New Duties for Debtors: Form Amendments in the wake of Lanning and Ransom

Lanning and Ransom are the Supreme Court's two recent decisions on the interpretations of the means test added to the Bankruptcy Code by BAPCPA. Courts are actively puzzling out how to apply these decisions, which generated as many questions as they answered (Lanning, in particular). I recently learned that the Bankruptcy Rules Committee is planning to propose a new version of the means test form, B22, to accommodate Lanning and Ransom. The revised form would have a line that required debtors to list changes in circumstances and provide details. I'm troubled by these potential revisions because I think it is an unduly aggressive interpretation of the two decisions to create an affirmative duty by debtors, and their counsel, to disclose changes in income or expenses, above and beyond what is already required by the Bankruptcy Code. 

As an initial matter, I think a requirement that a debtor disclose "income OR expenses" can be contested. Lanning, by its very facts, was only about income. The language about "expenses" that was added, without any discussion, to the opinion, is dicta that can, and should be ignored. Indeed, the Rules Committee seems to acknowledge that it is dicta in its report but that "it doesn't make sense" to consider income without also addressing expenses. The response to this point made to me in discussion with one Rules Committee member was that Ransom was a decision about changes in expenses, and so that justified putting expenses on the form. I disagree; Ransom was about somebody who did not have a particular expense and whether without such an expense, the debtor should be able to deduct the IRS guideline amount. Sure, some people face an issue similar to Ransom when they have a car payment at the time of bankruptcy filing that will end during the case, but this was not the facts of Ransom. And while a lower court looking to resolve that issue should look to Ransom for guidance, that is an entirely different matter than reading the Supreme Court case in a manner that supports rewriting the forms to create new duties on debtors. 

In both Lanning and Ransom, the facts that triggered the controversy were revealed by the existing forms, schedule I and J, for income and expenses, respectively. The decisions do not say that debtors have a duty to provide additional information on changes in income and expenses; the decisions discuss how to apply the Code if such situations exist. Of course, one can argue that by deciding that such information was relevant to the application of the means test, that the forms may require a debtor to disclose such information. But the problem is that Lanning doesn't say that all changes are relevant; it says that the means test is a starting point, and that when there are "known or virtually certain" changes,  a departure from the means test is appropriate. The effect of putting a box for changes in income and expenses on the forms is that it either will require debtors to list everything--an administrative burden and an impossible task--or it will require debtors to be the arbiters of what is "known or virtually certain," and risk liability for failing to properly complete the form if a court or the U.S. trustee disagrees with them. Without guidance on what those terms mean, I would hate to advise debtor clients on what they have to disclose.

I think the better policy is to leave the forms unaltered. If the trustee wants to question someone on their situation, or information arises on the existing forms, then the trustee or creditor can object to the plan and argue for the application of Lanning (or Ransom). Already, the paperwork burden of bankruptcy is too heavy; the counseling time required of debtors counsel is too long; and the uncertainty of outcomes is too great. Requiring debtors to disclose additional information when Lanning and Ransom do not require it is only worsening the harms of the means test. 

 

Comments

[Patches]

If this was facebook I would "Like" this post! Great read!

[Bill]

Every change in the law, whether by statute or judicial fiat, results in more paperwork for the attorneys. This is the one trend I have been able to ascertain with certainty during my years of practice.

[Jim Collins]

Does the Bankruptcy Rules Committee work from a different set of forms than the Bankruptcy Courts? They keep referring to Form 22C in the minutes.

Great article. It does seem rather onerous to add even more requirements to the Means Test Form, even if it is only for above-median incomes, especially since it is something that could come back to bite them based strictly on interpretation rather than facts. If their income changes during the next 12 months (a fairly long period of time, actually), who decides whether it was "virtually certain"?

[John Orcutt]

All consumer debtor bankruptcy attorneys use one or another of the few commercial software programs to prepare the Petition and Schedules, including the Means Test form. Our law firm uses one called BestCase. After Lanning, I contacted BestCase and they changed the Means Test input data to allow what I call "Lanning adjustments". Mostly, this meant allowing me to put a "negative" number on a couple of lines. This allows us to disclose Lanning adjustments when and only when they appear to be pertinent. Like Professor Porter, I am concerned about rules amendments that make it look like Lanning adjustments and additional disclosure are mandatory. In my experience, Trustees and Courts have a tendency to "apply the form" like it's the law and forget the underlying rational. What may start out as thoughtful, soon becomes bureaucratic.

[Tim Stostad]

Thanks for this insightful article. One question: the latest minutes are from 2010, but Ransom was decided in January of 2011. Is it your opinion that the committee perhaps anticipated Ransom? Just curious to hear your thoughts.