Houston Bankruptcy Attorneys Question Constitutionality of New Bankruptcy Statute

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According to Busby & Associates, P.C., a Texas law firm that specializes in consumer bankruptcy the new Bankruptcy Abuse and Protection Act has some serious flaws that leave it open to constitutional challenges at the federal and state level.

Houston, TX August 21, 2006 — When the Bankruptcy Abuse and Consumer Protection Act was passed by Congress and went into effect in October of 2005, it was touted as a measure to stem perceived abuses in consumer bankruptcy law. In reality, according to the Houston-based law firm of Busby & Associates, the Act heralded a new age of government regulation and oversight to a previously simple and stream-lined process.

Increasingly the Act, known as BACPA, is coming under criticism and scrutiny from constitutional scholars around the nation.

In July a U.S. District Court in Dallas ruled that a provision of the Act, Section 526(a) (4) which sought to limit the ability of attorneys to advise their clients, was unconstitutional. According to Michael Busby of Busby & Associates, that ruling may not be the last challenge the BACPA faces.

“We look for the next area of the Act to be challenged coming in regards to the rights of debtors when issues of domestic support are involved,” states Busby, “The new provisions of the bankruptcy code strip a debtor down to nothing if a domestic support relation is owed.”

One of the most drastic changes to the bankruptcy code was the revision to section 522 (c) (1) which made otherwise exempt property subject to execution to satisfy a domestic support obligation. Exempt property is property that the debtor can keep so that they may receive a receive start. Usually this includes household items, personal effects, vehicles, and in Texas, the homestead.

In Texas a debtor may exempt a homestead in a non-rural area up to ten acres and in a rural area from 100 to 200 acres may be exempted.

“They can take the clothes off the debtor’s back,” adds an Associate of the firm, “That is the literal interpretation to the new bankruptcy provision since is would seem that the debtor has no exempt property in bankruptcy that is not subject to execution if a domestic support obligation is owed.”

Issues of child support, alimony, and divorce have always been left to the sovereign states to decide what is exempt and what is subject to execution. The 10th Amendment to the U.S. constitution which reserves to the states the right of self governance was narrowed during the 1950’s because of the civil rights movement. However, with the current conservative make up of the U.S. Supreme Court, the issue of States rights is back at the forefront with the 10th Amendment again being a strong argument to counter an over-reaching statute.

Most attorneys practicing in states with strong exemptions are aware of the change in the bankruptcy laws and are advising debtors who are divorced and are in arrears for child support that bankruptcy may not be an option for them if they have substantial exemptions like a house that does not have a mortgage.

More troubling for many may be a provision of the Bankruptcy Code which allows one to file an involuntary bankruptcy on behalf of one who owes you money. This may result in the liquidation of otherwise exempt property that would not be liquidated under state law if the debtor had not filed bankruptcy. This of course may prove to be a lucrative practice for the child support creditor’s attorney. Still, perhaps the most frustrating part of the new statute, according to the attorneys at Busby & Associates, is that the debtor has no exemptions if a domestic relations obligation is owed as to that debt. So what do you leave the debtor so they can start over? In the prior code the debt simply survived the bankruptcy and was not discharged.

Though no live case has yet been reported, the firm, which has set-up a toll-free consumer bankruptcy hotline 1-(866)-912-9832, along with many other divorce and bankruptcy attorneys around the nation is anxious to hear a court rule on this issue.

For more information on Bankruptcy, Divorce or Family Law, contact Michael Busby, Jr. at 713-974-1151 (toll free: 888-422-6423).

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