Legislative Efforts in the Aftermath of Hurricane Katrina
Reps. John Conyers (D-Mich.), Mel Watt (D-N.C.), Jerrold Nadler (D-N.Y.) and Sheila Jackson-Lee (D-Texas) introduced legislation (H.R. 3697) to protect the families and small businesses that were financially devastated by Hurricane Katrina from being penalized by the provisions contained in the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), which is scheduled to take effect on Oct. 17, 2005. This bill contains the following provisions:
1. It provides that individuals who were victims of a natural disaster and incurred a substantial portion of their debts as a result of that disaster would not be subject to the “means test.”
2. Disaster-relief payments would not be counted as a part of the individuals’ income for purposes of calculating repayment plans.
3. The court would be given more discretion to extend certain deadlines for businesses devastated by Hurricane Katrina to ensure that the businesses would not be inadvertently forced into liquidation.
4. Debtors who could not complete the credit counseling requirement as a condition of eligibility and the credit education requirement as a condition of discharge would be exempted if they could not complete those requirements because of a natural disaster.
5. Victims of a natural disaster would be exempted from the provisions of BAPCPA that allowed landlords to more easily lift the automatic stay and initiate eviction proceedings.
6. Victims of natural disasters whose records were lost or destroyed would be exempted from BAPCPA’s paperwork and documentation requirements.
7. Additional filing options would be available for debtors who had relocated or were otherwise unable to file in the venue designated by law.
Sen. Russ Feingold (D-Wis.) introduced S. 1647, his Katrina Bankruptcy Relief bill, on behalf of himself and 15 other Democrats. It is similar to the aforementioned bill introduced in the House except that it also contains a 12-month delay in the effective date. The House bill does not have an effective date extension for BAPCPA.
A competing Senate bill, S. 1787, by Sen. David Vitter (R-La.) addresses disaster victims’ bankruptcy issues raised by the House Democrats. The Vitter bill will likely be added to the Emergency Relief Appropriations bill.
It contains the following provisions:
1. It excludes FEMA and other governmental and charitable payments to natural disaster victims from being counted as “current monthly income” for purposes of calculating the “means test.”
2. It defines “natural disaster,” “natural disaster zone” and “victim of a natural disaster.”
3. It allows a bankruptcy court to exempt a consumer debtor from the mandatory credit counseling requirement if the debtor is unable to comply due to a natural disaster.
4. It allows a bankruptcy court, after notice and hearing, to extend any time period for a debtor’s compliance with its duties if the debtor is a victim of a natural disaster and his status so necessitates.
5. It clarifies that a debtor’s expenses include actual and reasonable expenses due to being a victim of a natural disaster. This allows a direct, up-front deduction of such expenses for the initial calculation under the “means test” rather than clarifying that such expenses constitute “special circumstances.” Presumably, this may avoid the hearing required for consideration of special circumstances.
6 It clarifies that “compelling circumstances” that can justify a delay in a hearing on a motion for an involuntary dismissal or conversion of a Chapter 11 case include natural disasters.
7. It allows a bankruptcy court, after notice and hearing, to extend any deadline for a small-business chapter 11 case if it is necessary to protect the best interests of creditors and the estate and is warranted by a natural disaster.
8. In chapter 13 cases, it allows, after notice and hearing and the submission of affidavits, an extension of the deadline for filing pre-petition tax returns if the debtor is a natural-disaster victim and the circumstances so necessitate.
Senate Minority Leader Harry Reid (D-Nev.) introduced S. 1637, the “Katrina Emergency Relief Act of 2005.” This is a fairly comprehensive bill dealing with numerous issues such as temporary medicaid disaster relief, support for elementary and secondary schools, the establishment of a fund for early childhood education, emergency housing assistance and bankruptcy relief.
Rep. Louise M. Slaughter (D-N.Y.), ranking member of the House Rules Committee, introduced H.R. 3662, the "Financial Safeguards for Hurricane Survivors Act." This legislation specifically calls for a two-year delay in the implementation of BAPCPA.
Rep. James Sensenbrenner (R-Wis.), chairman of the House Judiciary Committee, has made it clear that he will not permit any legislation to pass the House amending BAPCPA and will absolutely not allow any extension of the effective date.
Both the Senate and the House passed H.R. 3650, the “Federal Judiciary Emergency Special Sessions Act of 2005.” The bill wassigned into law on September. 9. (Pub. L. 109-63). It allows circuit, district and bankruptcy courts to conduct special sessions outside of the geographical boundaries of their circuit or district when the court determines that, because of emergency conditions, no location within the circuit or district is reasonably available. At the special session, the court is authorized to transact any business that it might transact at a regular session. The bill applies to all federal courts and any type of emergency, including acts of terror.