Credit Counseling Agencies Slammed By IRS
May 16, 2006
IRS cracks down on abusive credit-counseling operations – MarketWatch
The IRS has revoked the tax-exempt status of many credit counseling agencies after audits of the companies.
The real world of credit-counseling according to the article goes something like this:
"We were seeing almost boiler rooms selling these plans," said Steven Miller, commissioner of tax-exempt and government entities at the IRS, in a telephone interview.
"If you weren't qualifying for a debt-management plan, they were hanging up on you. Even if you did qualify, they made no real attempt in many instances [to ascertain] whether you were better off in a debt-management plan," he said.
And, as part of their tax-exempt status, these organizations are supposed to provide education, but that's not what was happening, Miller said. "These organizations are supposed to talk to people and do some education about how to get their credit lives in order," he said. "There was too much salesmanship and sales of debt-management programs, and not enough education."
This crackdown on counseling agencies comes at a time when consumers seeking to file bankruptcy are now forced to complete a credit-counseling session, under the rules of the new bankruptcy law that went into effect in October.
Check The Florida Bankruptcy Law Blog: Insurance Proceeds Received After Filing Bankruptcy for a great explanation of the rule about receipt of insurance proceeds after filing.
The point of the story is that insurance proceeds received within the initial months after bankruptcy filing are part of the bankruptcy estate under the law. This provision of the law is designed, in some part, to prohibit someone from filing bankruptcy when they anticipate a recovery from an estate so as to deprive their creditors of claims they might otherwise have when the debtor received said proceeds.
Rember also that the proceeds from the estate can be exempted under relevant exemption codes.
Bankruptcy and Restructuring Blog has a rundown on the recent 9th Circuit opinion soldifying the Bankruptcy Trustees exclusive right to assert legal claims on behalf of the bankruptcy estate.
“The Ninth Circuit noted that Bankruptcy Code section 323
gives the trustee the capacity to sue on behalf of the estate. The
Court further acknowledged that, under some circumstances, a trustee
may authorize others to bring suit on the estate’s behalf. However, the
Ninth Circuit held that the right to bring suit belongs to the trustee
in the first instance, not creditors.”
Read the full post: Bankruptcy and Restructuring Blog: BANKRUPTCY TRUSTEE HAS THE EXCLUSIVE RIGHT TO ASSERT LEGAL CLAIMS ON BEHALF OF THE BANKRUPTCY ESTATE
From the National Association of Consumer Bankruptcy Attorneys, a lawsuit that many lawyers have heard alot about and waited along time to see has finally been filed. Word has been circulating in the bankruptcy bar about the lawsuit filed today by NACBA and the text of the case looks promising.
From the NACBA website:
NACBA, along with the Connecticut Bar Association, has filed suit in the Connecticut federal court to have the "debt relief agency" provisions of the new bankruptcy law held unconstitutional if they are applied to attorneys. The suit seeks a preliminary injunction prohibiting their application to attorneys, including all NACBA members.
On Subtantial Abuse Issues in Chapter 13 Plans
May 11, 2006
The ABI's BAPCPA Blog has a few updates to the limited case law on the issue of substantial abuse issues in chapter 13 plans, read the update here.
Confusion over "disposable income" vs. "projected disposable income" was [A]ddressed in the case of Hardacre
[W]hether a debtor's "projected disposable income," which must be devoted to a Chapter 13 plan under Section 1325(b), is the same thing as the "disposable income" calculated based on the debtor's income for the six months prior to the petition date. The definition of "disposable income" used in 1325(b)(2) incorporates the term "current monthly income," which in turn is defined under Section 101(10A) based on the 6-month pre-filing period. The Hardacre court concluded that "projected disposable income" meant something different from "disposable income," and necessarily requires review of the debtor's current income at time of confirmation rather than the prepetition income.
Bankruptcy Filings Soaring?
May 11, 2006
From the New York Bankruptcy and Consumer Law Blog comes this take on the recent uptick in bankruptcy filings:
The reason for continued filings?
- An enormous expansion of credit by the lending industry, including to customers with shaky repayment histories and questionable ability to repay.
- Interest rates with no caps. Many credit cards now come with penalty rates above 30% which can be triggered by a single late payment. Overextended consumers facing those kinds of finance charges can quickly find themselves unable to keep up with payments.
- A growing number of people who are uninsured, or underinsured, against medical bills.
- Ever-increasing gasoline prices.
The list goes on and on. But reality is that more and more Americans are realizing that bankruptcy is still available and a viable option for getting out of debt.
On Attorney Liability in Bankruptcy
May 11, 2006
From the Bankruptcy Litigation Blog, an interesting post on attorney liability in Bankruptcy:
there are more hidden traps in BAPCPA than in an Indiana Jones movie. A few of the traps reviewed in the treatise are also previewed here (§ 707(b)(4)), here (§ 521), and here ("9 Traps and One Slap").
Based on this recent decision from the 4th Circuit, it's looking like statutes whose acronyms end with the letters "CPA" portend dark days for attorneys dealing with consumer debtors. As recently explained at length in this blog post by Holland & Knight's Rob Glenn, the Fourth Circuit has recently held (in yet another split decision) that lawyers handling mortgage foreclosures are "debt collectors" who must comply with the provisions of the Fair Debt Collection Practices Act (FDCPA). Wilson v. Draper & Goldberg, 2006 WL 861429 (4th Cir., 4/5/06).
New Debtor Education Course Approved
May 11, 2006
From Startfreshtoday.com comes this note that
Start Fresh Today Instructional's Debtor Education Course has been approved by the U.S. Trustee's office.
The two-hour interactive course satisfies the Debtor Education requirement that provides the "ticket out" of bankruptcy for debtors. The course can be purchased at http://www.startfreshtodayinstructional.com.
Bankruptcy Law Blog 