Bankruptcy Reform Legislation
by Steve Jacobson
Congress will soon pass legislation that will dramatically overhaul the current bankruptcy system. Similar legislation was vetoed by President Clinton on the grounds that is was too harsh. However, President Bush has indicated that he will sign the new Act.
The principal purpose of the new bankruptcy law is to make it much harder for individuals to wipe out credit card and other consumer debt in bankruptcy preceedings. To understand how the new legislation will accomplish this, it is helpful to have a basic understanding of the current system.
Under the present system, individuals may file for relief under either Chapter 7 or Chapter 13 of the Bankruptcy Code. Chapter 7 is the familiar liquidation, in which all non-exempt assets are placed under the jurisdiction of the trustee, are liquidated by the trustee and any net proceeds are distributed pro-rata to creditors. Individuals who elect to file under Chapter 7 receive a discharge on all eligible pre-petition debts. In bankruptcy parlance, a debt that is discharged is one that a creditor may no longer make any attempt to collect. While a limited number of debts- such as taxes, alimony and child support, may not be discharged, most credit card, consumer and other unsecured debt is essentially wiped out.
The present system also allows individuals to elect to file for personal re-organization under Chapter 13. Under a Chapter 13 plan, individuals make monthly payments over three to five years to their creditors. A Chapter 13 plan generally allows individuals to maintain possession of their houses and automobiles and provides a somewhat more generous discharge than Chapter 7.
Significantly, under present practice, the decision to file for liquidation or re-organization is completely left to the discretion of the individual debtor. Thus, an individual with relatively high income and the apparent ability to repay a portion, if not all of his or her debts over time may nevertheless elect to file for liquidation under Chapter 7 rather than re-organize under Chapter 13. Also, the present system has no income or asset test that must be met in order to be eligible to file a Chapter 7 petition.
The only exception to the unfettered discretion of the individual to file under Chapter 7 is §707 (b) of the Code. This section only allows the Court or the United States Trustee to move to dismiss a Chapter 7 case where the debts are primarily consumer debts and the Court finds that granting relief would “be a substantial abuse of the provisions of the Chapter (7).” In practice, this provision has been rarely invoked. Section 707 (b) in its current form provides that there is a presumption in favor of granting the relief requested by the debtor.
The new legislation will make significant changes in the bankruptcy system. First, and most important, the new law will allow a panel trustee and any party in interest (which would include any creditor) to move for a dismissal or conversion for “simple abuse”- as opposed to substantial abuse under the current law. Along these lines, the current presumption in favor of granting relief sought by the debtor is replaced with the presumption that there is abuse if the debtor’s current monthly income exceeds an amount to be measured by a specified formula. It is anticipated that the new legislation will provide that individuals with enough income to pay off at least twenty- five percent of their debts over five years will be barred from filing for relief under Chapter 7. Instead their debtors will be forced to file for re-organization under Chapter 13 and confirm a repayment plan under Court supervision.
Even those still eligible for Chapter 7 relief will find that there are a number of new paperwork and logistical hurdles that must be overcome in order to file their petition. For example, the new law will require debtors seeking relief under Chapter 7 to complete credit-counseling programs, as well as additional paperwork.
Under the current bankruptcy system, unsecured creditors in Chapter 7 proceedings, as well as many secured creditors, have few options to maximize recovery on their claims. However, the new legislation is very much pro-creditor and arms most creditors with many new tools that can result in dismissal of petitions, conversion of petitions to re-organize under Chapter 11 or Chapter 13 and other means of increasing the creditor’s recovery in bankruptcy. Once the new legislation goes in to effect, creditors should carefully review their options to challenge the right of a debtor to obtain the relief he seeks and to avail themselves of new and powerful creditor remedies.
Attorney Elected to Chamber of Commerce Executive Committee
Simon, Peragine, Smith & Redfearn, L.L.P. is proud to announce that partner Doug Redfearn was recently elected to the Executive Committee of The New Orleans Regional Chamber of Commerce. The Executive Committee formulates policy for The Chamber’s programs on behalf of business in the New Orleans Region on the local, state and federal levels.
Mr. Redfearn practices primarily in the areas of general civil litigation, insurance defense and oil and gas. He is also a member of the Louisiana, Federal and American Bar Associations.
A New Orleans native, Mr. Redfearn received his Bachelor’s degree from Louisiana State University in 1987. He graduated cum laude from Tulane Law School in 1991. Mr. Redfearn is honored by his election and is excited about his future with The Chamber.
United Way: A Success For All
United Way Week has always been a success here at Simon, Peragine, Smith & Redfearn, L.L.P. This year was no exception. The Monday of United Way Week we started with a kick-off luncheon highlighting a speaker from the United Way. That Monday also included a door prize of gift certificates for dinner at Ruth’s Chris Steakhouse. Everyone who pledged support to the United Way was invited to participate in a silent auction starting on Tuesday of United Way Week. All auction items were donated to the firm, and included tickets for plantation tours, free rounds of golf at local country clubs and restaurant gift certificates. On Wednesday we held our well attended chili luncheon. With a donation of $3.00 each person was treated to a hearty lunch and a trivia contest with questions about the firm. Thursday we held a leftover chili day and continued with the silent auction. On Friday we concluded the silent auction as well as holding a costume contest.
On a weekly basis we enjoy our dress-down Friday’s at Simon, Peragine, Smith & Redfearn, L.L.P. but for United Way Week a pledge of $2.00 per day could get you an entire dress-down week. United Way Week is always a fun and successful way to raise money for the United Way. This year we enjoyed more than 90% participation and raised over $12,000 for the United Way.
Bringing Hope to New Orleans’ Families
This past Christmas Simon, Peragine, Smith & Redfearn, L.L.P. helped to make a difference in the New Orleans community. We adopted two families from Hope House, a non-profit organization that pairs families in need with donors. Our first adopted family was a single mother with five children ranging in age from five to twelve. The second family was a single mother with a newborn baby. We enjoyed 100% participation from our attorneys and 66% from our staff. In total we raised $1,300 for the families as well as several donations. Gifts for the entire family were purchased including winter coats, hats, gloves and pajamas. We also purchased dolls for the girls, cars for the boys, board games for the family and each child received a special gift such as a CD boom box or an animated Winnie the Pooh stuffed toy. We at Simon, Peragine, Smith & Redfearn, L.L.P. are proud of those who donated, shopped, wrapped and helped deliver the gifts. This was a success that we hope to repeat in the future.
Bike New Orleans
Community involvement is a priority for Simon, Peragine, Smith & Redfearn, L.L.P. This year we are a sponsor of the second annual Bike New Orleans, a scenic bike tour through New Orleans that will take place May 20. Following the Bike Tour will be a festival held at Scout Island, featuring food, beverages and entertainment. We believe this family event for everyone is a positive event for New Orleans.
Proceeds raised by Bike New Orleans will benefit the Young Leadership Council and the New Orleans Police Foundation. The Young Leadership Council is a non-profit, non-partisan civic organization created to develop leadership through community projects. The YLC’s list of accomplishments include the Festival of Fins, Walk the Beat, Reach out and Read, Recreate New Orleans and the New Orleans Sports Foundation. The New Orleans Police Foundation is a non-profit, independent organization created to assist the New Orleans Police Department. Its mission is to make New Orleans a safer place to live and work by acting as a liaison between the public and private sectors of the city.
We at Simon, Peragine, Smith & Redfearn, L.L.P. are confident that this year’s Bike New Orleans will be a success and are proud to be a sponsor. Good luck to all those involved!
Attorneys Speaking Engagements
The attorneys of Simon, Peragine, Smith & Redfearn, L.L.P. actively participate in seminars and presentations involving various aspects of the legal arena. Many of our attorneys involve themselves each month with presentations and speeches on a local and a national level. The upcoming months are filled with meetings and seminars that feature our attorneys including Bruce Shreves, Jim Burton, Tom Hamrick and Judy Perry Martinez.
Bruce Shreves has several speaking engagements, here in New Orleans and in other U.S. cities, scheduled for the upcoming months. On March 29, Mr. Shreves will be speaking on Complex Multi-Party Construction Mediations at the American Arbitration Meeting in New Orleans. From April 9 to the 10th, he will be speaking on Advanced Arbitration for the American Bar Association. Mr. Shreves will be serving as a Surety Case Study Panelist for the Fidelity & Surety Law Committee Spring Meeting in Asheville, North Carolina on May 10. He will also be a featured speaker on surety issues at the Surety Claims Institute Meeting on June 21 to be held at The Sagamore in Lake George, New York.
Jim Burton is currently an adjunct professor at Tulane University. He conducts a monthly series of presentations to Tulane’s Community Medicine Program. Tom Hamrick is also an adjunct professor at Tulane University as well as also conducting presentations to students each month. Topics both Mr. Burton and Mr. Hamrick have discussed at their presentations include the legal and economic aspects of the practice of medicine.
Judy Perry Martinez is scheduled on March 30, to speak on Professionalism at the Tulane Admiralty Institute. Ms. Martinez also has been invited by the Legal Services Corporation to facilitate a national dialogue on gender and justice. The first in the series of sessions which Ms. Martinez will lead for Legal Services Corporation will take place in San Diego on March 31.
Ms. Martinez will also attend the Women’s Leadership Summit at the Kennedy School of Grovernment at Harvard University on April 27th and 28th. The invitation-only summit, co-sponsored by the American Bar Association and the Center for Public Leadership at the Kennedy School, will bring together 100 prominent women leaders from law, politics, corporate management and media to explore the opportunities and obligations that come with leadership and power.
Simon, Peragine, Smith & Redfearn, L.L.P. encourages its attorneys to participate in seminars and presentations both locally and nationally.
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