Monthly Archive for August, 2009

Not Gone and Not Forgotten: Bankruptcy Reform and Cram Down

Published
by
Beth Schenz
on August 26, 2009
in Bankruptcy Act 2009 and Real Estate
. 0 Comments

Last month, House Financial Services Committee Chairman Barney Frank (MA- D) indicated that he would revive the bankruptcy legislation that would allow debtors to cram down first mortgages.  Specifically, if the banks did not increase their efforts to modify existing home loans, Franks stated that he would revisit the bankruptcy cram down legislation. 

Not only is the House threatening bankruptcy cram down legislation but the Senate Committee on the Judiciary, Subcommittee on the Administrative Oversight and Courts is also reviewing recommendations on modifying mortgages in bankruptcy.  

On August 20, 2009, the Senate Committee scheduled a hearing on “Mortgage Modifications during the Foreclosure Crisis: Is there a Role for Bankruptcy Courts?” At the August 20, 2009 hearing, testimony was taken from multiple homeowners on their negative experiences with loan modifications.  Also, Susan Bodington, Deputy Director for Programs, Rhode Island Housing testified that, “[b]ankruptcy reform could provide the incentive or pressure to expedite workouts and collaborate more effectively, but it should be structured in such a way that it does not penalize responsible lenders who made fair loans that were in the best interest of the customers when the loan was made, and who have worked with their customers compassionately to keep them in their homes.”  In his testimony, John Rao, attorney for National Consumer Law Center, strongly urged the need for bankruptcy reform.  Mr. Rao stated, “[a]doption of court-supervised mortgage loan modifications would sidestep many of the structural barriers in the servicing industry that today are preventing mass loan modifications from occurring.”

Before recess on July 23, 2009, the Senate Committee took testimony on “The Worsening Foreclosure Crisis: Is It Time to Reconsider Bankruptcy Reform?” (See previous blog entry).

While such government agencies like the Federal Housing Finance Agency have taken the unofficial position that forcing people into bankruptcy is the wrong solution and loan modification is the solution, loan modifications still remain low.  Currently, the treasury department is reporting that only 9% of eligible borrowers received modifications. 

The continuing rise in foreclosures, the high level of unemployment and the lack luster of loan modifications are creating pressure for Congress to revisit bankruptcy reform.  While once bankruptcy practitioners felt that the bankruptcy reform that would allow debtors to “cram down” their mortgage debt to the value of the real property was defeated in Congress, the case for bankruptcy reform still looms.

10th Circuit Court of Appeals Rules Negative Equity is Purchase Money

Published
by
David Yunghans
on August 24, 2009
in Bankruptcy Act 2009 and Motor Vehicle
. 0 Comments

Under Bankruptcy law, a debtor cannot cram down a secured claim when the creditor has a purchase money security interest in a motor vehicle acquired for the debtor’s personal use within 910 days of a debtor’s bankruptcy filing.  In some vehicle purchase transactions, debtors trade-in a vehicle in order to purchase a new vehicle.  If there is a difference between the value of the vehicle that the buyer trades in and the amount of the buyer’s preexisting debt, the difference is financed into the purchase of the new vehicle.  This is referred to as negative equity.  Debtor attorneys have argued that negative equity is not considered purchase money, and therefore a debtor can cram down the value of the negative equity financed into the new car purchase. 

This issue recently came before the 10th Circuit Court of Appeals.  The issue before the court was whether under the hanging paragraph of 11 U.S.C. 1325(a) a creditor has a purchase money security interest in the negative equity of the trade-in vehicle.  In line with the decisions of the 11th, 2nd, and 4th Circuit Courts of Appeal, the 10th Circuit Court of Appeals ruled that a creditor does have a purchase money security interest in negative equity.  Suddenly what was once the minority rule is quickly becoming the majority.  Now 14 states follow that negative equity is purchase money.  Creditors should consult legal counsel for advice on the these rulings.

Summer Is Here And The Temperature Is Not The Only Thing Rising

Published
by
Alan Hochheiser
on August 21, 2009
in Bankruptcy Act 2009 and Bankruptcy Filings
. 0 Comments

The number of Bankruptcy filings through the first half of the year has increased almost 37%. Business bankruptcy filings have increased in the first six months almost 110%. Over 1.5 million bankruptcies being filed this year could be a reality.  Things are also heating up again in Congress. The proposed cram down legislation, which was put on hold, is once again starting to gain some momentum.
 
As the unemployment rate, the number of foreclosures and the overall cost of living continue to rise, the number of bankruptcy cases will as well. There could be new legislation or case interpretations, and Creditors need to be aware of the ever-changing playing field. Through our Trendline articles as well as our Bankruptcy Blog, which is updated regularly at http://wwrbankruptcy.com, the Bankruptcy Team at WWR will keep you updated and provide strategies that allow our clients to be in a position to best handle their bankrupt portfolios and mitigate their losses.

As children all over the country will be going back to school, they wonder what the new school year will bring. From a Creditor standpoint, we know what we will be facing … a challenge. We will be dealing with an increased number of bankruptcy cases.

New Bankruptcy Filing Requirements In The Northern District of Illinois

Published
by
Monette Cope
on August 20, 2009
in Chapter 13, Local Procedures & Rules and Motion
. 0 Comments

NEW: A post-petition payment history must be attached to all Chapter 13 motions for relief in the Northern District of Illinois.

The Northern District of Illinois (Chicago) requires filers to attach a “Statement to Accompany Motions for Relief from Stay” to all motions for relief.  The Statement has been revised three times in the last year.  The revisions have progressively required more details about payment defaults.

The latest revision (sent to all practitioners on August 19, 2009, and effective immediately) requires a post-petition payment history be attached to the Statement in all Chapter 13 motions for relief.  This is not required in Chapter 7 or Chapter 11 cases.

The history must detail the dates of individual payments and the amounts of those payments.  This can be satisfied in most cases by attaching a computer record for the period beginning on the date of the filing of the bankruptcy through the date of the referral.  If no payments have been made, a payment history is still required.

In addition to including a post-petition payment history for all Chapter 13 cases, all motions for relief (for all chapters) must include the following information:  the current balance, the next due date on the account, the amount of arrears, the amount of the regular payments, and the value of the collateral. 

The change occurred in part because courts are now heightening their scrutiny of mortgage defaults, but the result is that courts are requiring creditors holding collateral other than real estate, such as vehicles, to make the detailed disclosures as well.