, which comprise Lines 25 thru 44 of Form 22A, negate the presumption of abuse, the burden of proof as to those deductions ought to be placed on the debtor).

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However, the U.S. Trustee must substantiate his objections to the debtor’s figures. See In re Davis, 378 B.R. 539 (Bankr. N.D. Ohio 2007) (a presumption of abuse did not arise, although the U.S. Trustee contended that the debtor had taken deductions on her means test that exceeded the allowed amounts, where the Trustee had not offered objective data to substantiate his assertion that the debtor's deductions exceeded allowed amounts). Code § 704(b) calls for the U.S. Trustee to file a statement as to whether or not a presumption of abuse arises under the means test within 10 days after the first date set for the meeting of creditors, and to file a motion to dismiss on the ground of presumed abuse (if the UST decides to move for dismissal) within 30 days of filing that statement. Almost all courts have ruled that these time periods are mandatory. See, e.g., In re Reed, 422 B.R. 214 (C.D. Cal. 2009); In re Close, 384 B.R. 856 (D. Kan. 2008); In re Ansar, 383 B.R. 344 (Bankr. D. Minn. 2008). As to when the 10-day period starts to run, most courts have found the trigger date to be the conclusion of the meeting of creditors. See, e.g., In re Reed, 422 B.R. 214 (C.D. Cal. 2009); In re Allen, 411 B.R. 913 (Bankr. S.D. Ga. 2009). Some courts have concluded, however, that the period runs from the first date set for the meeting of creditors. See In re McClellan, Case No. 06-12768-lbr (Bankr. D. Nev., July 16, 2007); In re Close, 353 B.R. 915 (Bankr. D. Kan. 2006), aff’d, 384 B.R. 856 (D. Kan. 2008). Most courts have required the U.S. Trustee’s 10-day statement to be unequivocal, rather than one stating that the UST is unable to determine whether a presumption of abuse has arisen. See, e.g., In re Reed, 422 B.R. 214 (C.D. Cal. 2009); In re Ansar, 383 B.R. 344 (Bankr. D. Minn. 2008); In re Sandifer, 2008 WL 618799 (Bankr. N.D. Cal. 2008). A few courts have not required an unequivocal statement. See In re Cadwallder, 2007 WL 1864154 (Bankr. S.D. Tex. 2007); In re Jasper, 2009 WL 357945 (Bankr. E.D. Va. 2009). Does a court have the discretion to decline to dismiss or order conversion of a case in which a presumption of abuse arises and is not rebutted, because, say, unsecured creditors will not receive a meaningful distribution in Chapter 13? There is disagreement among the courts:

• Courts concluding that discretion exists: In re Siler, 426 B.R. 167 (Bankr. W.D. N.C. 2010) (declining to dismiss the Chapter 7 debtor’s case, despite that the fact that an unrebutted presumption of abuse arose, the court declared that to use the means test to deny Chapter 7 relief to an individual who could not pay unsecured creditors in Chapter 13 and who, as a matter of clear congressional election, would not be required to do so was absurd and contrary to the purpose of the means test); In re Skvorecz, 369 B.R. 638 (Bankr. D. Colo. 2007) (emphasizing that the language of Code § 707(b)(1) is permissive, stating that the court may dismiss or convert, not that the court shall dismiss or convert, the court said it understood this provision as affording the court discretion in a case such as this, where other provisions of the same statute created an inconsistency leading to an absurd result); In re Mravik, 399 B.R. 202 (Bankr. E.D. Wis.

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2008) (concluding that the debtor’s case was not in fact abusive, although a presumption of abuse arose and was not rebutted); In re Smith, 2008 WL 6069509 (Bankr. W.D. N.C. 2008) (the court declined to dismiss where the debtor could simply file a new case because his income had decreased).

• Courts concluding that discretion does not exist: In re Woodruff, 416 B.R. 369 (Bankr. D. Mass. 2009); In re Hernandez,

2008 WL 5441279 (Bankr. N.D. Ohio 2008); Justice v. Advanced Control Solutions, Inc., 2008 WL 4368668 (W.D. Ark. 2008); In re Davis, 2008 WL 4279547 (Bankr. N.D. Ohio 2008); In re Haman, 366 B.R. 307 (Bankr. D. Del. 2007).

U.S. Trustee Program resources USTP website —Means Test Information Statement of the U.S. Trustee's Program on Legal Issues Arising under the Chapter 7 Means Test (April 23, 2010) United States Trustee's Perspective in Consumer Bankruptcy Cases (March 2010) Chapter 7 Handbooks and Reference Materials U.S. Trustee FAQs United States Trustee Manual

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B. Determination of Above- or Below-Median Status (1) In General In order to determine whether the debtor’s income is above or below the state median, the debtor’s attorney will need to determine (1) the debtor’s “current monthly income,” which is defined in Code § 101(10A), and (2) the debtor’s household size, which is not a defined term. The attorney then consults the state median income data available on the U.S. Trustee Program website. The debtor’s expenses are not part of this determination. All means test calculations are performed on Official Form 22A, Statement of Current Monthly Income and Means Test Calculation, which is available on the Administrative Office for the U.S. Courts' website. The determination of whether the debtor is above- or below-median is made in part III of the form. Where the debtor is married but his or her spouse does not join in the bankruptcy petition, and the spouses do not maintain separate households, Form 22A calls for the inclusion of the spouse’s income in the determination of whether the debtor is above- or below-median. The drafters of the form apparently believe that this is required by Code § 707(b)(7), which performs this calculation in terms of “the current monthly income of the debtor … and the debtor's spouse combined,” and which explicitly provides for the exclusion of the nonfiling spouse’s income where the parties are separated or maintain separate households. Few, if any, cases appear to have addressed whether a debtor’s nonfiling spouse can have “current monthly income” under the definition of that term. However, a number of courts have interpreted the same expression in Code § 1325(b)(4), which determines whether a Chapter 13 debtor is above- or below-median, and most have construed it to include only the debtor’s current monthly income, reasoning that a person who is not a debtor simply has no “current monthly income” as that term is defined. See In re Vollen, 426 B.R. 359 (Bankr. D. Kan. 2010); In re Clemons, 2009 WL 1733867 (Bankr. C.D. Ill. 2009); In re Stansell, 395 B.R. 457 (Bankr. D. Idaho 2008); In re Dugan, 2008 WL 3558217 (Bankr. D. Kan. 2008); In re Borders, 2008 WL 1925190 (Bankr. S.D. Ala. 2008); In re Grubbs, 2007 WL 4418146 (Bankr. E.D. Va. 2007). The only case reaching the opposite conclusion appears to be In re Ariyaserbsiri, 2008 WL 5191200 (Bankr. E.D. Tex. 2008). The counter-argument is that Code § 707(b)(6) defines a debtor as above- or below-median in terms of only the debtor’s current monthly income, but permits the judge and the U.S. Trustee to seek dismissal of cases involving below-median debtors. This certainly suggests that § 707(b)(7), which includes the income of the debtor’s spouse but does not permit any party to seek dismissal of a below-median debtor’s case, is intended to carry the meaning given it by Form 22A. The question remains, however, of whether the language used by Congress accomplished this apparent intention.

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(2) Determination of Household Size While the determination of whether the debtor is above- or below-median is based in part on the size of the debtor’s “household,” the Bankruptcy Code does not define this term, and courts have developed two approaches. A majority of courts apply the definition used by the Bureau of the Census: “all of the people, related and unrelated, who occupy a housing unit.” These courts reason that, because Code § 101(39A)(A) defines “median family income” as “the median family income both calculated and reported by the Bureau of the Census,” it is only fair to use the Census Bureau's definition of “household.” This is also called the “heads on beds” approach; for courts adopting it, see In re Bostwick, 406 B.R. 867 (Bankr. D. Minn. 2009); In re Epperson, 409 B.R. 503 (Bankr. D. Ariz. 2009); In re Smith, 396 B.R. 214 (Bankr. W.D. Mich. 2008); In re Fleishman, 372 B.R. 64 (Bankr. D. Or. 2007); In re Ellringer, 370 B.R. 905 (Bankr. D. Minn. 2007). See also In re Baker, 2009 WL 412885 (Bankr. N.D. Ill. 2009) (apparently applying Census Bureau approach); In re Swanson, 2008 WL 4540181 (Bankr. D. Neb. 2008) (same). The other approach includes only household members who are financially dependent on the debtor. See In re Redley, 2008 WL 597947 (Bankr. E.D. Pa. 2008); In re Herbert, 405 B.R. 165 (Bankr. W.D. N.C. 2008); In re Jewell, 365 B.R. 796 (Bankr. S.D. Ohio 2007).

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(3) Calculation of Current Monthly Income (a) In General “Current monthly income” is defined in § 101(10A) as:

(A) the average monthly income from all sources that the debtor receives (or in a joint case the debtor and the debtor's spouse receive) without regard to whether such income is taxable income, derived during the 6-month period ending on—

(i) the last day of the calendar month immediately preceding the date of the commencement of the case if the debtor files the schedule of current income required by section 521(a)(1)(B)(ii); or (ii) the date on which current income is determined by the court for purposes of this title if the debtor does not file the schedule of current income required by section 521(a)(1)(B)(ii); and

(B) any amount paid by any entity other than the debtor (or in a joint case the debtor and the debtor's spouse), on a regular basis for the household expenses of the debtor or the debtor's dependents (and in a joint case the debtor's spouse if not otherwise a dependent), but excludes benefits received under the Social Security Act […]

Unfortunately, the definition of “current monthly income” itself relies on the undefined term “income.” Many courts have interpreted “income” very broadly. See, e.g., In re DeThample, 390 B.R. 716 (Bankr. D. Kan. 2008) (“current monthly income” includes “every dime a debtor gets” during the relevant period except for those amounts specifically excluded by Code § 101(10A)(B), such as Social Security Benefits); In re Mendelson, 2009 WL 761440 (Bankr. E.D. N.Y. 2009) (same); In re Cotto, 425 B.R. 72 (Bankr. E.D. N.Y. 2010 (same). Presumably these courts would include it as income if the debtor found a wad of $100 bills on the sidewalk. This approach interprets “income” to mean “receipts,” but those are very different words. “Income” denotes a return from labor, while “receipts” encompasses everything that happens to fall into a person’s hands. A more analytical approach is to interpret “income” to be equivalent to “gross income” under the Internal Revenue Code. See In re Curcio, 387 B.R. 278 (Bankr. N.D. Fla. 2008) (“income” for CMI purposes is broadly construed as pre-tax income from all sources, similar to “gross income” under the Internal Revenue Code). For the definition of “gross income,” see 26 U.S.C. § 64. For “Items Specifically Included in Gross Income,” see 26 U.S.C. § 71 et seq. For “Items Specifically Excluded from Gross Income,” see 26 U.S.C. § 101 et seq.

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For another court taking an analytical approach to the question, see In re Marti, 393 B.R. 697 (Bankr. D. Neb. 2008) (“income” is not separately defined in the Code, but is defined in Black's Law Dictionary as “the return in money from one's business, labor, or capital invested; gains, profits, salary, wages, etc.”; thus, a debtor's voluntary withdrawals from retirement savings are simply not income). Note also the definition by the Census Bureau:

Receipts Not Counted As Income. Receipts from the following sources are not included as income: (1) money received from the sale of property, such as stocks, bonds, a house, or a car (unless the person is engaged in the business of selling such property, in which case the net proceeds is counted as income from self-employment); (2) withdrawals of bank deposits; (3) money borrowed; (4) tax refunds; (5) gifts; and (6) lump-sum inheritances of insurance payments.

Since the debtor’s income is compared to median state incomes developed by the Census Bureau in order to determine whether the debtor is above- or below-median, it only makes sense that the Census Bureau definition of income would be adhered to in calculating the debtor’s “current monthly income.” As discussed above, several courts have followed the same reasoning in applying the Census Bureau’s definition of “household” to determine the debtor’s household size. For the single Court of Appeals decision on the issue to date, see Blausey v. U.S. Trustee, 552 F.3d 1124 (9th Cir. 2009) (the $4,000 in monthly benefits received by a debtor under a private disability insurance policy was “income” for the purpose of calculating the debtor’s “current monthly income” because the benefits were intended to replace the debtor’s lost income).

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(b) Timing of Receipt and Derivation of Income What is the status of income that is not both derived and received by the debtor during the six-month lookback period? Compare In re Bernard, 397 B.R. 605 (Bankr. D. Mass. 2008) (“current monthly income” is not restricted to income a debtor derives and receives during the six months prepetition; the income must be “derived” during the six-month period, but the timing of its actual receipt is irrelevant) and In re Burrell, 399 B.R. 620 (Bankr. C.D. Ill. 2008) (same) with In re Arnoux, 2010 WL 3245516 (Bankr. E.D. Wash. 2010) (income must be both received and derived during the six-month lookback period to be included in the calculation of “current monthly income”; thus, here, where the debtor received, after the expiration of the lookback period, a paycheck that included wages earned during the six-month period, those wages were not included in the calculation).

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(c) Inclusion of Particular Items Bonuses Bonuses received during the six-month look-back period are included in income. See In re Foster, 2006 WL 2621080 (Bankr. N.D. Ind. 2006); In re Barnes, 378 B.R. 774 (Bankr. D. S.C. 2007); In re Arsenault, 370 B.R. 845 (Bankr. M.D. Fla. 2007). As to whether a bonus may be pro-rated over the interval for which the bonus was awarded, compare In re Meade, 420 B.R. 291 (Bankr. W.D. Va. 2009) (allowing proration) with In re Cruz, 2008 WL 3346583 (Bankr. E.D. Wis. 2008) (not allowing proration). Earned income tax credit An earned income tax credit is included in income. In re Forbish, 2009 WL 1209024 (Bankr. N.D. Ill. 2009); In re Royal, 397 B.R. 88 (Bankr. N.D. Ill. 2008). Employer reimbursements Insofar as employer reimbursements are concerned, see In re Tinsley, 428 B.R. 689 (Bankr. W.D. Va. 2010) (mileage reimbursements from the debtor’s employer are income for the purpose of the means test, but they are also evidence of expenses the debtor could claim) and In re Jones, Case No. 07-81646 (Bank. D. Neb., Dec. 14, 2007) (reimbursement of moving expenses should not count as income where it is a direct reimbursement of out-of-pocket costs, even though it may be taxable on the debtors’ federal income tax return). Profit from sale of asset Several courts have recognized the profit from the sale of an asset as income. See In re Curcio, 387 B.R. 278 (Bankr. N.D. Fla. 2008) (profit from the sale of the debtor’s house was income, although including the proceeds from a one-time transaction in calculating current monthly income produced a result that “appears to be absurd”); In re Warren, 2007 WL 2916563 (Bankr. D. Mont. 2007) (profit from the debtor’s sale of a parcel of real property was income); and In re Featherston, 2007 WL 2898705 (Bankr. D. Mont., Sept. 28, 2007) (the profit from the sale of business assets was income). For a case reaching the opposite conclusion, see In re Leach, Case No. 08-61028-13 (Bankr. D. Mont. 2009) (“income from all other sources” does not include proceeds received from the prepetition sale of a debtor’s vehicle, as such proceeds are not derived from gains, employment, investments, royalties, gifts and the like and are not a replacement for income).

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Retirement plan distributions A distribution received by the debtor from his or her retirement plan during the six-month look-back period is not income. In re Cram, 2009 WL 1188513 (Bankr. D. Idaho 2009); In re Marti, 393 B.R. 697 (Bankr. D. Neb. 2008); In re Zahn, 391 B.R. 840 (8th Cir. B.A.P. 2008); Simon v. Zittel, 2008 WL 750346 (Bankr. S.D. Ill. 2008); In re Wayman, 351 B.R. 808 (Bankr. E.D. Tex. 2006). Two courts reached the opposite conclusion, although, for various reasons, their precedential value is limited. See In re DeThample, 390 B.R. 716 (Bankr. D. Kan. 2008); In re Sanchez, 2006 WL 2038616 (Bankr. W.D. Mo. 2006). Tax refund A tax refund is not income because a refund is merely a repayment of the government’s debt for monies over-withheld for the debtor’s tax liability. See In re Curcio, 387 B.R. 278 (Bankr. N.D. Fla. 2008); In re Spraggins, 386 B.R. 221 (Bankr. E.D. Wis. 2008). Unemployment benefits Courts disagree on whether unemployment benefits are benefits received under the Social Security Act (and therefore excluded from the calculation of current monthly income): The first two courts to address the question concluded that unemployment benefits are benefits received under the Social Security Act. See In re Munger, 370 B.R. 21 (Bankr. D. Mass. 2007) and In re Sorrell, 359 B.R. 167 (Bankr. S.D. Ohio 2007). All of the later decisions have reached the opposite conclusion. See In re Washington, 2010 WL 3825614 (M.D. Ala. 2010); In re Winkles, 2010 WL 2680895 (Bankr. S.D. Ill. 2010); In re Rose, Case No. 1:09-bk-70088 (Bankr. N.D. Ga. 2010); In re Nance, 2010 WL 2079653 (Bankr. S.D. Ind. 2010); In re Kucharz, 418 B.R. 635 (Bankr. C.D. Ill. 2009); In re Washington, Case No. 2:09-bk-30014 (Bankr. M.D. Ala. 2009), aff’d, 2010 WL 3825614 (M.D. Ala. 2010); In re Baden, 396 B.R. 617 (Bankr. M.D. Pa. 2008); In re Budig, 387 B.R. 12 (Bankr. N.D. Iowa 2008) (without specific analysis). VA disability benefits Veterans' Administration disability benefits are included in current monthly income. See In re Wyatt, 2008 WL 4572506 (Bankr. E.D. Va. 2008); In re Hedge, 394 B.R. 463 (Bankr. S.D. Ind. 2008); In re Redmond, 2008 WL 1752133 (Bankr. S.D. Tex. 2008); In re Waters, 384 B.R. 432 216312 (Bankr. N.D. W.Va. 2008).

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(d) Income Contributed by Nondebtors Under Code § 101(10A)(B), the term “current monthly income” “includes any amount paid by any entity other than the debtor (or in a joint case the debtor and the debtor's spouse), on a regular basis for the household expenses of the debtor or the debtor's dependents (and in a joint case the debtor's spouse if not otherwise a dependent).” This has two elements: the amounts must be paid (1) on a regular basis and (2) for the household expenses of the debtor or the debtor's dependents. While the other person is often the debtor’s nonfiling spouse, this provision is not limited to the debtor’s spouse. See, e.g., In re Justice, 404 B.R. 506 (Bankr. W.D. Ark. 2009) (funds received by the debtor’s dependant adult daughter each month from a state single-parent scholarship fund were included in the calculation of the debtor’s current monthly income to the extend that they were used to pay household expenses); In re Quigley, 391 B.R. 294 (Bankr. N.D. W.Va. 2008) (a debtor who had record title to a motor vehicle that was used exclusively by her ex-boyfriend, and on which he was making all the monthly payments, could deduct the payments as payments on a secured debt, but the debtor had to amend her means test form to increase her current monthly income to account for the benefit she received by having her ex-boyfriend make the payments on the vehicle). Form 22A implements this provision in two ways. Contributions from persons other than the debtor’s nonfiling spouse are reported in line 8. The debtor’s nonfiling spouse, on the other hand, reports all of his or her income in Part II of the form, unless the spouses are living separately, and this income is added to the debtor’s income. Then, in Part IV, the debtor enters a “marital adjustment” (also called the “marital deduction”), which totals the amount of the spouse’s income that is not “paid … on a regular basis for the household expenses of the debtor or the debtor's dependents” and is therefore not included as part of the debtor’s “current monthly income.” The marital adjustment is subtracted from the total of the debtor’s and the spouse’s income that has already been calculated, leaving the portion of the spouse’s income that is “paid … on a regular basis for the household expenses of the debtor or the debtor's dependents.” The debtor must substantiate the marital adjustment if challenged. See, e.g., In re Dugan, 2008 WL 3558217 (Bankr. D. Kan. 2008) (where the debtor claimed that his nonfiling wife had $628 withheld from her paycheck each month to pay her income taxes, the debtor needed to provide the trustee with documentation to support the claim that the asserted amount was properly withheld from his spouse's payroll checks on a regular basis); In re Burke, 2008 WL 2811480 (Bankr. N.D. Ohio 2008) (the Chapter 13 debtor had not properly calculated her projected disposable income, as she claimed a marital deduction of $525 monthly paid by her nondebtor husband to his 18-year-old son, but the remittances submitted by the debtor to substantiate this figure, spanning a period of 23 months, averaged only $146.43 per month).

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C. The Debtor’s Expenses The debtor’s expenses are entered in Parts V and VII of Form 22A. In between, in part VI, the debtor determines whether a presumption of abuse arises. This does not allow the debtor to take the “other necessary expenses” listed in Part VII into account in determining whether the presumption of abuse arises. Also note that there is no place on the form for the debtor to enter claimed special circumstances. While the debtor may try listing these in Part VII of the form, the debtor may need to assert special circumstances in response to a motion to dismiss, if the U.S. Trustee files one. The debtor’s expenses are a combination of actual expenses for some items and allowed deductions for others. The amounts for the expenses for which there is a standard allowance are found on the U.S. Trustee Program website and are based on IRS allowances. For those expenses that are determined in part by the size of the debtor’s family, note that the Code uses the word “dependent” to describe those persons who may be counted as part of the debtor’s family for the purpose of calculating the debtor’s expenses. See, e.g., In re Justice, 404 B.R. 506 (Bankr. W.D. Ark. 2009); In re Law, 2008 WL 1867971 (Bankr. D. Kan. 2008); In re Napier, 2006 WL 4128358 (Bankr. D. S.C. 2006). This is a more restrictive definition than the “heads on beds” approach commonly used by the courts to determine the debtor’s “household size” for the purpose of deciding whether the debtor is above- or below-median, as discussed above. Some of the more common expenses are discussed below. Charitable contributions Code § 707(b)(1) states that “[i]n making a determination whether to dismiss a case under this section, the court may not take into consideration whether a debtor has made, or continues to make, charitable contributions (that meet the definition of “charitable contribution” under section 548(d)(3)) to any qualified religious or charitable entity or organization (as that term is defined in section 548(d)(4)).” Continuing charitable contributions are deducted on Line 40 of Form 22A. Food and clothing expense This amount is a National Standard established by the U.S. Trustee Program and available on its website. This deduction is taken on Line 19A of Form 22A. Note that Code § 707(b)(2)(A)(ii)(I) allows the debtor to claim an additional allowance of up to five percent of the food and clothing portions of this amount if the debtor establishes that it is “reasonable and necessary.” This deduction is taken on Line 39 of Form 22A.

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Health care expense A National Standard has been established by the U.S. Trustee Program and is available on its website. This is entered in Line 19B of Form 22A. Additional health care expenses are deducted on Line 31 as an “other necessary expense.” Housing and utilities expense There are two expenses allowed for housing and utilities; both are Local Standard amounts established by the U.S. Trustee Program and available on its website. These standards are Local Standards: housing and utilities; mortgage/rent expense and Local Standards: housing and utilities; non-mortgage expenses. These deductions are taken on Lines 20A and 20B of Form 22A. A debtor who owns his or her home may also deduct the mortgage expense under the category of secured debt repayment expenses, although the debtor can’t double-dip. Note that Code § 707(b)(2)(A)(ii)(V) allows an additional deduction of excess home energy costs if they are reasonable and necessary. This deduction is taken on Line 37 of Form 22A. A debtor who rents a home and whose rent exceeds the Local Standard amount may be able to establish that the higher expense is justified as a special circumstance. Special circumstances are discussed below. Moreover, Line 21 of Form 22A permits the debtor to “contend that the process set out in Lines 20A and 20B does not accurately compute the allowance to which you are entitled under the IRS Housing and Utilities Standards.” In re Rajender, 2007 WL 2345018 (Bankr. E.D. Cal. 2007) explains that this line “allows debtors only to contest how the U.S. Trustee has divided the Local Standard for housing between the mortgage/rent and nonmortgage/nonrent expense categories.” Nondischargeable debts The fact that a debt is nondischargeable does not change its treatment in the means test. In other words, a nondischargeable debt is deductible only if there is another basis for deducting it. Student loans, for example, are nondischargeable in the absence of undue hardship to the debtor. However, as discussed elsewhere in this section, there is no explicit deduction for repayment of a student loan in the means test, although the debtor can try to deduct it as a “special circumstance.” On the other hand, as also discussed in this section, a domestic support obligation—which is always nondischargeable--is deductible.

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Priority debts All priority debts are deductible in the means test. See Code § 707(b)(2)(A)(iv). Priority debts are defined in Code § 507(a). With minor exceptions, only an unsecured debt may be a priority debt. The most common priority debts are domestic support obligations and many, but not all, nondischargeable tax debts. “Priority” refers to the priority in which the debts are paid in a Chapter 7 case in which there are assets to distribute to unsecured creditors. The priority of a debt in this ranking does not affect its deductibility in the means test. The amount to be deducted is the amount due on the petition date; amounts coming due after the petition date are not included, although they may be deductible on another basis. See e.g., In re Kelvie, 372 B.R. 56 (Bankr. D. Idaho 2007) (the debtors, who filed their Chapter 7 petition in November 2006, could not include their predicted 2006 income tax debt as a priority debt); In re Littman, 370 B.R. 820 (Bankr. D. Idaho 2007) (the debtor could not deduct, as a priority debt, child support ordered after the petition date). The deduction is taken on Line 44 of Subpart C: Deductions for Debt Payment of Part V of Form 22A. Postpetition interest is not included in the priority debt. See, e.g., In re Robinette, 2007 WL 2955960 (Bankr. Bankr. D. N.M. 2007) (the Chapter 7 debtors improperly included, in their priority tax debt to the IRS, $209 in postpetition interest). This is because Code § 502(b)(2) disallows a “claim for unmatured interest.” Retirement account loan repayment expense The means test provides no express deduction for the repayment of a retirement account loan, and courts have consistently held that the payments are not deductible as either a secured debt repayment or an “other necessary expense” under Code §707(b)(2)(A)(ii)(I). The expense is deductible, if at all, as a special circumstance. See, e.g., In re Egebjerg, 574 F.3d 1045 (9th Cir. 2009). See also the discussion of special circumstances, below. Contributions (as opposed to loan repayments) are not deductible on any basis. Secured debt repayment expense Under Code § 707(b)(2)(A)(iii)(I), the debtor is allowed to deduct the amount necessary to repay secured debts with few restrictions. There is no requirement that the expense be necessary. See, e.g., In re Carlton, 370 B.R. 188 (Bankr. C.D. Ill. 2007); Musselman v. eCast Settlement Corp., 394 B.R. 801 (E.D. N.C. 2008); In re O'Connor, 2008 WL 4516374 (Bankr. D. Mont. 2008). Note that the amount that is entered in the means test is the average monthly payment over the following 60 months, not the current monthly payment.

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One highly-contested issue is whether the debtor may deduct a secured debt expense when the debtor intends to surrender the collateral. Most cases nationally, and apparently all the Ninth Circuit cases, have allowed the deduction. See, e.g., In re Wilkins, 370 B.R. 815 (Bankr. C.D. Cal. 2007); In re Vartan, 2007 WL 640006 (Bankr. E.D. Cal. 2007); In re Rodrigues, 2008 WL 372742 (Bankr. N.D. Cal. 2008); In re Maya, 374 B.R. 750 (Bankr. S.D. Cal. 2007). Student loan repayment expense The means test provides no express deduction for the repayment of a student loan. The expense of repaying a student loan is not deductible as an “other necessary expense” under Code §707(b)(2)(A)(ii)(I). See In re Martellaro, 404 B.R. 548 (Bankr. D. Mont. 2008); In re Knight, 370 B.R. 429 (Bankr. N.D. Ga. 2007). The expense is deductible, if at all, as a special circumstance. See the discussion of special circumstances, below. Support obligations A “domestic support obligation,” as defined in Code § 101(14A), is a priority debt under Code §§507(1)(A), (B). As discussed under the topic “Priority debts” in this section, the amount deductible as a priority debt in the means test is the amount due on the petition date, i.e., the arrearage. The postpetition monthly payment amount is deductible on Line 28 of Subpart A of Part V of Form 22A under the category “Other Necessary Expenses: court-ordered payments,” at least where the support is included in a court order. Because the definition of “domestic support obligation” includes amounts due under an agreement of the spouses, even if it is not encompassed by a court order, there may be a question of the deductibility of future payments under these circumstances. Note that the entire amount of a domestic support obligation, including payments due postpetition, constitutes a “claim” as defined in Code § 101(5) because the debtor’s liability has been established prepetition. Because of this, the entire amount due would be deductible as a priority claim in the absence of another limitation. Code § 502(b)(5) provides this other limitation, however; this provision states that an unmatured claim for a domestic support obligation may not be allowed in a bankruptcy case. Therefore, the former spouse’s (or other creditor’s) allowed claim for a domestic support obligation is limited to the prepetition arrearage, and the deduction for priority debts is limited to the amount of the allowed claim. This has no effect, however, on the debtor’s obligation to make future payments on the debt.

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Tax expense The debtor’s future tax expense must be the debtor’s actual tax expense, not the amount withheld from the debtor’s earnings by the debtor’s employer. See, e.g., In re Gray, 2009 WL 3486658 (Bankr. M.D. N.C. 2009); In re Woodruff, 416 B.R. 369 (Bankr. D. Mass. 2009); In re Barbour, 2009 WL 3053697 (Bankr. E.D. N.C. 2009). This is listed on Line 25 (“Other Necessary Expenses: taxes”) of Form 22A. The debtor’s debt for taxes already due will generally be a priority debt. See the discussion of that topic in this section. Transportation expense The debtor is allowed an expense for both vehicle ownership and vehicle operation. Both are standard amounts established by the U.S. Trustee Program and available on its website. There is a National Standard allowance for vehicle ownership (i.e., the allowance is uniform across the county) and a Local Standard amount for vehicle operation that varies by region. A debtor may claim these expenses for up to two vehicles. These expenses are listed in Lines 22A, 22B, 23 and 24 of Form 22A. Because the means test also allows the deduction of the expense of repaying a secured debt, the debtor has the option of expensing a vehicle via the vehicle ownership allowance or a secured debt expense. One issue that has been highly litigated is whether a debtor may claim a vehicle ownership expense for a vehicle on which the debtor has no contractual expense. While a significant majority of courts have allowed the deduction, at least in Chapter 7 cases, In re Ransom, 577 F.3d 1026 (9th Cir., August 14, 2009) disallowed the deduction. The U.S. Supreme Court granted certiorari and affirmed the decision in Ransom v. FIA Card Services, N.A., —- S.Ct. ——, 2011 WL 66438 (Jan. 11, 2011). May a debtor who owns more than two vehicles deduct ownership expenses for two of them and secured debt payments for the others? In re Turner, 376 B.R. 370 (Bankr. D. N.H. 2007), in which the debtors deducted ownership expenses for two vehicles and secured debt payments on two others, answers in the affirmative. May a single debtor claim an ownership expense deduction for two vehicles? Some courts allow the expense without qualification. See In re Cole, 427 B.R. 467 (Bankr. C.D. Ill. 2010); In re Styles, 397 B.R. 771 (Bankr. W.D. Va. 2008); In re Barrett, 371 B.R. 860 (Bankr. S.D. Ill. 2007). Other courts require a justification. See In re Daniel-Sanders, 420 B.R. 102 (Bankr. W.D. N.Y. 2009) (an unmarried debtor whose household has only one driver may claim an ownership expense for two motor vehicles only where special circumstances justify a second vehicle; here, the circumstances provided that justification, as the debtor’s former husband provided care for the debtor’s minor children and needed a vehicle to transport the children); In re Comstock, 389 B.R. 888 (Bankr. N.D. Cal. 2008) (the alleged need of the debtor’s nondependent boyfriend to have the use of a vehicle did not support the debtor’s claim for the expenses of owning two vehicles; however, the court allowed the deduction

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upon finding that the single debtor’s second vehicle was necessary for the production of income or her health and welfare); and In re Scurlock, 385 B.R. 814 (Bankr. M.D. N.C. 2008) (single debtor could deduct ownership expense for two vehicles where the debtor’s dependent child used the vehicle). A debtor who operates a vehicle is entitled to claim the standard vehicle operation expense without consideration of the debtor’s actual expenses. In re Zaporski, 366 B.R. 758 (Bankr. E.D. Mich. 2007); In re Barraza, 346 B.R. 724 (Bankr. N.D. Tex. 2006). A debtor may claim an operating expense deduction even if the debtor does not own the vehicle. See In re Davis, 382 B.R. 764 (Bankr. W.D. Ark. 2008) (although the Chapter 13 debtor identified only one owned vehicle in her schedules, this fact did not, in itself, prevent the debtor from claiming operating expenses for two vehicles); In re Demonica, 345 B.R. 895 (Bankr. N.D. Ill. 2006) (the debtor could claim the transportation operation expense for his use of a vehicle, although only his nondebtor wife was obligated on the note for the vehicle, as he did incur expenses to use the vehicle). Some courts follow the Internal Revenue Manual and allow an additional $200 vehicle operation expense for a vehicle that either is six or more years old or has at least 75,000 miles. Compare In re O'Connor, 2008 WL 4516374 (Bankr. D. Mont. 2008) (allowing the additional expense) and In re Brown, 376 B.R. 601 (Bankr. S.D. Tex. 2007) (same) with In re Martinez, 2008 WL 2018281 (Bankr. E.D. Wis. 2008) (not allowing the expense) and In re Herbord, 2008 WL 149972 (Bankr. S.D. Ill., Jan. 14, 2008) (same).

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Other specified expenses Code § 707(b)(2)(A)(ii)(II) allows the deduction of the expense of “the continuation of actual expenses paid by the debtor that are reasonable and necessary for care and support of an elderly, chronically ill, or disabled household member or member of the debtor's immediate family (including parents, grandparents, siblings, children, and grandchildren of the debtor, the dependents of the debtor, and the spouse of the debtor in a joint case who is not a dependent) and who is unable to pay for such reasonable and necessary expenses.” This deduction is taken on Line 35 of Form 22A. The elements are (1) the expenses must be a continuation of actual expenses paid by the debtor; and (2) the expenses must be reasonable and necessary for care of an elderly, chronically ill, or disabled (a) household member who is unable to pay for such expenses; or (b) member of the debtor's immediate family (as defined by the statute) who is unable to pay for such expenses. In re Williams, 424 B.R. 207 (Bankr. W.D. Va. 2010); In re Harris, 415 B.R. 756 (Bankr. E.D. Cal. 2009); In re Hicks, 370 B.R. 919 (Bankr. E.D. Mo. 2007) For cases applying this provision, compare In re Clingman, 400 B.R. 555 (Bankr. S.D. Tex. 2009) (a monthly payment of $614 that the Chapter 13 debtors had made for many years to pay the mortgage and taxes on a house in which one debtor’s elderly parents had lived for 40 years was an allowable expense under § 707(b)(2)(A)(ii)(II)) with In re Williams, 424 B.R. 207 (Bankr. W.D. Va. 2010) (the debtors’ claimed $200 monthly expense for the care of their 40-year-old daughter was not allowable under Code § 707(b)(2)(A)(ii)(II), where there was no evidence that the $200 was for “actual expenses,” rather than an allowance afforded the daughter; at best the evidence revealed that, in the debtors’ opinion, the daughter was unable to function at a level sufficient to live separate and apart from the debtors). Code § 707(b)(2)(A)(ii)(III) allows the deduction, for a debtor eligible for Chapter 13, of “the actual administrative expenses of administering a chapter 13 plan for the district in which the debtor resides, up to an amount of 10 percent of the projected plan payments, as determined under schedules issued by the Executive Office for United States Trustees.” This expense is available on the U.S. Trustee Program website as the “Administrative Expenses Multiplier.” This deduction is taken on Line 45 of Form 22A. Code § 707(b)(2)(A)(ii)(IV) allows the deduction of “the actual expenses for each dependent child less than 18 years of age, not to exceed $1,775 per year per child, to attend a private or public elementary or secondary school if the debtor provides documentation of such expenses and a detailed explanation of why such expenses are reasonable and necessary, and why such expenses are not already accounted for in the National Standards, Local Standards, or Other Necessary Expenses referred to in subclause (I).” This deduction is taken on Line 38 of Form 22A.

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Attempts to deduct expenses under this provision often fail for lack of proper documentation. See, e.g., In re Justice, 404 B.R. 506 (Bankr. W.D. Ark. 2009) (the debtor’s deduction of $125 monthly for his minor child’s school-related trip to Europe was not proper under Code § 707(b)(2)(A)(ii)(IV), as the debtor provided neither “documentation” of the expense nor “a detailed explanation of why the expense is reasonable or necessary,” and the provision required both); In re O'Connor, 2008 WL 4516374 (Bankr. D. Mont. 2008) (the debtors provided no supporting documentation in support of the $95 for their nephew's school activities, failed to explain why such expenses were reasonable and necessary and not already accounted for in the National and Local Standards or Other Necessary Expenses, and therefore failed to meet their burden of proof); In re Sullivan, 370 B.R. 314 (Bankr. D. Mont. 2007) (where the debtors claimed a monthly expense of $285 for education expenses of dependent children under the age of 18 on line 38 of their Form B22A, the court disallowed the entire expense, other than the $25 monthly conceded by the Chapter 7 trustee, where the debtors failed to show that the claimed expense was reasonably necessary and not already accounted for in the National and Local standards or Other Necessary Expenses). “Other necessary expenses” Code § 707(b)(2)(A)(ii)(I) allows a deduction for “the debtor's actual monthly expenses for the categories specified as Other Necessary Expenses issued by the Internal Revenue Service for the area in which the debtor resides, as in effect on the date of the order for relief, for the debtor, the dependents of the debtor, and the spouse of the debtor in a joint case, if the spouse is not otherwise a dependent.” This refers to section 5.15.1.10 of the Internal Revenue Manual (IRM), which is online here and lists 15 categories of expenses that may be deductible if the expense either (1) provides for the health and welfare of the debtor or his or her family, or (2) is for the production of income. These expenses are deductible in Subpart A: Deductions under Standards of the Internal Revenue Service (IRS) of Part V of Form 22A. The scope of this deduction is limited by the further language in § 707(b)(2)(A)(ii)(I) that “[n]otwithstanding any other provision of this clause, the monthly expenses of the debtor shall not include any payments for debts.” Most courts appear to hold that “other necessary expenses” are limited to the categories specified in the IRM. See, e.g., In re Saffrin, 380 B.R. 191 (Bankr. N.D. Ill. 2007); In re Turner, 376 B.R. 370 (Bankr. D. N.H. 2007). At least one court disagrees. See In re Scarafiotti, 375 B.R. 618 (Bankr. D. Colo. 2007) (“Other Necessary Expenses refer to the IRM's listing of numerous other categories of expenses that are not covered by the National or Local Standards. The list is non-exclusive, but it does not extend to include, or overlap with, the categories already provided for in the National and Local Standards”). See also In re Egebjerg, 574 F.3d 1045 (9th Cir. 2009) (noting disagreement but not needing to resolve it).

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D. Special Circumstances (1) In General The debtor is permitted to establish that “special circumstances” rebut the presumption of abuse arising under the means test. The special circumstances may relate to either a decrease in income or an increase in expenses. The U.S. Trustee has no corresponding ability to adduce additional factors in favor of the existence of a presumption of abuse. The statutory basis for establishing “special circumstances” is Code § 707(b)(2)(B), which provides as follows: (B)(i) In any proceeding brought under this subsection, the presumption of abuse may only be rebutted by demonstrating special circumstances, such as a serious medical condition or a call or order to active duty in the Armed Forces, to the extent such special circumstances that justify additional expenses or adjustments of current monthly income for which there is no reasonable alternative.

(ii) In order to establish special circumstances, the debtor shall be required to itemize each additional expense or adjustment of income and to provide—

(I) documentation for such expense or adjustment to income; and (II) a detailed explanation of the special circumstances that make such expenses or adjustment to income necessary and reasonable.

(iii) The debtor shall attest under oath to the accuracy of any information provided to demonstrate that additional expenses or adjustments to income are required.

This provision imposes both substantive and procedural requirements. The substantive requirements are to identify “special circumstances” that justify an additional expense or income adjustment and show that there is no reasonable alternative to incurring the additional expense or making the income adjustment. The amount of the change must be sufficient to reduce the debtor's remaining income below the specified benchmarks set in the means test. The procedural requirements are (1) itemizing each additional expense or income adjustment and setting forth the nature of the suggested adjustment, its amount, and its impact on the debtor's finances and the means test calculation; (2) providing documentation of the additional expense or income adjustment; (3) providing a detailed explanation of the “special circumstances” that make additional expense or income adjustments necessary and reasonable; and (4) attesting under oath to the accuracy of the information provided. In re Hernandez, 2008 WL 5441279 (Bankr. N.D. Ohio 2008). See also In re Littman, 370 B.R. 820 (Bankr. D. Idaho 2007); In re Fonash, 401 B.R. 143 (Bankr. M.D. Pa. 2008).

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Neither the Bankruptcy Code nor the Federal Rules of Bankruptcy Procedure prescribes what form the itemization must take, but, at the very least, it should be set forth in a written response to the motion to dismiss. In re Parulan, 387 B.R. 168 (Bankr. E.D. Va. 2008). The debtor’s failure to comply with the procedural requirements will, in itself, preclude a finding that special circumstances exist. See, e.g., In re Willis, 2009 WL 1563575 (Bankr. W.D. Mo. 2009) (the debtor failed to establish special circumstances; while he claimed an additional $250 expense for childcare, he failed to offer any documentary evidence of that expense, and his testimony that that expense was reasonable and necessary was equivocal at best; on the income side, the debtor offered several recent paychecks showing a decrease in income, and he testified that his and his wife's income would likely continue to decrease, but it was impossible to determine with any certainty that the recent decline in his income was permanent, and he offered no evidence to corroborate his testimony that his income would decrease in the future). May postpetition changes constitute special circumstances? In re Reis, 377 B.R. 777 (Bankr. D. N.H. 2007) held that special circumstances must exist on the petition date, as the means test is a “snapshot” of the debtor’s financial condition on that date. Other courts have recognized postpetition changes as special circumstances. See In re Hunt, Case No. 08-06916 AJM 7 (Bankr. S.D. Ind., Dec. 18, 2009) (the debtor’s increased postpetition medical and automotive expenses constituted special circumstances); In re Littman, 370 B.R. 820 (Bankr. D. Idaho 2007) (child support ordered by a state court postpetition constituted a special circumstance); In re Martin, 371 B.R. 347 (Bankr. C.D. Ill. 2007) (the birth of a child postpetition was a special circumstance).

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(2) The Two Approaches to the Recognition of Special Circumstances Most courts take one of two approaches to the question of the stringency with which the special circumstances provision should be applied. A large majority takes a very narrow view, interpreting “special circumstances” as a restrictive term encompassing circumstances that are variously described as either highly unusual or beyond the debtor’s control. For courts adopting a variation of the “highly unusual” requirement, see In re Brandon, 2008 WL 5235354 (Bankr. C.D. Ill. 2008) (special circumstances must be “truly extraordinary”); In re Zahringer, 2008 WL 2245864 (Bankr. E.D. Wis. 2008) (the bar is set “extremely high”); In re Parulan, 387 B.R. 168 (Bankr. E.D. Va. 2008) (the bar is set “extremely high”); In re Wagner, 2008 WL 706616 (Bankr. D. Neb. 2008) (circumstances that are “truly special”); In re Haar, 360 B.R. 759 (Bankr. N.D. Ohio 2007) (the bar is set “extremely high”). For courts restricting special circumstances to those that are beyond the debtor’s control, see, e.g., In re Naut, 2008 WL 191297 (Bankr. E.D. Pa. 2008) (special circumstances must be beyond the debtor’s control); In re Smith, 388 B.R. 885 (Bankr. C.D. Ill. 2008) (“life circumstances that directly and unavoidably affect one's earning capacity or give rise to necessary, additional expenses”); In re Lightsey, 374 B.R. 377 (Bankr. S.D. Ga. 2007) (circumstances that are “unforeseeable or beyond the control of the debtor”); In re Delunas, 2007 WL 737763 (Bankr. E.D. Mo. 2007) (“circumstances beyond a debtor's reasonable control”); In re Tuss, 360 B.R. 684 (Bankr. D. Mont. 2007) (“circumstances beyond a debtor's reasonable control”). A significantly smaller number of courts hold that application of the special circumstances exception requires a “fact-specific, case-by-case inquiry into whether the debtor has a ‘meaningful ability’ to pay his or her debts in light of an additional expense or adjustment to income not otherwise reflected in the means test calculation.” See In re Delbecq, 368 B.R. 754 (Bankr. S.D. Ind. 2007). These courts ask (1) whether the debtor has acted in good faith, and (2) whether there is a “reasonable alternative” to the continuation of the additional expense or loss of income. In essence, these courts interpret the statutory term “special circumstances” as encompassing, at least potentially, any legitimate circumstance not accounted for in the means test. See, e.g., In re Armstrong, 2007 WL 1544591 (Bankr. N.D. Ohio 2007) (applying the principle of ejusdem generis, the court found that a “special circumstance,” as contemplated in § 707(b)(2)(B), is one that is “out of the ordinary for an average family and leaves the debtor with no reasonable alternative but to incur the expense”). This is in line with the views expressed by major commentators. See In re Crego, 387 B.R. 225 (Bankr. E.D. Wis. 2008) (“Beyond the special circumstances expressly described in the statute, i.e., a serious medical condition or active duty in the Armed Forces, ‘debtors with lost jobs, domestic relations problems, children in trouble, natural disasters, [and] car wrecks’ may qualify. See Keith M. Lundin, Chapter 13 Bankruptcy, 3d Edition § 478.1 (2000 & Supp. 2007). Judge Lundin points out that ‘special circumstances is not as harshly worded as barriers and exceptions elsewhere in the Bankruptcy Code,’ such as undue hardship under § 523(a)(8)”); In re Batzkiel, 349 B.R. 581 (Bankr. N.D. Iowa 2006) (“Possibilities include moving expenses, security deposits, ‘high commuting costs, the increased price of gas, security costs in dangerous neighborhoods, or the cost of

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infant formula and diapers.’ 6 Collier on Bankruptcy ¶ 707.05[2][d]. ‘Indeed, any legitimate expense that is out of the ordinary for an average family, or that may have increased since the IRS guidelines were calculated, could be considered.’ Id.”). (3) Special Circumstances Relating to Income An involuntary job loss has usually been considered a special circumstance. See In re Pollace, Case No. 08-10483 (Bankr. N.D. Cal., Dec. 16, 2008) (the debtor wife’s medical condition, in combination with her loss of income, constituted a special circumstance); In re Heath, 371 B.R. 806 (Bankr. E.D. Mich. 2007) (the Chapter 7 debtor’s unemployment was a special circumstance); In re Clemons, 404 B.R. 577 (Bankr. N.D. Ga., 2006) (the inability of the debtor wife, who had been earning $1,997 per month for over two and a half years, to obtain employment since losing her job qualified as a special circumstances). For a case reaching the contrary conclusion, see In re Hanks, 362 B.R. 494 (Bankr. D. Utah 2007) (although “[the debtor] presented credible testimony regarding his job loss, employment search efforts, and the relative income at his new employment, … unfortunately, none of these things rises to the level of ‘special circumstances ... for which there is no reasonable alternative’ as contemplated by the statute). A voluntary job loss or income reduction has not been recognized as a special circumstance, however. See, e.g., In re Hernandez, 2008 WL 5441279 (Bankr. N.D. Ohio 2008) (the debtor did not establish special circumstances, where she contended that her prepetition income was artificially high because “she had temporarily taken on two jobs before the filing in an attempt to keep up with her monthly expenses,” and that, since filing her bankruptcy petition, she had married and “she is no longer intending to keep the second job in light of her obligations to her family of two children and a full time job”); In re Ryder, Case No. 07-40538 (Bankr. D. Neb., July 20, 2007) (the debtors’ reduction in income from the debtor wife’s voluntarily quitting her second job was not a special circumstance). Courts disagree on whether reduced income from the debtor’s current job amounts to a special circumstance. Compare In re Hunt, Case No. 08-06916 (Bankr. S.D. Ind., Dec. 18, 2009) (the Chapter 7 debtor’s postpetition loss of overtime earnings, coupled with an increase in expenses, created special circumstances rebutting the presumption of abuse) and In re Martin, 371 B.R. 347 (Bankr. C.D. Ill. 2007) (because the debtors’ income during the six-month CMI period was higher than normal [due to the abnormally high number of overtime hours worked by the debtor husband] and thus not representative of their actual income, the debtors’ reduced income constituted a special circumstance, and they would be permitted to calculate their income on the basis of the six-month period preceding the U.S. Trustee’s motion to dismiss rather than on the basis of the six months prepetition) with In re Brandon, 2008 WL 5235354 (Bankr. C.D. Ill. 2008) (the fact that the debtor allegedly received unusually high overtime pay during the six months prepetition was not a special circumstance) and In re Showers, 2008 WL 5786900 (Bankr. E.D. Va. 2008) (the debtors’ income could not be reduced as a “special circumstance” based upon a reduction in the debtor husband’s overtime hours; generally, overtime tends to fluctuate, and a debtor has the reasonable alternative of seeking other employment to supplement his or her income).

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As to the debtor’s receipt of a bonus or other one-time payment as a special circumstance, compare In re Smith, 2008 WL 6069509 (Bankr. W.D. N.C. 2008) (the court appeared to believe that the Chapter 7 debtor’s receipt, during the six months prepetition, of a one-time severance package from his former employer constituted a special circumstance) and In re Robinette, 2007 WL 2955960 (Bankr. D. N.M. 2007) (the one-time bonus of $6,600 that the Chapter 7 debtor wife received when she signed up to work at her current job was a special circumstance for which there was no reasonable alternative) with In re Cotto, 425 B.R. 72 (Bankr. E.D. N.Y. 2010) (the debtors’ receipt of a one-time, non-recurring payment that was included in the calculation of their current monthly income was not a special circumstance). (4) Special Circumstances Relating to Expenses A debtor’s ongoing contributions to his or her retirement account do not constitute a special circumstance. In re Siler, 426 B.R. 167 (Bankr. W.D. N.C. 2010); In re Tauter, 402 B.R. 903 (Bankr. M.D. Fla. 2009); In re Mravik, 399 B.R. 202 (Bankr. E.D. Wis. 2008); In re Robinette, 2007 WL 2955960 (Bankr. D. N.M. 2007); In re Scarafiotti, 375 B.R. 618 (Bankr. D. Colo. 2007). Most courts have also held that the debtor’s repayment of a loan from the debtor’s retirement account is not a special circumstance. See, e.g.. In re Egebjerg, 574 F.3d 1045 (9th Cir. 2009); In re Siler, 426 B.R. 167 (Bankr. W.D. N.C. 2010); In re Tauter, 402 B.R. 903 (Bankr. M.D. Fla. 2009). At least one court reached the opposite conclusion. See In re Cribbs, 387 B.R. 324 (Bankr. S.D. Ga. 2008) (the debtors’ obligation to repay a loan from their 401(k) plan constituted special circumstances because they took out the loan in an effort to settle with their creditors without having to enter bankruptcy). Repayment may be a special circumstance when repayment is mandatory. Compare In re Herbert, 2007 WL 6363172 (Bankr. D. Neb. 2007) (mandatory repayment is special circumstance) and In re Lenton, 358 B.R. 651 (Bankr. E.D. Pa. 2006) (same) with Eisen v. Thompson, 370 B.R. 762 (N.D. Ohio. 2007) (mandatory repayment is not special circumstance). Several early cases held that the obligation to repay a student loan was a special circumstance. See In re Robinette, 2007 WL 2955960 (Bankr. D. N.M. 2007); In re Martin, 371 B.R. 347 (Bankr. C.D. Ill. 2007); In re Templeton, 365 B.R. 213 (Bankr. W.D. Okla. 2007); In re Knight, 370 B.R. 429 (Bankr. N.D. Ga. 2007). See also In re Haman, 366 B.R. 307 (Bankr. D. Del. 2007) (the debtor’s obligation as a co-signer on her son's student loans qualified as a special circumstance). More recent cases have reached the contrary conclusion, however. See, e.g., In re Womer, 2010 WL 1509289 (Bankr. M.D. Pa. 2010); In re Siler, 426 B.R. 167 (Bankr. W.D. N.C. 2010); In re Carrillo, 421 B.R. 540 (Bankr. D. Ariz. 2009); In re Martellaro, 404 B.R. 548 (Bankr. D. Mont. 2008); In re Champagne, 389 B.R. 191 (Bankr. D. Kan. 2008); In re Pageau, 383 B.R. 221 (Bankr. D. N.H. 2008).

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A few cases have found a rental housing cost in excess of the IRS standard deduction to be justified as a special circumstance. See In re Stubbs, 2007 WL 4287579 (Bankr. D. Mont. 2007) (the debtor’s housing rental expense was warranted by special circumstances to the extent the expense exceeded the IRS allowance, where it appeared from the debtor’s testimony that the IRS standards did not accurately depict the cost of living in either the debtor’s city or the surrounding county); In re Scarafiotti, 375 B.R. 618 (Bankr. D. Colo. 2007) (special circumstances existed to justify the Chapter 7 debtors’ modest increase of $297, where the debtors’ son,, who had been bullied at his previous school, saw a child psychologist each month for mental and emotional difficulties, and the child psychologist strongly recommended that the son needed to live in a neighborhood where he could interact with other children from his new school). Most courts have not found a rental housing cost in excess of the IRS standard deduction to be justified as a special circumstance, however. See In re Kaufman, 2008 WL 3878005 (Bankr. D. Mont. 2008); In re Shinkle, 382 B.R. 85 (Bankr. E.D. Ky. 2008); In re Herbert, 2007 WL 6363172 (Bankr. D. Neb. 2007); In re Delunas, 2007 WL 737763 (Bankr. E.D. Mo. 2007); In re Starkey, 2007 WL 6364773 (Bankr. D. Neb. 2007); In re Renicker, 342 B.R. 304 (Bankr. W.D. Mo. 2006); In re Sparks, 360 B.R. 224 (Bankr. E.D. Tex. 2006). As for transportation costs exceeding the IRS standard deduction, compare In re Robinette, 2007 WL 2955960 (Bankr. D. N.M. 2007) (the Chapter 7 debtors’ claimed expense of $233 for transportation expenses for child visits was both reasonable and necessary, and there was no reasonable alternative to this expense, warranting recognition of this amount as a special circumstance); In re Turner, 376 B.R. 370 (Bankr. D. N.H. 2007) (the debtor husband’s business mileage was a special circumstance); and In re Batzkiel, 349 B.R. 581 (Bankr. N.D. Iowa 2006) (the debtors documented a minimum of $577.32 per month in vehicle operating expenses due to their special circumstances, where the debtors lived in rural Iowa, and each drove a significant distance to his or her place of employment) with In re Rieck, 427 B.R. 141 (Bankr. D. Minn. 2010) (the additional costs of operating two older vehicles did not constitute special circumstances); In re Brandon, 2008 WL 5235354 (Bankr. C.D. Ill. 2008) (high gasoline prices did not appear to meet the standard set forth by Congress for special circumstances); and In re Tranmer, 355 B.R. 234 (Bankr. D. Mont. 2006) (although the debtor husband had to drive 30 miles per day round trip to his employment, while the debtor wife was required to drive 100 miles per day round trip to her job, the court rejected the debtors’ claim that, because their actual average transportation expense exceeded $600 per month for gasoline and maintenance, they should be able to deduct, as a special circumstance, the amount by which that figure exceeded the IRS Local Standard for the operation of two vehicles, which was $420). Unreimbursed work expenses have not been held to constitute a special circumstance. See In re Kilgore, Case No. 07-81188 (Bankr. D. Neb. 2007) (the debtor’ expenses for chef uniform dry-cleaning in the amount of $100 and work parking in the amount of $20 were not special circumstances, as the debtors were already receiving a deduction for the IRS National Standard for food, clothing, household supplies, personal care, and miscellaneous for a two-person household at the debtors’ income level in the amount of $1,306 per month, and the debtors’ actual expenses shown on Schedule J for their food, clothing, laundry/dry-cleaning, miscellaneous expenses, and all of the expenses for which the debtors now claimed an additional deduction, added up to $1,222 per month); In re Patterson, 392 B.R. 497 (Bankr. S.D. Fla. 2008) (the debtor husband’s $400

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monthly unreimbursed foods expense he incurred in his employment as a truck driver was not a special circumstance, as the cost of the husband’s food was presumptively accounted for in the food, clothing, household supplies, personal care, and miscellaneous standard allowance of $1,368); In re Turner, 376 B.R. 370 (Bankr. D. N.H. 2007) (the debtor’s monthly expense of about $20 for work clothing was implicitly included in the standard deduction on line 19 of Form B22A, which included clothing, and was not a special circumstance, as almost every debtor’s actual clothing expenses included clothes that the debtor wore to work); In re Tuss, 360 B.R. 684 (Bankr. D. Mont. 2007) (the court rejected the debtor’s claim that, as a construction worker who often worked out of state--where, he testified, he worked until about 7 p.m., then went out to eat before working on his paperwork--he incurred monthly food and personal care expenses that exceeded the National Standard by $ 261.85, and that this expense constituted a special circumstance). But see In re Turner, 376 B.R. 370 (Bankr. D. N.H. 2007) (the debtor husband’s business mileage was a special circumstance).

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(5) Special Circumstances Relating to Other Matters The birth of a child postpetition is a special circumstance. In re Martin, 371 B.R. 347 (Bankr. C.D. Ill. 2007). The debtor’s documentation of the financial effects of a pregnancy or new child must be adequate, however. See In re Witek, 383 B.R. 323 (Bankr. N.D. Ohio 2007) (even assuming that the debtor wife’s pregnancy qualified as a special circumstance, no evidence was presented as to how her pregnancy would necessitate adjustments to the debtors' income or expenses for which there was no reasonable alternative); In re Pampas, 369 B.R. 290 (Bankr. M.D. La. 2007) (even assuming that the debtor's pregnancy qualified as a special circumstance, upon which the debtor might be able to rely for the purpose of rebutting the presumption of abuse, the debtor presented insufficient evidence of how the pregnancy impacted her financially). The maintenance of separate households by joint debtors constitutes a special circumstance. See In re Crego, 387 B.R. 225 (Bankr. E.D. Wis. 2008) (the above-median joint debtors maintained separate households and had filed for divorce prepetition); In re Crabtree, 2007 WL 3024030 (Bankr. D. Mont. 2007) (the separate residences maintained by the joint debtors constituted a special circumstance justifying the debtor husband’s additional $600 monthly rent expense, where the husband testified that the debtors’ marriage was irretrievably broken, but neither one could afford to pay for a divorce proceeding); In re Armstrong, 2007 WL 1544591 (Bankr. N.D. Ohio 2007) (the debtors were married but were legally separated and lived in separate households); In re Graham, 363 B.R. 844 (Bankr. S.D. Ohio 2007) (the debtors lived in different states because the husband had to move to find work, but the wife could not leave the state in order to retain custody of her children from a prior marriage). The lack of a dividend to unsecured creditors if the debtor were forced into Chapter 13 is not a special circumstance. In re Tauter, 402 B.R. 903 (Bankr. M.D. Fla. 2009); In re Johns, 342 B.R. 626 (Bankr. E.D. Okla. 2006); In re Castle, 362 B.R. 846 (Bankr. N.D. Ohio 2006).

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X. The Totality of Circumstances Test, Bad Faith and Other Cause for Dismissal A. In General Code § 707, which articulates the means test, also provides three other bases for the dismissal or conversion of a Chapter 7 case:

• Section 707(a) permits dismissal for “cause.”

• Section 707(b)(3)(A) provides for the dismissal or conversion of a case if the debtor filed the petition in bad faith.

• Section 707(b)(3)(B) provides for the dismissal or conversion of a case if the totality of the circumstances demonstrates abuse.

Additionally, Code § 105(a) gives a court the authority to “issue any order, process, or judgment that is necessary or appropriate to carry out the provisions“ of the Bankruptcy Code, and under § 105(a) a court has authority to dismiss a case, such as a case filed in bad faith or a case in which the debtor defies an order of the court. See In re Bland, 2009 WL 539981 (N.D. W.Va. 2009) (under § 105(a), the court may dismiss a case not filed in good faith); In re Eilderts, 389 B.R. 682 (Bankr. N.D. Iowa 2008) (acting under § 105(a), the court dismissed the debtors’ Chapter 13 case due to their failure to remit their $1,800 economic stimulus rebate payment to the Chapter 13 trustee, as the court had ordered).

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B. Abuse under Totality of the Circumstances under Code § 707(b)(3)(B) Code § 707(b)(1) permits the court to dismiss or convert a case if the court finds that granting the debtor a Chapter 7 discharge would be an “abuse” of Chapter 7, and § 707(b)(3)(B) provides that, as part of that determination, the court “shall consider … the totality of the circumstances … of the debtor's financial situation.” While both above- and below-median debtors are subject to this provision, the provision does not apply if the debtor’s debts are not primarily consumer debts. Under Bankruptcy Rule 1017(e)(1), a motion to dismiss for abuse under the totality of the circumstances must be filed within 60 days of the “first date set” for the meeting of creditors; this refers to the first date for which the meeting is scheduled, not the date upon which the meeting is concluded. In re Molitor, 395 B.R. 197 (Bankr. S.D. Ga. 2008). In re Price, 353 F.3d 1135 (9th Cir. 2004) recognized that a number of factors were relevant to a determination of “substantial abuse,” which was the standard found in § 707(b) before BAPCPA changed that provision to embody to the lower standard of “abuse”: (1) whether the debtor has a likelihood of sufficient future income to fund a Chapter 11, 12, or 13 plan that would pay a substantial portion of the unsecured claims; (2) whether the debtor's petition was filed as a consequence of illness, disability, unemployment, or some other calamity; (3) whether the schedules suggest the debtor obtained cash advancements and consumer goods on credit exceeding his or her ability to repay them; (4) whether the debtor's proposed family budget is excessive or extravagant; (5) whether the debtor's statement of income and expenses is misrepresentative of the debtor's financial condition; and (6) whether the debtor has engaged in eve-of-bankruptcy purchases. The court stated, however, that the primary factor defining substantial abuse is the debtor's ability to pay his debts as determined by the ability to fund a Chapter 13 plan, and that a debtor's ability to pay his debts will, standing alone, justify dismissal. Courts in the Ninth Circuit have continued to apply the Price factors in determining abuse under the totality of the circumstances under § 707(b)(3)(B). See, e.g., In re Stewart, 410 B.R. 912 (Bankr. D. Or. 2009); In re Hickman, 2008 WL 2595182 (Bankr. W.D. Wash. 2008). Nonfinancial considerations, such as the accuracy of the debtor’s schedules or other indicia of the debtor’s truthfulness, occasionally come into play. See, e.g., In re Hickman, supra (the debtor’s several omissions and misstatements in his schedules, which presented a false picture of the debtor's finances, indicated “an indifference for the truth” and supported dismissal under § 707(b)(3)(B)). Most courts, however, have focused on financial considerations, principally (1) clearly profligate spending by the debtor, if any; and (2) the debtor’s ability to pay his or her unsecured creditors if the case were converted to Chapter 13 (or, occasionally, to Chapter 11). Since above-median debtors who failed the means test generally will have been excluded from Chapter 7 on that basis, the totality of the circumstances analysis typically is applied to below-median debtors and, more often, above-median debtors who passed the means test but who nonetheless appear to have an ability to fund a Chapter 13 plan (because, for instance, the means test allowed the debtors to deduct high secured debt repayment expenses).

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For cases finding abuse, under the totality of the circumstances, on the basis of spending the court found clearly profligate, see:

• In re Caratiquit, 2009 WL 3234221 (Bankr. N.D. Cal. 2009) (where the debtors engaged in an “extremely extravagant purchases and a profligate lifestyle within the year before filing, calling their basic honesty into question,” the court held that granting the debtors a Chapter 7 discharge would be an abuse, under the totality of the circumstances)

• In re Cayanan, 2008 WL 906205 (Bankr. N.D. Cal. 2008) (granting the debtors a Chapter 7 discharge would be an abuse

under the totality of the circumstances, where (1) in the two years prepetition, the debtors refinanced four of their five houses, but four of the houses had already been foreclosed on; (2) of the approximately $1,850,000 the debtors received in the refinancing, as much as $313,000 was in cash, but the debtors had not yet accounted for the money, and they initially failed to disclose those refinances; and (3) the debtors owned five automobiles when they filed their petition, including an $85,000 Mercedes they bought at a time by which they must have knew that they could not afford their house payments)

• In re Escano, 2008 WL 4829911 (Bankr. N.D. Cal. 2008) (granting the debtors a Chapter 7 discharge would be an

abuse, under the totality of the circumstances, where, about five months before the debtors filed bankruptcy, they purchased a pre-owned Mercedes CL 500 for $43,453, on which the monthly payment was $532; the court said it was at a loss to understand what the debtors were thinking when, just a few months before bankruptcy, they purchased such an expensive automobile)

More often, the debtors’ case does not present clearly extravagant spending, and the court will turn to a consideration of whether the debtors could pay unsecured creditors a meaningful amount under a Chapter 13 plan (or, again, occasionally Chapter 11 where the debtors’ debts exceed the Chapter 13 debt limits). In this part of the analysis, a number of questions come to the forefront: Whether the debtor’s expenses are reasonable (or necessary at all); how the debtor’s ability to pay in a Chapter 13 case is determined; and what the threshold for a “meaningful” payment in Chapter 13 is. If the court considers an expense to be unreasonable, the court will calculate the debtor’s ability to pay on the basis of what the court considers a reasonable expense. Note that, since secured creditors have to be paid regardless, the question is whether the debtor will be able to offer unsecured creditors a meaningful dividend in Chapter 13. Determinations of whether the debtor’s expenses are reasonable are highly fact-dependent. See, e.g., In re Reed, 422 B.R. 214 (C.D. Cal., Nov. 24, 2009) (as the debtor wife did not work and the debtors’ sole child was in school, the bankruptcy court did not abuse its discretion in finding abuse under the totality of the circumstances, as the debtors’ claimed $333.66 monthly expense for child care was unreasonable); In re Rodrigues, 2008 WL 2078127 (Bankr. N.D. Cal. 2008) (granting the above-median debtors a Chapter 7 discharge would be an abuse under the totality of the circumstances, because, while the debtors’ budget was for the most part very reasonable, there were some areas where it could reasonably be trimmed; there was no

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reason why the debtors should be making payments on two cars and a motorcycle, and their monthly expense of $113 for pet care was excessive). The debtor’s mortgage payment is one expense that may come under consideration. Compare In re Johnson, 399 B.R. 72 (Bankr. S.D. Cal. 2008) (if the size of the mortgage payment could be considered under Code § 707(b)(3), the court was comfortable in concluding that the debtors’ mortgage payment was neither sufficiently excessive nor extravagant as to warrant dismissal on a totality of the circumstances basis under § 707(b)(3), where the debtors’ 4,000-square-foot residence in Escondido, California, was valued at $900,000 and secured a debt of $1,100,000, the monthly mortgage expense was $6,060, and total expenses associated with the property were scheduled at $8,286) with In re Talley, 389 B.R. 741 (Bankr. W.D. Wash. 2008) (the debtor’s monthly mortgage expense of $3,130, which comprised over 80 percent of his net income and 67 percent of his budgeted expenses and was three times the IRS Standard for mortgage/rental payments for the debtor’s country, was unreasonable). Another expense that may face scrutiny is the debtor’s contributions to his or her retirement account. See, e.g., In re Hazen, Case No. 3:09-bk-32592 (Bankr. N.D. Cal., Feb. 4, 2010) (the Chapter 7 debtor’s $290 monthly contribution to his 401(k) account was reasonable, as was his 401(k) loan repayment of $599 per month, where he was 47 years old and had a 401(k) account valued at $107,219); In re Sandifer, 2008 WL 1734733 (Bankr. N.D. Cal. 2008) (it was not unreasonable for the debtors to contribute $393 per month to their retirement savings, where the debtors, who were 62 and 48 years old, respectively, had saved $165,000 for retirement). The role that these expenses—mortgage payments and retirement account contributions—play in the court’s assessment of the debtor’s ability to pay in a Chapter 13 case illustrates a fundamental legal divide in how courts approach that issue. Both mortgage payments and retirement account contributions are permissible deductions in calculating the debtor’s payment to unsecured creditors in Chapter 13 (the debtor’s “projected disposable income” in Chapter 13 parlance). The existence of these expenses, then, does not reduce the payment to unsecured creditors in Chapter 13. How, therefore, should the debtor’s “ability to pay” in Chapter 13 be determined, for the purpose of § 707(b)(3)(B)? In re Price, 353 F.3d 1135 (9th Cir. 2004) stated that “[t]he primary factor defining substantial abuse is the debtor's ability to pay his debts as determined by the ability to fund a Chapter 13 plan.” While this certainly suggests that “ability to pay” in the § 707(b)(3)(B) context should be determined by calculating what the debtor would actually be paying in a Chapter 13 plan, many courts, explicitly or implicitly, adopt a more unconstrained perspective on ability to pay. See, e.g., In re Lamug, 403 B.R. 47 (Bankr. N.D. Cal. 2009) (“the relevant question for the Court is not whether Debtors would be required to pay anything in a chapter 13 case, but whether the totality of the circumstances of Debtors' financial condition in this chapter 7 case show an ability to repay their debts”); In re Baeza, 398 B.R. 692 (Bankr. E.D. Cal. 2008) (“[t]he question before the court is not whether the Debtors would be required to pay anything to their unsecured creditors in a chapter 13, but rather, whether they have the ability to pay something substantial to their unsecured creditors”); In re Hageney, 422 B.R. 254 (Bankr. E.D. Wash. 2009) (Code § 707(b)(3)(B) directs the court to examine the debtor's “financial situation”; Congress could have referred back

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to the “current monthly income” and “applicable expense amounts” referenced in Code § 707(b)(2), but did not; different words must be presumed to have different meanings). Other courts, however, do appear to determine ability to pay by calculating the debtor’s actual required payment to unsecured creditors in a Chapter 13 plan. See, e.g., In re Latone, Case No. 4:08-bk-03311-EWH (Bankr. D. Ariz., Oct. 23, 2008) (the below-median debtor’s monthly payments of $1,483 in repayment of various loans from his 401(k) account did not demonstrate, in itself, that granting the debtor a Chapter 7 discharge would be an abuse under the totality of the circumstances, as the ability to pay creditors in Chapter 13 needed to be real, and, here, the debtor’s "excess" money could not be used to fund a Chapter 13 plan because it would be deductible in the calculation of projected disposable income, even though it was not deductible in Chapter 7); In re Harter, 2008 WL 3875370 (Bankr. N.D. Cal. 2008) (granting the debtor a Chapter 7 discharge would not be an abuse under the totality of the circumstances, in part because, while the debtor and his nonfiling wife had net income of a little over $10,000 per month, their mortgage payment and utilities alone consumed well over half their income, leaving them barely able to meet their other monthly expenses and unable to fund a meaningful reorganization plan.) For a particularly strong opinion limiting a court’s ability to depart from the statutory means test formula in determining a Chapter 7 debtor’s ability to pay unsecured creditors in Chapter 13, see In re Jensen, 407 B.R. 378 (Bankr. C.D. Cal. 2009). While the debtor’s ability to pay may be considered in assessing abuse under the totality of the circumstances for the purpose of Code § 707(b)(3), the court said, the court’s assessment may not “disregard the policies implicit in the Means Test.” Thus, here, the court could not base a finding of abuse on the debtors’ intention to retain a boat and a motor home, and to continue to pay the debts secured by those items, despite the U.S. Trustee’s contention that both were luxury items, as to do so “would render the language in § 707(b)(2) disallowing consideration of those payments superfluous.” See also In re Johnson, 399 B.R. 72 (Bankr. S.D. Cal. 2008) (holding that a Chapter 7 debtor’s secured obligation on a primary residence secured obligation may not, by itself, be the basis for a finding of abuse under Code § 707(b)(3), the court concluded that Congress did not intend that consumers would be denied access to Chapter 7 solely because of the amount of their mortgage payment on their principal residence). As for the amount of payment to unsecured creditors that is considered meaningful, and hence supportive of a finding of abuse, there are few recent cases in which the debtor’s ability to pay is truly borderline. Thus, abuse has been found where the debtor’s ability to pay in a Chapter 13 case is significant:

• In re Reed, 422 B.R. 214 (C.D. Cal. 2009) (abuse found where the debtors could afford to pay 84% of their unsecured debt over the 60-month period of a Chapter 13 plan)

• In re Lamug, 403 B.R. 47 (Bankr. N.D. Cal. 2009) (abuse found where the debtors could pay 100% of their unsecured

debt in less than 28 months)

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• In re Wells, 2009 WL 159663 (Bankr. E.D. Cal., Jan. 21, 2009) (abuse found where the debtor was surrendering the collateral for secured debts for which he paid over $4,000 monthly, so that he had the ability to pay something substantial to his unsecured creditors in a Chapter 13 case)

• In re Maya, 374 B.R. 750 (Bankr. S.D. Cal. 2007) (abuse found where the debtors would have at least $733.72 of

monthly disposable income, which was more than $44,000 over a 60-month period) Conversely, abuse has not been found where the debtor had little or no ability to pay in a Chapter 13 case:

• In re Stewart, Case No. 08-33275-rld7 (Bankr. D. Or., March 11, 2009) (granting the debtors a Chapter 7 discharge would not be an abuse under the totality of the circumstances, as they were not eligible for Chapter 13, and in Chapter 11 their unsecured creditors would receive a dividend of less than 10 percent)

• In re Latone, Case No. 4:08-bk-03311-EWH (Bankr. D. Ariz., Oct. 23, 2008) (abuse not found where unsecured

creditors would not receive anything in Chapter 13)

• In re Harter, 2008 WL 3875370 (Bankr. N.D. Cal. 2008) (abuse not found where the debtors were unable to fund a meaningful reorganization plan)

• In re Sandifer, 2008 WL 1734733 (Bankr. N.D. Cal., April 14, 2008) (abuse not found where, even if the debtors were

ordered to stop making retirement contributions, they would still be unable to fund a meaningful Chapter 13 plan) For one case presenting more of an intermediate ability to pay, see In re Rodrigues, 2008 WL 2078127 (Bankr. N.D. Cal. 2008) (abuse found where the debtors could fund a Chapter 13 plan of at least $400 per month on account of unsecured debt, resulting in a dividend to unsecured creditors of about 30 cents on the dollar). C. Cause for Dismissal under Code § 707(a) Code § 707(a) states that “[t]he court may dismiss a case under this chapter only after notice and a hearing and only for cause, including--(1) unreasonable delay by the debtor that is prejudicial to creditors; (2) nonpayment of any fees or charges required under chapter 123 of title 28; and (3) failure of the debtor in a voluntary case to file, within fifteen days or such additional time as the court may allow after the filing of the petition commencing such case, the information required by paragraph (1) of section 521 ….” This provision applies to all Chapter 7 debtors.

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While § 707(a) does not define “cause,” In re Sherman, 491 F.3d 948 (9th Cir. 2007) held that it is limited to misconduct that is not addressed by other provisions of the Bankruptcy Code. And, although bad faith per se can properly constitute “cause” for dismissal of a Chapter 11 or Chapter 13 petition, this is not true of a Chapter 7 petition under § 707(a). In re Padilla, 222 F.3d 1184 (9th Cir. 2000). Moreover, BAPCPA added Code § 707(b)(3)(A), which explicitly provides that, as part of the court’s determination of “abuse” under § 707(b)(1), the court “shall consider … whether the debtor filed the petition in bad faith.” These decisions appear to limit the number of dismissals for “cause” under § 707(a) in the Ninth Circuit. For a case that was dismissed, see In re Tiner, 2008 WL 2705103 (Bankr. N.D. Cal. 2008) (the case would be dismissed for cause under § 707(a) where the debtor failed to pay the filing fee or to file a credit counseling certificate). D. Petition Filed in Bad Faith under Code § 707(b)(3)(A) Code § 707(b)(1) permits the court to dismiss or convert a case if the court finds that granting the debtor a Chapter 7 discharge would be an “abuse” of Chapter 7, and § 707(b)(3)(A) provides that, as part of that determination, the court “shall consider … whether the debtor filed the petition in bad faith.” While both above- and below-median debtors are subject to this provision, the provision does not apply if the debtor’s debts are not primarily consumer debts. Under Bankruptcy Rule 1017(e)(1), a motion to dismiss under for abuse under § 707(b)(3)(A) must be filed within 60 days of the “first date set” for the meeting of creditors; this refers to the first date for which the meeting is scheduled, not the date upon which the meeting is concluded. In re Molitor, 395 B.R. 197 (Bankr. S.D. Ga. 2008). The language of Code § 707(b)(3)(A) requires the bad faith to exist at the time of commencing the bankruptcy, and it is the debtor's intent and purpose at that time that is the subject of the analysis. Bad faith may involve a dishonest debtor or nefarious acts, but such motivation or intent is not necessary. Bad faith exists if the filing of the bankruptcy was for a purpose not consistent with the Bankruptcy Code or policy even though the purpose may otherwise be lawful. The inquiry focuses on the debtor's conduct, not the debtor's financial affairs. See In re Hageney, 422 B.R. 254 (Bankr. E.D. Wash. 2009); In re Honkomp, 416 B.R. 647 (Bankr. N.D. Iowa 2009); In re Crink, 402 B.R. 159 (Bankr. M.D. N.C. 2009). For cases in which the court found bad faith in filing the petition for the purpose of § 707(b)(3)(A), see:

• In re Schwenk, 411 B.R. 211 (Bankr. M.D. Pa. 2009) (the Chapter 7 debtors filed their petition in bad faith, justifying dismissal or conversion under Code § 707(b)(3)(A), where, a few weeks before they filed their petition, the debtor husband retired, the debtor wife quit her job, and the debtors expended $6,000 to move from their York, Pennsylvania home to a rental unit in a North Carolina beach town, even though the overall sequence of events improved the debtors’ net monthly balance sheet; by moving into a rental home in the York area, the debtors could have similarly lowered

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their expenses while being able to use that $6,000 to repay creditors; in addition, the debtor wife would not have needed to quit her job, costing the debtors her monthly pay of $1,761)

• In re Booker, 399 B.R. 662 (Bankr. W.D. Mo. 2009) (in addition to the debtors' failure to minimize expenses, retention

of luxury items and ability to repay a significant portion of their unsecured debt, the debtors had not demonstrated the degree of candor that the court had a right to expect, leading the court to conclude that their Chapter 7 filing was in bad faith)

• In re Hageney, 422 B.R. 254 (Bankr. E.D. Wash. 2009) (the debtor husband’s purchase of a new $20,000 motorcycle

approximately 10 weeks prior to the debtors’ commencing their Chapter 7 bankruptcy case was in bad faith for the purpose of Code § 707(b)(3)(A))

• In re Victoria, 389 B.R. 250 (M.D. Ala. 2008) (the evidence supported a determination that the debtor, a physician

whose annual income was about $200,000, and whose nondebtor husband’s income was similar, filed her petition in bad faith within the meaning of Code § 707(b)(3)(A))

• In re Adams, 2007 WL 3091583 (Bankr. D. Md. 2007) (the filing of the debtor’s bankruptcy petition was in bad faith,

requiring its dismissal under Code § 707(b)(3), where (1) the debtor and her nonfiling husband engaged in acts designed to hinder, delay and defraud creditors, by building up debt in the debtor’s name while investing in assets exempt from creditors under state law and reducing the husband’s debt load; and (2) the debtor and her husband lived in a home worth $1.3 million, drove a luxury car with lease payments of $1,225 a month, and otherwise did not conform to a reasonable budget while filing a Chapter 7 bankruptcy case to support a lavish lifestyle on the backs of creditors)

For cases in which the court did not find bad faith in filing the petition for the purpose of § 707(b)(3)(A), see:

• In re Hageney, 422 B.R. 254 (Bankr. E.D. Wash. 2009) (the debtors’ decision to file their Chapter 7 petition on October 30, rather than November 1, 2008, was not in bad faith under Code § 707(b)(3)(A), although the decision was intended to minimize the debtors’ income, as it had the effect of including only two months, rather than three, of the debtor husband’s higher income from a new job in the calculation of the debtors’ “current monthly income”; the Bankruptcy Code sets forth the formula for the determination of current monthly income, and formulas are subject to manipulation)

• In re Harter, 2008 WL 3875370 (Bankr. N.D. Cal. 2008) (the U.S. Trustee did not establish the Chapter 7 debtor’s bad

faith under Code § 707(b)(3)(A), where (1) while the debtor made two trips to Europe in 2007, one trip was a birthday present, and in 2007 he had paid over $28,000 on the credit card on which the second trip had been charged; (2) the debtor’s Audi A-4 was not a “luxury automobile”; and (3) while the UST called the debtor’s 1965 Ford Mustang a “classic” automobile, this was his first car, purchased in 1978, it was not running, and the Chapter 7 trustee sold it for only $4,000)

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• In re Seeburger, 392 B.R. 735 (Bankr. N.D. Ohio 2008) (the U.S. Trustee did not establish the Chapter 7 debtors’ bad

faith under Code § 707(b)(3)(A), where (1) the debtors explained that the reason for their first amended Schedule I was the reduction in the debtor husband’s amount of overtime worked; (2) while the debtors filed a second amended Schedule I, they did not rely on it; (3) while the UST asserted that the $3,600 monthly income stated in the debtors’ Form 22A was incorrect, he offered no evidence or testimony in support of this assertion)

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XI. Secured Debts: Reaffirmation, Redemption, and Surrender A. In General Code § 521(a)(2) requires that, within 30 days of the petition date, an individual debtor must file a “statement of intention” indicating what course of action the debtor intends to take with respect to each debt secured by property of the estate. The statute allows the debtor to choose to either reaffirm the debt or surrender the collateral; where the collateral is “tangible personal property intended primarily for personal, family, or household use,” the debtor has the additional option of redeeming the collateral by paying its value to the creditor. Thereafter, the debtor must “perform” his or her statement of intention by carrying out the action stated. The time within which the debtor must perform the statement of intention is somewhat unclear, as there are two conflicting statutory provisions. Under § 521(a)(2)(B), the debtor must carry out his or her statement of intention “within 30 days after the first date set for the meeting of creditors, or within such additional time as the court, for cause, within such 30-day period fixes.” Under § 521(a)(6), however, the time limit is “not later than 45 days after the first meeting of creditors.” Because Code § 521(a)(6) applies only to “personal property as to which a creditor has an allowed claim for the purchase price secured in whole or in part by an interest in such personal property,” its reach is less extensive than that of § 521(a)(2)(B), which applies to all personal property collateral. In any event, the debtor is safer complying with the shorter time period. A few courts have attempted to resolve the issue of which provision controls when both are applicable. One view holds that both provisions apply, with the consequence that the 30-day period simply expires sooner. See In re Norton, 347 B.R. 291 (Bankr. E.D. Tenn. 2006) (“[i]nvariably, an individual debtor's failure to perform his or her statement of intention within thirty days of the ‘first date set for the meeting of creditors’ will, as to personal property, trigger the stay termination provisions of § 362(h)(1), thereby trumping the forty-five day stay termination provisions of § 521(a)(6)”). The other view holds that § 521(a)(6), as the more specific provision, controls. See In re DeSalvo, 2009 WL 5322428 (Bankr. S.D. Ga. 2009); In re Donald, 343 B.R. 524 (Bankr. E.D. N.C. 2006). It is important to remember that, even if the debtor fails to comply with these provisions and the automatic stay has lifted, the creditor’s remedies are limited to those available under state law and the parties’ contract. See, e.g., In re Dumont, 383 B.R. 481 (9th Cir. B.A.P. 2008) aff’d, 581 F.3d 1104 (9th Cir. 2009) (“The creditor who repossesses under Code § 521(a)(6) must still abide by state law, and some state consumer protection statutes prevent a creditor from repossessing when there is no payment default. These state consumer protection statutes have the potential to make the BAPCPA provisions meaningless, if repossession is barred by state law when a debtor's payments are current”).

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Official Form 8 is the form used by the debtor to state his or her intention with regard to debts secured by property of the debtor’s bankruptcy estate. The form calls for the debtor to make the following elections:

• State whether the debtor is retaining or surrendering the property.

• If the debtor is retaining the property, state whether the debtor intends to redeem the property, reaffirm the debt, or take some other action, such as avoiding the creditor’s lien.

• State whether the debtor claims the property as exempt.

Before the enactment of BAPCPA, the Ninth Circuit allowed the debtor to elect the “fourth option” of retaining the collateral for the secured debt and maintaining payments under the parties’ contract. See In re Parker, 139 F.3d 668 (9th Cir. 1998). This was called “ride through” or “retain and pay.” BAPCPA eliminated that “fourth option,” at least for debts secured by personal property. In re Dumont, 581 F.3d 1104 (9th Cir. 2009). If the debtor fails to comply with these statutory obligations, and the Chapter 7 trustee does not secure an extension of the stay, the automatic stay will lift as to the property serving as collateral for the debt, that property will cease to be property of the estate, and the creditor will be free to exercise its rights under the parties’ contract and state law. However, a number of courts have held that, because the provisions added by BAPCPA refer only to debts secured by personal property collateral, the “ride through” option remains for debts secured by real property collateral in circuits, such as the Ninth Circuit, that recognized the ride through option prior to BAPCPA. See In re Caraballo, 386 B.R. 398 (Bankr. D. Conn. 2008); In re Hart, 402 B.R. 78 (Bankr. D. Del. 2009); In re Waller, 394 B.R. 111 (Bankr. D. S.C. 2008); In re Wilson, 372 B.R. 816 (Bankr. D. S.C. 2007); In re Bennet, 2006 WL 1540842 (Bankr. M.D. N.C. 2006). Cf. In re Harris, 421 B.R. 597 (Bankr. S.D. Ga. 2010) (ride-through is not available where pre-BAPCPA jurisprudence prohibited it); In re Linderman, 2009 WL 3625386 (Bankr. M.D. Fla. 2009) (same). The Ninth Circuit Court of Appeals noted, but did not resolve, this question in In re Dumont, 581 F.3d 1104 (9th Cir. 2009). Note that, under § 362(h)(1)(A), the time limits established in § 521(a)(2) also apply to the debtor’s assumption of an unexpired lease of personal property under § 365(p).

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B. Reaffirmation Agreements (1) In General If the debtor chooses to reaffirm a debt, the Bankruptcy Code has detailed provisions regulating reaffirmation agreements. See Code §§524(c), (d), (k), (l), (m). Only a few cases appear to have considered the consequences of a debtor’s commencing, but not completing, the process of performing his or her intention during the applicable 30- or 45-day time period. Courts have held that the debtor has performed where the debtor acted with appropriate dispatch in preparing a reaffirmation agreement, but the agreement was untimely due to the creditor’s failure to act promptly. See In re Perkins, 418 B.R. 680 (Bankr. M.D. N.C. 2009); In re Hill, 2009 WL 1651241 (Bankr. M.D. N.C. 2009). (2) Conditions under which Agreement Is Effective A reaffirmation agreement will be effective only where several conditions are met:

• The agreement was “made” before the granting of the debtor’s discharge. Code § 524(c)(1).

• The debtor received the disclosures required under § 524(k) at or before the time at which the debtor signed the agreement. Code § 524(c)(2). These disclosures are incorporated into Official Form 240A.

• The agreement was filed with the court. Code § 524(c)(3).

o Under Bankruptcy Rule 4008(a), it must be filed no later than 60 days after the first date set for the meeting of

creditors. (This ensures that the agreement is filed prior to the debtor’s discharge, as, under Bankruptcy Rule 4004(c)(1), this is the earliest that a discharge may be granted. The agreement must be filed before the debtor’s discharge in order to permit the court to discharge its duties under Code § 524(m), which requires that, if the court disapproves the agreement, the court must hold a hearing on the matter prior to the debtor’s discharge.) The court may, at any time and in its discretion, enlarge the time to file a reaffirmation agreement.

o The reaffirmation agreement shall be accompanied by a cover sheet, Official Form 27.

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• The debtor has filed with the court, along with the reaffirmation agreement, the debtor’s statement in support of the agreement required under Code § 524(k)(6). Official Form 240A includes the debtor’s statement in Part II of the form; it is found in Part D of the earlier version of the form, now designated Form 240A/B ALT.

o Under Bankruptcy Rule 4008(b), the debtor's statement shall be accompanied by a statement of the total

income and expenses stated on schedules I and J. If there is a difference between the total income and expenses stated on those schedules and on the debtor’s statement, the statement shall include an explanation of the difference.

• The debtor has not rescinded the agreement prior to receiving a discharge, or within 60 days after the agreement was

filed with the court, whichever occurs later, by giving notice of rescission to the holder of the reaffirmed debt. Code § 524(c)(4).

o Under certain circumstances, notice of rescission may need to be in writing. See In re Polkus, 2008 WL 5099967

(Bankr. D. Ariz. 2008) (the noticing requirements of Code § 524(c)(4) do not require a debtor to give written notice of rescission of a reaffirmation agreement unless the creditor has complied with the requirements of either Code § 342(c)(2) or Code § 342(e)).

o Where time for rescission has passed, it may be possible to have the agreement set aside on the ground of mutual mistake. See In re Bailey, 2009 WL 936956 (Bankr. E.D. Ky. 2009) (on the grounds of both frustration of purpose and mutual mistake, the court set aside agreements reaffirming debts the parties thought were secured by a vehicle and by real property, respectively, where it was later discovered that the creditor’s claim as to the real property was not secured and its claim as to the vehicle was never perfected); In re Sickels, 2008 WL 4975878 (Bankr. N.D. Iowa 2008) (on the ground of mutual mistake, the court granted the debtors’ motion to rescind an agreement reaffirming a mortgage debt following the Chapter 7 trustee’s successful action to avoid the mortgage lien, which the creditor attempted to record postpetition).

• If the debtor was not represented by an attorney during the course of negotiating the agreement, the court must:

o Hold a hearing, at which the debtor appears personally, and inform the debtor:

• that a reaffirmation agreement is not required.

• of the legal effect and consequences of a reaffirmation agreement, and a default under such an

agreement.

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o At that hearing, approve the agreement—but only if the reaffirmed debt is not a consumer debt secured only by real property—as (1) not imposing an undue hardship on the debtor or a dependent of the debtor; and (2) in the best interest of the debtor. Code §§524(c)(5), (c)(6), (d).

• If the debtor was represented by an attorney during the course of negotiating the reaffirmation agreement, the attorney

must file with the court a declaration stating that:

o The agreement represents a fully informed and voluntary agreement by the debtor.

o The agreement does not impose an undue hardship on the debtor or a dependent of the debtor.

o The attorney fully advised the debtor of the legal effect and consequences of a reaffirmation agreement, and a default under such an agreement. Code § 524(c)(3). The current version of Official Form 240A includes the attorney’s certification in Part IV of the form; it is found in Part C of the earlier version of the form, now designated Form 240A/B ALT.

Additionally, if a presumption of undue hardship arises under Code § 524(m), the presumption is not rebutted, and the debt is not owed to a credit union, the court may, but is not required to, disapprove the agreement. If court review is not required, a reaffirmation agreement is effective upon filing with the court, subject to the debtor’s right to rescind the agreement under Code § 524(c)(4). In re Morton, 410 B.R. 556 (6th Cir. B.A.P. 2009). (3) Court Review of Agreement Code § 524(c)(6) and § 524(m) provide for court review of a reaffirmation agreement under certain circumstances. However, under both provisions court review is limited in significant ways. Under Code § 524(c)(6) the court must review the agreement, and determine whether the agreement is in the debtor’s best interests and does not impose an undue hardship on the debtor or a dependent of the debtor, if the debtor was not represented by an attorney during the course of negotiating the agreement. However, court review under Code § 524(c)(6) is not available where the reaffirmed debt is a consumer debt secured only by real property. See In re Hart, 402 B.R. 78 (Bankr. D. Del. 2009) (neither Code § 524(c) nor 524(d) require court approval of a debtor’s reaffirmation of a consumer debt secured by real property); In re Law, 421 B.R. 735 (Bankr. W.D. Pa., Jan. 19, 2010) (the reaffirmation agreement of the debtor’s mortgage was enforceable despite the fact that the court might not believe it to be in the best interest of the debtor; the only effect of the reaffirmation agreement was to permit the debtor's personal liability on the debt to survive the debtor’s discharge, and it was difficult to see how that was beneficial to the debtor).

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Under Code § 524(m) a court reviews a reaffirmation agreement where a presumption of undue hardship exists. However, the court is not authorized to review the reaffirmation of a debt owed to a credit union. See In re Huskinson, 2008 WL 2388113 (Bankr. N.D. Ohio 2008) (where the debtor sought to reaffirm a $4,000 debt owed to a credit union secured by a 2001 Ford Escort valued at $2,000, the court said that the debtor did not have enough income to make the payments called for by the reaffirmation agreement, and entering into the agreement would immediately cause the debtor to be in financial distress, but the court did not have the power to do anything other than advise the debtor of this situation). Nor does § 524(m) contain a provision allowing or requiring the court to review a reaffirmation agreement on the basis of whether it is in the debtor's best interest, as does Code § 524(c)(6)(A)(ii). See In re Hart, 402 B.R. 78 (Bankr. D. Del. 2009). On the other hand, Code § 524(m)(2), unlike § 524(c)(6), does apply to the reaffirmation of a consumer debt secured only by real property. See In re Hart, supra. And it applies even though the debtor was represented by an attorney during the negotiation of the agreement. In re Wilson, 363 B.R. 220 (Bankr. D. N.M. 2007); In re Laynas, 345 B.R. 505 (Bankr. E.D. Pa. 2006). A large of number of courts have held that the debtor's timely act of entering into a reaffirmation agreement with his or her creditors satisfies the performance standards of Code § 521(a)(2), even if the court subsequently disapproves the agreement. Once the discharge is granted, because the debtor has complied with § 521(a)(2), the creditor may not repossess the property as long as the debtor is current on his or her payments (and, in the case of a motor vehicle, has maintained the required insurance). See, e.g., In re Bower, 2007 WL 2163472 (Bankr. D. Or. 2007); In re Moustafi, 371 B.R. 434 (Bankr. D. Ariz. 2007).

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C. Redemption of Collateral Under Code § 722, “[a]n individual debtor may, whether or not the debtor has waived the right to redeem under this section, redeem tangible personal property intended primarily for personal, family, or household use, from a lien securing a dischargeable consumer debt, if such property is exempted under section 522 of this title or has been abandoned under section 554 of this title, by paying the holder of such lien the amount of the allowed secured claim of such holder that is secured by such lien in full at the time of redemption.” Section 722 states four requirements that the debtor must show at the hearing on the motion to redeem: (1) both the property subject to the lien and the underlying debt must be consumer-related; (2) the debt secured by the lien must be dischargeable in bankruptcy; (3) the property must either be exempted under the Code § 522 or abandoned under § 554; and (4) the debtor must pay the lienholder the amount of the allowed secured claim. In re Jewell, 232 B.R. 904 (Bankr. E.D. Tex. 1999). Additionally, the property must be “tangible personal property.” See In re Smith, 2008 WL 5330565 (Bankr. D. Dist. Col. 2008) (the debtor could not redeem his bank accounts from an IRS tax lien, as a debtor's checking and savings accounts were not “tangible personal property”). While § 722 does not limit the types of liens to which it applies, as a practical matter the debtor will have no need to redeem under circumstances in which Code § 522(f)(1) permits the debtor to avoid the lien. Under Bankruptcy Rule 6008, a request for court authorization to redeem property under § 722 is initiated by motion. The matter is then determined at a hearing “on notice as the court may direct.” There is some disagreement as to whether court authorization is required if the redemption is consensual. Compare In re White, 231 B.R. 551 (Bankr. D. Vt. 1999) (court approval was required even though the value of the collateral was not in dispute) and In re Lopez, 224 B.R. 439 (Bankr. C.D. Cal. 1998) (same) with Sears, Roebuck & Co. v. Spivey, 265 B.R. 357 (E.D. N.Y. 2001) (consensual redemption does not require court approval). The debtor is required to pay the creditor “the amount of the allowed secured claim of such holder that is secured by such lien in full at the time of redemption.” This requires the debtor to pay the lesser of the amount of the debt and the value of the collateral. Where the debt is undersecured, as is typically the case, the debtor will be required to pay the value of the collateral. The second sentence of Code § 506(a)(2), which narrowly defines replacement value as “the price a retail merchant would charge for property considering the age and condition of the property at the time value is determined,” is applicable in the redemption context. See In re Redpath, 2009 WL 3242107 (Bankr. C.D. Ill. 2009); In re Morales, 387 B.R. 36 (Bankr. C.D. Cal. 2008); In re Kidwell, 2007 WL 2934866 (Bankr. E.D. Tenn. 2007); In re Ortiz, 2007 WL 1176019 (Bankr. S.D. Fla. 2007); In re Brown, 2006 WL 3692609 (Bankr. D. S.C. 2006).

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While, prior to BAPCPA, there was some disagreement as to whether redemption requires a lump-sum payment, BAPCPA’s amendment to § 722 ended the argument by making such a requirement explicit. The debtor is required to “perform” his or her intention with respect to a secured debt within 30 or 45 days, depending on the applicable provision. While there is little precedent on what this means in the context of redemption, which, unlike reaffirmation, is not necessarily a consensual process, it appears that the debtor will comply with this requirement by filing a motion to redeem the property; the debtor is not required to have secured court approval for the redemption. See In re DeSalvo, 2009 WL 5322428 (Bankr. S.D. Ga. 2009) (a motion to redeem satisfies the "act" requirement of Code § 521(a)(6)); In re Parker, 363 B.R. 621 (Bankr. M.D. Fla. 2007) (“the prudent debtor will file a motion to redeem” within the applicable period, although the court would “not discount the possibility that compliance with the debtor's performance duties also may be accomplished in less formal ways”; however, here, the debtors’ searching for redemption financing, without filing a motion for redemption or communicating with the creditor regarding their efforts, was insufficient to constitute performance of their stated intention to redeem their vehicle so as to preclude the termination of the automatic stay). It should be noted that, even if the debtor failed to file a timely, proper statement of intention, or failed to timely perform that intention, so that the automatic stay has terminated as to the collateral and the collateral is no longer property of the estate, the debtor retains the right to redeem under § 722. Code § 521(a)(2)(C) expressly provides that the debtor’s rights under the Bankruptcy Code with respect to the property are unaffected by the debtor’s failure to properly state and perform his or her intention with respect to secured debts. In re Militante, 2009 WL 779798 (Bankr. N.D. Cal. 2009). See also In re Chance, 1994 WL 16005470 (Bankr. S.D. Ga. 1994) (a debtor may exercise his right of redemption at any time before the case is closed or a foreclosure sale of the property has occurred).

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D. Surrender of Collateral The Bankruptcy Code does not define the term “surrender,” although the Code uses the term both with respect to Chapter 7 debtors in § 362 and § 521 and with respect to Chapter 13 debtors in § 1325. While there is disagreement on the matter, most recent decisions appear to interpret “surrender” as meaning the debtor’s relinquishment of any rights the debtor has in the collateral. See, e.g., In re Claflin, 249 B.R. 840 (1st Cir. B.A.P. 2000) (the ‘surrender’ contemplated in § 521(2) appears to involve the surrender of property to the Chapter 7 trustee administering the estate, not the relevant creditor”); In re Lair, 235 B.R. 1 (Bankr. M.D. La. 1999) (“’surrender’ means nothing other than choosing not to utilize the bankruptcy alternatives of reaffirmation, redemption or exemption and avoidance”). Under this view, in the case of personal property collateral, the debtor does not have to physically deliver it to the creditor. In re Cornejo, 342 B.R. 834 (Bankr. M.D. Fla. 2005); In re Kasper, 309 B.R. 82 (Bankr. D. Dist. Col. 2004). And a debtor surrendering real property is not required to transfer title to the secured creditor by executing and delivering a deed. In re Theobald, 218 B.R. 133 (10th Cir. B.A.P. 1998); In re Carter, 390 B.R. 648 (Bankr. W.D. Mo. 2008). There are. However, cases—usually older—requiring a debtor to actually transfer title to the creditor or otherwise deliver the property to the creditor. See, e.g., In re Taylor, 3 F.3d 1512 (11th Cir. 1993) (“Surrender provides that a debtor surrender the collateral to the lienholder who then disposes of it pursuant to the requirements of state law”); In re Koeller, 170 B.R. 1019 (Bankr. W.D. Mo. 1994) (the debtor did not surrender the real property by doing no “more than step out of the Bank's way so that the Bank could foreclose”).

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E. Assumption of Unexpired Lease of Personal Property Code § 362(h)(1)(A) explicitly provides for the termination of the automatic stay as to the leased property, and the abandonment of the property, if the debtor fails to assume an unexpired lease under § 365(p)(2) “within the applicable time set by section 521(a)(2).” Section 365(p) was added to the Bankruptcy Code to clarify that the automatic stay terminates upon rejection of a personal property lease and in response to the pre-BAPCPA cases that held that a Chapter 7 debtor could not assume a lease. In re Rogers, 359 B.R. 591 (Bankr. D. S.C. 2007). However, the debtor may not assume the lease before the Chapter 7 trustee has rejected the lease or the lease has been deemed rejected under Code § 365(d)(1). In re Houvener, Case No. 2:09-bk-42209 (Bankr. E.D. Mich., March 18, 2009). Under that provision, the lease is deemed rejected “if the trustee does not assume or reject an executory contract or unexpired lease of residential real property or of personal property of the debtor within 60 days after the order for relief, or within such additional time as the court, for cause, within such 60-day period, fixes.” Courts disagree on whether an assumption of an unexpired lease of personal property under § 365(p) requires court approval. Compare In re Gaylor, 379 B.R. 413 (Bankr. D. Conn. 2007) (assumption does not require court approval or other court action) with In re Creighton, 427 B.R. 24 (Bankr. D. Mass. 2007) (assumption constitutes a reaffirmation agreement). For a recent case on § 365(p), see In re Smith, 2010 WL 3586743 (Bankr. D. Or. 2010), in which the court held that a Chapter 7 debtor’s obligations with respect to leased personal property are established in Code § 365(p) and the combination of Code § 521(a)(6) and § 521(d). Read together, these provisions require the following actions of a debtor wishing to assume an unexpired lease of personal property:

• Under Code §§521(a)(6), § 521(d), the debtor must, within 45 days of the petition for relief, file a statement of the debtor's intention to assume the lease.

• Assuming the trustee does not assume the lease within 60 days of the order for relief, under § 365(p)(2) the debtor

must notify the creditor in writing of the debtor's desire to assume the lease. However, assumption of the lease by the debtor is at the option of the lessor. And, even if the lessor agrees to the assumption, under § 365(p)(1) the leased property is no longer property of the estate.

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XII. Preferential, Fraudulent, and Other Avoidable Transfers The Bankruptcy Code contains a number of provisions that allow the Chapter 7 trustee to set aside a transfer of an interest in property by the debtor in order to bring that property interest into the debtor’s bankruptcy estate. Some of these provisions invoke state law, while others are self-contained. Code § 546 establishes certain limitations applicable to all of these provisions except § 549. Operation of these provisions can be complex, and they will simply be enumerated:

• Code § 544(a)(1): Grants the trustee the rights under state law of a holder of a judicial lien on the debtor’s property. See, e.g., In re Mullen, 402 B.R. 353 (Bankr. D. Idaho 2008) (in the Chapter 7 trustee’s adversary proceeding against the debtor husband’s parents, seeking to avoid a mortgage lien held by the parents on the debtors’ real property, the trustee’s claim under Code § 544(a)(1) was unsupportable, as, under Idaho law, a judgment lien was subordinate to prior conveyances and encumbrances).

• Code § 544(a)(2): Grants the trustee the rights under state law of a holder of an unfulfilled execution of judgment

against the debtor.

• Code § 544(a)(3): Grants the trustee the rights under state law of a bona fide purchaser of real property from the debtor. See, e.g., In re Deuel, 594 F.3d 1073 (9th Cir. 2010) (a Chapter 7 debtor’s schedules do not give the Chapter 7 trustee notice of unrecorded liens for the purpose of the trustee’s avoidance powers under Code § 544(a)(3) as a bona fide purchaser of real property).

• Code § 544(b): Grants the trustee the rights under state law of an unsecured creditor; in practice, this permits the

trustee to assert a claim under state fraudulent transfer statutes. See, e.g., In re JTS Corporation, 617 F.3d 1102 (9th Cir.2010) (proceeding by Chapter 7 trustee under Cal. Civ. Code § 3439.04).

• Code § 545: Permits the trustee to avoid certain statutory liens on the debtor’s property.

• Code § 547: Permits the trustee to avoid certain preferential transfers, which are transfers in which a creditor received

more than the creditor would have received in a distribution of the debtor’s assets under Chapter 7, made on account of an antecedent debt. See, e.g., In re Silverman, 616 F.3d 1001 (9th Cir. 2010) (the Chapter 7 debtors' criminal restitution payments to the State Compensation Insurance Fund after they were convicted of insurance fraud under California law, made in the 90 days prepetition, were avoidable under Code § 547(b) as preferential transfers).

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• Code § 548(a)(1)(A): Permits the trustee to avoid certain actually fraudulent transfers. See, e.g., In re Jacobs, 401 B.R.

161 (Bankr. E.D. Pa. 2009) (the Chapter 7 trustee stated a supportable claim under Code § 548(a)(1)(A)).

• Code § 548(a)(1)(B): Permits the trustee to avoid certain constructively fraudulent transfers. See, e.g., In re Bledsoe, 569 F.3d 1106 (9th Cir. 2009) (a state-court marital dissolution judgment that follows from a regularly conducted, contested divorce proceeding conclusively establishes “reasonably equivalent value” under Code § 548(a)(1)(B) in the absence of fraud, collusion, or violation of state law).

• Code § 548(e): Permits the trustee to avoid certain transfers to self-settled trusts.

• Code § 549: Permits the trustee to avoid unauthorized postpetition transfers of estate property. See, e.g., In re Ellis,

2010 WL 3719923 (Bankr. D. Idaho 2010) (the Chapter 7 debtors’ creation of a postpetition lien on their home, through the refinance of their mortgage, was a postpetition transfer of an interest in property of the estate under § 549).

• Code § 553(b): Permits the trustee to avoid certain offsets by creditors of mutual debts with the debtor. See, e.g., In re

Comer, 386 B.R. 607 (Bankr. W.D. Va. 2008) (an IRS prepetition setoff, of an income tax refund due one of the debtors against overpaid Social Security benefits due from the debtors, was not avoidable under Code § 553(b), as the Social Security Administration did not obtain an improvement in its position as a result of the setoff).

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XIII. Conversion or Dismissal of Case by Debtor A. Conversion of Case If, after filing a Chapter 7 petition, the debtor discovers a previously-unknown asset, the debtor might want to convert the case to Chapter 13 so as to be able to retain the asset. Conversion of a Chapter 7 case to another chapter of the Bankruptcy Code on the debtor’s motion is controlled by Code § 706. This is a matter distinct from the debtor’s converting to Chapter 13 after a determination by the bankruptcy court that the debtor failed the means test, or that permitting the debtor to proceed under Chapter 7 constituted an abuse under the totality of the circumstances, as conversion by the court under those circumstances is authorized under Code § 707(b)(1) with the debtor’s consent. Code § 706(a) states that “[t]he debtor may convert a case under this chapter to a case under chapter 11, 12, or 13 of this title at any time, if the case has not been converted under section 1112, 1208, or 1307 of this title.” While this would appear to provide an absolute right to convert to another chapter if the case has not previously been converted, Code § 706(d) provides that “[n]otwithstanding any other provision of this section, a case may not be converted to a case under another chapter of this title unless the debtor may be a debtor under such chapter,” and Marrama v. Citizens Bank of Massachusetts, 549 U.S. 365, 127 S.Ct. 1105, 166 L.Ed.2d 956 (2007) held that the debtor’s right to convert to Chapter 13 is not absolute. Because a Chapter 13 case may be dismissed for bad faith, the Supreme Court reasoned that a Chapter 7 debtor’s motion to convert to Chapter 13 may be denied where the debtor has demonstrated bad faith, because the debtor is not eligible to be a Chapter 13 debtor. Since Marrama, courts have considered a large number of fact patterns to decide whether a Chapter 7 debtor has demonstrated bad faith, so that the debtor’s motion to convert should be denied. For cases permitting conversion, see:

• In re Volante, Case No. 08-30324-dof (Bankr. E.D. Mich., Nov. 17, 2008) (although the Chapter 7 debtor did not disclose that he was the beneficiary of a trust established with proceeds from a lawsuit by the debtor’s father, the debtor did not act in bad faith, such as might preclude his conversion to Chapter 13 after the Chapter 7 trustee discovered the debtor’s status as beneficiary)

• In re Holmes, Case No. 07-05770-JW (Bankr. D. S.C., March 19, 2008) (although the Chapter 7 debtor’s original

Schedule B failed to disclose a tax refund expected for the 2007 tax year, the debtor had not demonstrated bad faith that would preclude her conversion to Chapter 13, as she openly disclosed the refund at the meeting of creditors and amended her Schedule B once her tax returns were completed and the precise refund amount became known)

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• In re Kahl, 2008 WL 2856399 (Bankr. D. Idaho 2008) (while it was a “close call,” and the debtor's disclosure of his

assets, debts, and financial affairs in his schedules was less than complete, the court said it was not persuaded, on balance, that the debtor engaged in deception or bad faith)

• In re Clave, 2008 WL 1902204 (Bankr. N.D. N.Y. 2008) (granting the Chapter 7 debtor’s motion under Code § 706(a) to

convert her case to one under Chapter 13 after her husband died and she received the proceeds of his life insurance policy, the court said it found no evidence that her request to convert the case was in any way a manipulation of the bankruptcy process or an attempt to avoid repaying her debts).

For cases denying conversion, see:

• In re Ramos, 2009 WL 2913445 (Bankr. S.D. N.Y. 2009) (debtors who had failed to make any mortgage payments since September 2006 demonstrated bad faith and were not entitled to convert their Chapter 7 case to Chapter 13)

• In re Shafer, 2009 WL 1651294 (Bankr. D. N.J. 2009) (the debtor failed to file his motion to convert from Chapter 7 to

Chapter 13 in good faith, where the debtor admittedly had not disclosed all of the assets that should have been disclosed on his verified schedules and SOFA, and, after two years, there was still uncertainty as to the assets that did or did not belong to the debtor, while the debtor was unable to clarify the interests and assets that were, or had been, in his possession)

• In re Splawn, 2008 WL 1914253 (Bankr. D. N.M. 2008) (the debtors had engaged in a consistent pattern of evading

repayment of their debt to a certain creditor and had not proceeded in good faith)

• In re Goines, 397 B.R. 26 (Bankr. M.D. N.C. 2007) (the debtor’s undisclosed transfer of real property to her brothers 54 days before filing, and the misrepresentations on her schedules and at her section 341 meeting, evidenced the debtor's bad faith by a preponderance of the evidence)

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B. Dismissal of Case A Chapter 7 debtor does not have an absolute right to dismiss his or her case. Dismissal is controlled by Code § 707(a), which permits dismissal for “cause.” In re Hickman, 384 B.R. 832 (9th Cir. B.A.P. 2008) (finding that the bankruptcy court did not err in denying a motion to dismiss filed by a Chapter 7 debtor who developed “buyer's remorse” after the trustee and creditors became aggressive). In the Ninth Circuit, a voluntary Chapter 7 debtor is entitled to dismissal of his case so long as the dismissal will cause no “legal prejudice” to interested parties. In re Perrine, 369 B.R. 571 (Bankr. C.D. Cal. 2007); In re Leach, 130 B.R. 855 (9th Cir. B.A.P. 1991). Cases are legion, unfortunately, in which the court denied a motion to dismiss by a Chapter 7 debtor after the debtor discovered a previously-unknown asset or realized for another reason that a Chapter 7 bankruptcy would not be advantageous. See, for example, the following:

• In re Jabarin, 395 B.R. 330 (Bankr. E.D. Pa. 2008) (the debtor’s desire to protect potential assets discovered by the Chapter 7 trustee from distribution to creditors did not establish “cause” under Code § 707(a) to voluntarily dismiss his case, even though the debtor asserted that he did not disclose the assets to his counsel due to his limited facility with the English language, and that, had he done so, and been properly advised by his counsel, he would not have filed the bankruptcy case to begin with)

• In re Steele, 2008 WL 1782401 (Bankr. D. Neb. 2008) (the Chapter 7 trustee should administer the debtor’s postpetition

inheritance; while the debtor explained that she would attempt to settle matters with her creditors outside of bankruptcy, the court noted that dismissal could very well result in a prejudicial delay in payment to the creditors if the debtor were unable to settle with her creditors quickly)

• In re Kandola, 2009 WL 1587742 (Bankr. N.D. Ohio 2009) (the Chapter 7 debtors failed to establish “cause” for

dismissal of their case, where the Chapter 7 trustee contended that he had located an asset that might have value to the unsecured creditors, and, while the debtors disagreed with this claim, they had done little to support their assertion that a life tenant was in possession of the property)

• In re Hopper, 404 B.R. 302 (Bankr. N.D. Ill. 2009) (the court denied the Chapter 7 debtor’s motion to dismiss, where

the debtor alleged that she filed for bankruptcy on the basis of a mistaken belief that her residence would be completely exempt)

•

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For cases permitting dismissal under other circumstances, see:

• In re Strunk, 2008 WL 1994848 (Bankr. E.D. Pa. 2008) (“cause” existed under Code § 707(a) for dismissal where the debtors sought to dismiss the case in order to avoid the trustee’s selling a house co-owned by the debtors and a nondebtor third party, all of whom lived in the house)

• In re Hildestad, 2010 WL 320362 (Bankr. D. Ariz. 2010) (the Chapter 7 debtors would be permitted to dismiss their

case, as their only asset, a prepetition lump-sum payment of Social Security benefits, was exempt; as such, the bankruptcy estate was devoid of any assets to liquidate)

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XIV. Denial or Revocation of Discharge under Code § 727 Code § 727(a) specifies several grounds that, if established, will result in a Chapter 7 debtor’s being denied a discharge: (2) the debtor, with intent to hinder, delay, or defraud a creditor or an officer of the estate charged with custody of property under this title, has transferred, removed, destroyed, mutilated, or concealed, or has permitted to be transferred, removed, destroyed, mutilated, or concealed—

(A) property of the debtor, within one year before the date of the filing of the petition; or (B) property of the estate, after the date of the filing of the petition;

(3) the debtor has concealed, destroyed, mutilated, falsified, or failed to keep or preserve any recorded information, including books, documents, records, and papers, from which the debtor's financial condition or business transactions might be ascertained, unless such act or failure to act was justified under all of the circumstances of the case; (4) the debtor knowingly and fraudulently, in or in connection with the case—

(A) made a false oath or account; (B) presented or used a false claim; (C) gave, offered, received, or attempted to obtain money, property, or advantage, or a promise of money, property, or advantage, for acting or forbearing to act; or (D) withheld from an officer of the estate entitled to possession under this title, any recorded information, including books, documents, records, and papers, relating to the debtor's property or financial affairs;

(5) the debtor has failed to explain satisfactorily, before determination of denial of discharge under this paragraph, any loss of assets or deficiency of assets to meet the debtor's liabilities; (6) the debtor has refused, in the case—

(A) to obey any lawful order of the court, other than an order to respond to a material question or to testify; (B) on the ground of privilege against self-incrimination, to respond to a material question approved by the court or to testify, after the debtor has been granted immunity with respect to the matter concerning which such privilege was invoked; or

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(C) on a ground other than the properly invoked privilege against self-incrimination, to respond to a material question approved by the court or to testify;

Moreover. Code § 727(d) permits the court to revoke a Chapter 7 discharge already granted under the following circumstances: (1) such discharge was obtained through the fraud of the debtor, and the requesting party did not know of such fraud until after the granting of such discharge; (2) the debtor acquired property that is property of the estate, or became entitled to acquire property that would be property of the estate, and knowingly and fraudulently failed to report the acquisition of or entitlement to such property, or to deliver or surrender such property to the trustee; (3) the debtor committed an act specified in subsection (a)(6) of this section; or (4) the debtor has failed to explain satisfactorily—

(A) a material misstatement in an audit referred to in section 586(f) of title 28; or (B) a failure to make available for inspection all necessary accounts, papers, documents, financial records, files, and all other papers, things, or property belonging to the debtor that are requested for an audit referred to in section 586(f) of title 28.

Code § 727(e) specifies that a proceeding to revoke the debtor’s discharge under § 727(d)(1) must be filed within one year of the discharge, while a proceeding to revoke the debtor’s discharge under § 727(d)(2) or § 727(d)(3) must be filed within the later of one year after the discharge or the date the case was closed. There is no time limit for filing a proceeding to revoke the debtor’s discharge under § 727(d)(4) for misconduct in relation to an audit.

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XV. Closing of Case; Reopening of Case The Chapter 7 debtor’s receiving a discharge does not close the case. The case can remain open for several months thereafter, or even longer. Only the Chapter 7 trustee can close the case; the debtor has no power to do so. Under Code § 350(b), a bankruptcy court has the discretion to reopen a bankruptcy case “to administer assets, to accord relief to the debtor, or for other cause.” The debtor (or other party seeking to reopen a case) must establish cause to do so. In re Silber, 2009 WL 2902571 (Bankr. S.D. N.Y. 2009). Section 350(b) does not limit the time within which a motion to reopen must be filed, and Bankruptcy Rule 9024 specifically exempts § 350(b) motions from the one-year time limitation imposed by Fed. R. Civ. P. 60(c)(1) for motions to obtain relief from a judgment order. However, a bankruptcy court’s decision to reopen a bankruptcy case is subject to equitable defenses, such as laches. In re Cusson, 412 B.R. 646 (D. Vt. 2009). A case cannot be reopened under Code § 350(b) unless it was closed pursuant to § 350(a) after the estate was administered. A case that is dismissed is not deemed closed and therefore cannot be reopened under § 350(b). A debtor may seek relief from a dismissal order only by filing an appeal or a motion under Bankruptcy Rule 9023 or 9024. In re Income Property Builders, Inc., 699 F.2d 963 (9th Cir. 1982); In re Silber, 2009 WL 2902571 (Bankr. S.D. N.Y. 2009). Contra, In re Ross, 278 B.R. 269 (Bankr. M.D. Ga. 2001). A court's decision to reopen is entirely within its sound discretion, based upon the circumstances of each case. In re Castillo, 297 F.3d 940 (9th Cir. 2002). There are various reasons why a debtor might want to reopen a previously-closed case:

• To add a newly-discovered asset to the debtor’s schedules and allow the trustee to administer the asset. See In re Stein, 394 B.R. 13 (Bankr. E.D. N.Y. 2008) (reopening of the Chapter 7 debtor’s case was warranted, where the debtor filed a motion to reopen eight years after his case was closed, but only 10 months after discovering his apparent ownership of an interest in real property that he wished to add to his schedules).

• To avoid a lien under Code § 522(f). See In re Sheckard, 394 B.R. 56 (E.D. Pa. 2008); In re Cusson, 412 B.R. 646 (D.

Vt. 2009)

• To file a complaint instituting an adversary proceeding to determine the dischargeability of a student loan. See In re Howard, 2009 WL 3849702 (Bankr. D. Md. 2009).

• To file an adversary proceeding to recover for an alleged violation of the automatic stay. See In re Theokary, 2008 WL

5329310 (Bankr. E.D. Pa. 2008).

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However, there is no reason to reopen a case for the purpose of adding a creditor who was not listed in the debtor’s original schedules, since adding the creditor does not affect the dischargeability of the debt owed to the creditor. In re Beezley, 994 F.2d 1433 (9th Cir. 1993).

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Bankruptcy Resources Exemptions John Bates' Exemptions Express National Consumer Law Center Foreclosing a Dream: State Laws Deprive Homeowners of Basic Protections (February 2009) —Summary of State Foreclosure Laws 50-State Report on Unfair and Deceptive Acts and Practices Statutes (February 2009) —State-by-State Analysis For more, see the NCLC website United States Trustee Program USTP website —Means Test Information Statement of the U.S. Trustee's Program on Legal Issues Arising under the Chapter 7 Means Test (April 23, 2010) United States Trustee's Perspective in Consumer Bankruptcy Cases (March 2010) Chapter 7 Handbooks and Reference Materials U.S. Trustee FAQs United States Trustee Manual

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Other Websites 13Network American Bankruptcy Institute (ABI) —Bankruptcy Blog Exchange Bankruptcy Blogs (Justia) Internal Revenue Manual: Financial Analysis Handbook (IRS) National Association of Bankruptcy Trustees (NABT—Chapter 7) National Association of Chapter 13 Trustees (NACTT) —NACTT Academy National Association of Consumer Bankruptcy Attorneys (NACBA)

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APPENDIX A:

Recent Supreme Court Cases

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Schwab v. Reilly, 130 S.Ct. 2652, 177 L.Ed.2d 234 (June 17, 2010)

• The trustee is under no duty to object if the debtor's claimed exemption is facially lawful. Thus, here, where the debtor, the owner of a catering business, listed as an asset her "business equipment," valued it at $10,718, and claimed two facially-valid exemptions totaling that amount (an $1,850 tools of the trade exemption under Code § 522(d)(6) and an $8,868 wildcard exemption under § 522(d)(5)), the Chapter 7 trustee was under no duty to object, even though he knew within the 30-day period that the property was worth some $17,000. Thus, the debtor’s claim of exemption did not have the effect of exempting the full value of the equipment.

Hamilton v. Lanning, 130 S.Ct. 2464, 177 L.Ed.2d 23 (June 7, 2010)

• The forward-looking approach is employed in calculating a Chapter 13 debtor’s projected disposable income: "When a bankruptcy court calculates a debtor's projected disposable income, the court may account for changes in the debtor's income or expenses that are known or virtually certain at the time of confirmation." The starting point is the figure calculated on Form 22C, but that figure may be adjusted in "unusual" cases: "a court taking the forward-looking approach should begin by calculating disposable income, and in most cases, nothing more is required. It is only in unusual cases that a court may go further and take into account other known or virtually certain information about the debtor's future income or expenses."

United Student Aid Funds, Inc. v. Espinosa, 130 S.Ct. 1367, 176 L.Ed.2d 158 (March 23, 2010)

• A bankruptcy court is obligated to ensure that a debtor’s proposed Chapter 13 plan complies with the requirements of Code § 1325 before confirming the plan, even in the absence of an objection. Accordingly, to comply with Code § 523(a)(8), which requires a debtor to establish undue hardship in order to discharge a student loan, the bankruptcy court must make an independent determination of undue hardship before a plan is confirmed, even if the creditor fails to object to the plan. However, actual notice of the debtor’s plan is sufficient to provide the student loan creditor with the notice required by due process, even if the creditor does not receive the summons and adversary complaint to which it is entitled under the Bankruptcy Rules.

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Milavetz, Gallop & Milavetz, P.A. v. U.S., 130 S.Ct. 1324, 176 L.Ed.2d 79 (March 8, 2010)

• An attorney is a “debt relief agency” under Code §101(12A), which was added by BAPCPA. However, Code § 526(a)(4), which prohibits a debt relief agency from “advis[ing] an assisted person … to incur more debt in contemplation of” filing for bankruptcy, should be construed to prohibit a debt relief agency only from advising a debtor to incur more debt because the debtor is filing for bankruptcy, rather than for a valid purpose. As so construed, the provision is not constitutionally vague. Moreover, The requirements in Code § 528 that an attorney identify himself or herself as a debt relief agency and include certain information about his or her bankruptcy-assistance and related services are “reasonably related to the [Government’s] interest in preventing deception of consumers” and therefore pass constitutional muster.

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APPENDIX B:

Official Bankruptcy Forms

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List of Forms Official Form 1: Bankruptcy Petition

• Exhibit D to petition: Individual Debtor's Statement of Compliance with Credit Counseling Requirement

• Cover Sheet for Schedules

• Summary of Schedules

• Declaration Concerning Debtor's Schedules Instructions

• Schedule A - Real Property

• Schedule B - Personal Property

• Schedule C - Property Claimed as Exempt

• Schedule D - Creditors Holding Secured Claims

• Schedule E - Creditors Holding Unsecured Priority Claims

• Schedule F - Creditors Holding Unsecured Nonpriority Claims

• Schedule G - Executory Contracts and Unexpired Leases

• Schedule H - Codebtors

• Schedule I - Current Income of Individual Debtor(s)

• Schedule J- Current Expenditures of Individual Debtor(s) Official Form 3A: Application and Order to Pay Filing Fee in Installments Official Form 3B: Application for Waiver of Chapter 7 Filing Fee

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Official Form 7: Statement of Financial Affairs Official Form 8: Chapter 7 Individual Debtor's Statement of Intention Official Form 9A: Notice of Chapter 7 Bankruptcy Case, Meeting of Creditors, & Deadline (no-asset cases) Official Form 9C: Notice of Chapter 7 Bankruptcy Case, Meeting of Creditors, & Deadline (asset cases)

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Official Form 10: Proof of Claim Official Form 21: Statement of Social Security Number Official Form 22A: Statement of Current Monthly Income and Means Test Calculation Official Form 23: Debtor's Certification of Completion of Instructional Course Concerning Financial Management Official Form 27: Reaffirmation Agreement Cover Sheet Director's Form 201A: Notice to Individual Consumer Debtors Director's Form 203: Disclosure of Compensation of Attorney for Debtor Director’s Form 240A: Reaffirmation Documents Director’s Form 240B: Motion for Approval of Reaffirmation Agreement Director’s Form 240C: Order on Reaffirmation Agreement Note that these copies are provided for instructional use and are not “fillable,” as are the copies of the forms that may be downloaded from the U.S. Courts website.