Annual Meeting of the National Bankruptcy Conference

COMMITTEE REPORT

INDIVIDUAL DEBTOR COMMITTEE

ANNUAL MEETING OF THE NATIONAL BANKRUPTCY CONFERENCE

OCTOBER, 2015

1.ABLE Account Legislation

In response to a request from the House Judiciary Committee, the Individual Debtor, Taxation, and Drafting Committees worked on a provision of the "Achieving a Better Life Experience Act of 2014"dealing withthe bankruptcy treatment of ABLE accounts that are created for the benefit of disabled persons. The legislation was enacted with bipartisan support and signed by the President on December 19, 2014.

Similar to the treatment of section 529 education savings accounts, the ABLE Act amends Code section 541(b) to exclude ABLE accounts from the owner's bankruptcy estate. The funds must be in an account of a “qualified ABLE program,” as defined in 26 U.S.C. § 529A. The limitations on funds placed in an account in the two years prior to the bankruptcy petition are the same as those for section 529 education savings accounts. In addition, the Act (i) amends section 707(b) to clarify that, subject to certain limitations, the debtor's monthly expenses for the care and support of a disabled family member may include contributions to an ABLE account, so that such contributions would not have an adverse impact on the determination of whether the case is a presumed abuse of chapter 7, and (ii) amends section 521(c) to require the filing of a record of the debtor's interest in an ABLE account (as is required for section 529 education savings accounts).

2.Position Statement on Hanging Paragraph in 11 U.S. C. § 523(a)

The Committee assisted in preparing a recommendation concerning the ABA Section of Taxation proposal for a technical correction to the hanging paragraph in section 523(a). This BAPCPA amendment addeda definition of a tax “return” to section 523(a) in an unnumbered, hanging paragraph. This amendment has caused some courts to hold that a tax debt that is otherwise dischargeable under section 523(a)(1)(B)(ii) is not dischargeable if the debtor’s tax return was not timely filed. The ABA proposal suggests that this was not the intent of Congress in enacting the hanging paragraph language and proposes a technical correction tosection 523(a) that would clarify that timeliness is not an applicable filing requirement contemplated by the hanging paragraph language. The Committee recommended that the Conference support the ABA proposal, and suggested several additional technical corrections. On April 15, 2015, the Conference provided to the House Judiciary Committee a position statement supporting the ABA proposal.[1]

If such a technical correction bill were introduced in Congress, it would be consistent with the position that the Internal Revenue Service has taken on late filed returns. However, a bill likely would be opposed by state taxing authorities.

3.Student Loan Treatment in Chapter 13 Cases

At the last annual meeting, the Conference approved the Individual Debtor Committee's proposal on the dischargeability of student loans. Included in the proposal was an amendment to section 1322(b)(5) to address the problem thatdebtors face in attempting to separately classify student loan debt in chapter 13 cases. After discussion by the Conference, the Committee was asked to redraft the proposed amendment to include language that would limit the exception to student loans.

The Committee reviewed several alternatives for revising the chapter 13 treatment proposal. The Committee is now seeking input from the Conference on two alternative proposals.

​Alternative A adopts the approach considered by the Conference at the last annual meeting. The goal ​of the section ​1322(b)(5)​ amendment ​is to permit debtors to pay ongoing student loan payments​,​ with interest​, without needing to satisfy the unfair discrimination test in section 1322(b)(1) for separately classified claims. ​As long-term debts, the proposed amendment makesclear that treatment of student loans ​under the cure and maintain provisions ​of section 1322(b)(5) ​is possible notwithstanding sections 1322(b)(1) and (b)(10): ​

Alternative A - add a new paragraphto § 1322:

(11) Notwithstanding paragraphs (1) and (10) of this subsection, with respect to a claim for a debt of the kind specified in section 523(a)(8) of this title, provide for the curing of any default within a reasonable time and maintenance of payments while the case is pending.

One problem with this approach is that by singling out student loan debt, this proposed amendment creates negative implications for other long-term unsecured claims. Although it has become the minority view, some courts currently give effect to section 1322(b)(5) as a distinct Code provision and have not required debtors proposing to pay student loan or other long-term unsecured debt directly from current income to satisfy the unfair discrimination test under section 1322(b)(1). The proposed amendment in Alternative A would suggest that all long-term debt being treated under section 1322(b)(5), except student loan debt, must satisfy the requirements of sections 1322(b)(1) and (b)(10).

Although not previously discussed by the Conference, the Committee considered another approach that deals directly with the separate classification language in section 1322(b)(1). The Committee initially considered an amendment that would maintain much of the existing languageand structure of section 1322(b)(1), by simply adding student loans to the current exception for co-signed debt. However, despite the apparent intent of Congress, a number of courts have construed the current "however" clause language to require that separately classified co-signed debt must still satisfy the unfair discrimination test. So for those courts, a proposed amendment that simply adds student loan debt to the "however" clause would not achieve thegoal of permitting student loans to be separately classified without consideration of unfair discrimination.

Thus, the Committee considered an Alternative Bthat rewrites section 1322(b)(1). This proposal goes beyond student loans and also addresses the current problems with co-signed debt, even permitting interest to be paid on such debt.

Alternative B - amend § 1322(b)(1) and (b)(10):

(1)(A) Subject to subparagraph (B) of this paragraph, designate a class or classes of unsecured claims, as provided in section 1122 of this title,but may not discriminate unfairly against any class so designated; however, such plan may treat claims for a consumer debt of the debtor if an individual is liable on such consumer debt with the debtor differently than other unsecured claims;

(B) a plan may designate a separate class or classes of claims consisting only of claims for a consumer debtor if an individual is liable on such debt with the debtor or claims for a debt of the kind specified in section 523(a)(8) of this title, and may treat such claims differently than other unsecured claims, and such treatment shall not be considered to discriminate unfairly against any other class of unsecured claims.

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(10) provide for the payment of interest accruing after the date of the filing of the petition on anunsecured claimclaims that isarenondischargeable under section 1328(a), except that if such claim is not of the kind specified in paragraph (1)(B) of this subsection, such interest may be paid only to the extent that the debtor has disposable income available to pay such interest after making provision for full payment of all allowed claims; and

4.National Chapter 13 Plan Form

In 2011, the Advisory Committee on Bankruptcy Rulesbegan work towards the development of a national chapter 13 plan form and related rule amendments. The attached memo from the former assistant reporter for the Committee, Troy McKenzie, to the Advisory Committee sets out in detail the history of the project and its status as of March, 2015.

Near the close of the public comment period following republication of the proposed rules and plan form, a group of bankruptcy judges and certain interested parties submitted a proposal for an alternative approach. This “compromise” approach would permit each district to choose to adopt its own local plan form or the national plan form. A proposal that incorporates the compromise approach and the latest version of the national plan form were considered by the Advisory Committee at its October 1, 2015 meeting. Also attached to this report is the addendum to the Committee’s Agenda Book containing the chapter 13 plan form materials that were considered by the Committee. At the October 1, 2015 meeting, the Advisory Committee gave preliminary approval to the national plan form, the general scope of the compromise, and all of the related proposed rule amendments other than Rule 3015, which would address local plan forms. It deferred decision on the extent of any publication for comment until the Spring, 2016 meeting.

The Committee believes that the project raises significant issues affecting consumer bankruptcy that should be considered by the Conference. However, the Committee recognizes that it may be difficult for the Conference as a whole to consider the specific provisions of the proposed national plan form and related rules. Rather, the Committee recommends that the Conference consider only the basic question of whether the Advisory Committee should either adopt the compromise approach or take no action with respect to the national plan form project.

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[1] The position statement is available on the NBC website at: