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New Bankruptcy Legislation Presented To The President

The American Bankruptcy Institute reports the Bankruptcy Reform Act of 2000 was presented to the President on December 7, 2000 triggering the start of the 10-day period for the President’s action to sign or veto the bill. Under the Constitution, the President has 10 days (Sundays excepted) to act on a bill after it has been presented. This means Presidential action must be taken by December 19, 2000.

If the President does not want to approve this bankruptcy bill, but is unwilling to veto it, he may, by not returning it within the 10-day period after it is presented to him, permit the bill to become law without his approval. Where the 10-day period extends beyond the date of the final adjournment of Congress, the President may, within that time approve and sign the bill, which becomes a public law. If, however, the President does not approve and sign the bill before the expiration of the 10-day period, it fails to become a law. This is what is known as a pocket veto. In the case of a pocket veto, the legislation would have to begin allover again in the 107th Congress.

If the President does not favor the bankruptcy bill and vetoes it, he returns the bill to the House of origin (in the case the House) without his approval, together with his objections. This is called the veto message. If, upon reconsideration by either House, the House of origin acting first, the bill does not receive a two-thirds vote of those present, the President’s veto is sustained and the bill fails to become a law.

If the President vetoes the bankruptcy bill and it is passed upon reconsideration by the first House by the required two-thirds vote, it is then transmitted to the second House for its action. If likewise reconsidered and passed by a two-thirds vote, the bill becomes a public law without any further action. Both Houses, then, must pass the bill notwithstanding the President’s veto by a two-thirds margin for the bankruptcy bill to become law. Failure to do so means the legislation would have to begin all over again in the 107th Congress.

The American Bankruptcy Institute reports the President’s press spokesman, Jake Siewert, said just before Senate action that the administration still opposes the bill as imbalanced. This statement does not appear to leave much room to now sign the bill into law, or to allow it to become law without the President’s signature.

If the bankruptcy bill is passed, the amendments made by the Act take effect 180 days after the date of enactment, except as provided elsewhere in the Act. These amendments apply only with respect to cases commenced after the effective date. Thus, consumer and business debtors could file new cases up until that time and have current law apply. During the six months before the effective date, bankruptcy professionals, judges, trustees and the U.S. Trustees, among others, will have to prepare for their new duties and responsibilities under the law (e.g. mandatory notice of the availability of debt counseling before filing; enhanced duties for trustees in implementing the means test; increased responsibilities for the U.S. Trustee in small business cases, mandated debtor financial education as a condition for consumer discharge, etc.).

The American Bankruptcy Institute reports the following changes, among others, under the new bankruptcy legislation:

(1) A provision to cap a debtor’s exempt retirement funds. Section 224 of the bill sets a $1 million cap on the maximum amount in an IRA or Roth/IRA, other than a simplified employee pension under section 408(k) of the Internal Revenue Code or a simple retirement account under 408(p) of the IRC. Rollover contributions are also excluded under the cap. The $1 million cap is subject to adjustment under section 104 of the Code. The cap is subject to increase “if the interests of justice so provide.”

(2) Changes to the homestead exemption. The state law homestead exemption is limited to a maximum of $100,000 for the home equity acquired within the 2 years prior to filing. Amounts acquired within the 2-year period that exceed $100,000, are not exempt from the bankruptcy estate. Amounts of home equity acquired prior to the 2-year period are not subject to the cap, but are subject to the relevant state law on homestead. Equity acquired in a principal residence prior to the 2-year period and rolled over into another principal residence after the 2-year period is not subject to the $100,000 cap, but it is subject to the relevant state law exemption. This rollover provision does not apply to the sale of a principal residence in one state and the purchase of another principal residence in another state.

(3) A business debtor’s ability to accept or reject leases. The bill imposes a firm, bright line deadline on a retail debtor’s decision to assume or reject a lease, absent the lessor’s consent. The trustee must assume or reject a lease on the date, which is the earlier of the date of confirmation of a plan or the date which is 120 days after the date of the order for relief. A further extension of time may be granted, within the 120-day period, for an additional 90 days, for cause, upon motion of the trustee or lessor. Any subsequent extension can only be granted by the judge upon the prior written consent of the lessor, making for a maximum period of 210 days from the date of the order for relief.

This Alert was written by Alan P. Fox, Esq., Shareholder in Capehart Scatchard’s Commercial Group. Should you have questions or like more information, please contact Mr. Fox at 856.914.2056, by fax at 856.235.2786, or by e-mail at afox@capehart.com.

© 2000 Capehart & Scatchard, P.A.

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