LA EDUCACiÓN, UNA NECE- NECE-SIDAD Y UNA EXPERIENCIA

The trustee must be prepared to provide any assistance that may be needed by the United States Trustee to determine the nature and extent of the services provided by a bankruptcy petition preparer, including further inquiry at the meeting of creditors and collecting requested documents from the debtor. In addition, the trustee must report potential violations of section 110 to the United States Trustee. 28 U.S.C. § 586. Section 110 requires bankruptcy petition preparers to disclose their name, address, social security number, and fee. It prohibits preparers from signing documents for debtors, from collecting court fees, and from using the word “legal” or similar terms in advertisements. It requires preparers to provide a copy of the bankruptcy documents to the debtor at least by the time that documents are presented for the debtor’s signature. The section also authorizes the court to order the return of excessive fees. The court may generally impose fines of up to $500 for each statutory violation.

Section 110 also provides remedies to address certain petition preparer abuses. Damages include the debtor’s actual damages, the greater of $2,000 or twice the amount the debtor paid for the preparer’s service, and reasonable attorney fees and costs. The trustee can pursue actions under section 110 and may receive an additional $1,000 plus reasonable attorney’s fees and costs. The bankruptcy court may triple the amount of the fine under certain circumstances. 11 U.S.C. § 110(l)(2).

The petition preparer statute also authorizes injunctive relief against preparers under certain circumstances, including when they have engaged in fraudulent, unfair, or deceptive conduct. If a case is dismissed as the result of a preparer’s knowing attempt to disregard bankruptcy requirements, the preparer may be subject to criminal liability under 18 U.S.C. § 156.

Pursuant to section 110(e)(2)(B), a petition preparer is now expressly prohibited from providing legal advice. Legal advice includes advising the debtor: (a) whether to file bankruptcy, (b) which chapter to file under, (c) whether the debtor’s debts will be discharged, (d) whether the debtor will be able to retain the debtor’s home, car or other property after the bankruptcy is filed, (e) of any tax consequences, (f) whether tax

Handbook for Chapter 7 Trustees Page 4-39 claims will be discharged, (g) whether the debtor should promise to repay or reaffirm debts, (h) how to characterize the nature of debtor’s interest in property or debtor’s debts, or (i) concerning bankruptcy rights and procedures.

REVIEW FOR ABUSE UNDER § 707(b) 7)

The trustee must review the schedules, statements of financial affairs, and statements of current income and expenses in each case, for any evidence of abuse that may provide the basis for a motion to dismiss pursuant to section 707(b). Such evidence may also arise or be confirmed at the meeting of creditors. If such evidence exists, the trustee must timely notify the United States Trustee. 11 U.S.C. § 704 (b)(1), 28 U.S.C. § 586. Debtors’ counsel may be required to reimburse the trustee for all reasonable costs incurred by the trustee in successfully prosecuting a section 707(b)(2) motion, if the court also finds that the attorney violated Rule 9011. 11 U.S.C. § 707(b)(4)(A). The following guidelines are provided to assist the trustee in determining whether a case involves abuse.

a. DETERMINATION OF “PRIMARILY CONSUMER DEBT”

Consumer Debt

Section 707(b) applies only to a case filed by an individual with consumer debts, i.e., debts incurred primarily for personal, family, or household purposes. 11 U.S.C. § 101(8). The most common consumer debts are home mortgages, credit card debts, and personal loans. Debt incurred for a business venture or with a profit motive is not a consumer debt. Debt that is owed for income taxes is not consumer debt. When reviewing for consumer debt, the trustee should consider all listed debts, secured and unsecured, without taking into consideration whether any of the debt is to be discharged.

The trustee should be aware that credit card debts may not in all instances constitute consumer debts. When the credit transaction involves a profit motive, it is outside the definition of a consumer credit transaction. Mortgage debt is considered a consumer debt, unless the proceeds are used for a business purpose. The trustee should be alert to a residential mortgage borrowing that is used to finance business operations or investments and, therefore, constitutes a non-consumer obligation. Primarily Consumer Debt

The term “primarily consumer debt” is not defined in the Bankruptcy Code. Three approaches are used by courts to evaluate whether debts are incurred primarily for a consumer purpose:

1) Overall ratio of consumer to non-consumer debts is greater than 50 percent. 2) Number of consumer debts more than one-half of the total debts.

Handbook for Chapter 7 Trustees Page 4-40 3) Both the percentage of consumer debt and the number of consumer debts.

b. DETERMINING ABUSE

Every individual debtor with primarily consumer debt is required to complete Official Form 22A. (But refer to Handbook Chapter 4.N.2 for discussion of this requirement in cases converted from chapter 13). If a debtor’s current monthly income (as defined in section 101(10A)) exceeds the state median income, then the debtor will be required to complete the expense portion to determine the debtor’s disposable income for means testing purposes. Implementing the means test provisions is principally the responsibility of the United States Trustee.

The trustee is expected to assist the United States Trustee in the collection and verification of information provided by the debtors, which includes:

1) Verifying the accuracy of the debtors’ reported income by reviewing payment advices from employed debtors and other verifications of income from self-employed debtors (section 521(a)(1)(B)(iv) requires debtors to file copies of all payment advices or other evidence of payment received within 60 days before date of the filing of the petition) and reviewing tax return(s); 2) Verifying the number of dependents or household members claimed;

3) Verifying the disabled veteran status for debtors asserting qualification for the disabled veteran safe harbor from means testing. 11 U.S.C. §

707(b)(2)(D)(i); and

4) Verifying the reservist or National Guard status for debtors asserting qualification for the reservist or National Guard safe harbor from means testing. 11 U.S.C. § 707(b)(2)(D)(ii).

The trustee also will collect other documents required as a prerequisite to qualify for certain exceptions under the means testing provisions. These documents include receipts for private school or other school expenses, if such a claim is made, and documentation to support additional food and clothing and/or home energy expenses in excess of IRS standards.

The trustee should continue meetings of creditors where the debtors have not provided sufficient documentation to support entries on Official Form 22A (or Form 22C in cases converted from chapter 13, in those jurisdictions that do not require debtors to file Form 22A upon conversion).

c. BAD FAITH AND TOTALITY OF THE CIRCUMSTANCES, 11 U.S.C. § 704(b)(3)

The trustee must refer each of the following matters to the United States Trustee for further investigation and action as appropriate. The trustee may be asked to provide additional assistance to help the United States Trustee pursue the matter, including

Handbook for Chapter 7 Trustees Page 4-41 further inquiry at the meeting of creditors and collecting requested documents from the debtor. 28 U.S.C. § 586.

1) Manipulation of income or filing date including seasonal employment, overtime availability, new employment at time of filing, and adjustment of withholding.

2) Adjustment of secured debt.

3) Adjustment or increase of unsecured debt.

4) Post-petition desire to maintain a “lifestyle” that the debtor cannot afford. 5) Substantial credit card debt, but de minimis scheduled property, no transfers

and under- or unemployment, i.e., bust-outs.

6) Use of false social security numbers to file bankruptcy petition or obtain credit.

7) Concealment or fraudulent transfer of assets.