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On April 5, 2011, the Senate Judiciary Committee passed a bill to establish a National Loss Mitigation Program in Bankruptcy Cases. By a vote of 10-8, the bill sponsored by Senator Whitehouse of Rhode Island will move onto the Senate. Senate Bill 222 will allow bankruptcy judges under 11 USC 105 to establish loss mitigation programs in bankruptcy cases. The bill mirrors the Model Loss Mitigation Program that has been in place in Rhode Island for the last several years. The Program gives the Debtor the opportunity to request Loss Mitigation Opportunities with his or her creditors at any time prior to discharge in a Chapter 7 or any time during a Chapter 13. This may have major implications on the administration of bankruptcy cases by delaying discharges and confirmations of Chapter 13 plans. In addition, Motions for Relief from Stay on Real Property could be put on hold until loss mitigation is completed.
Loss Mitigation discussions can be a very good process for both Creditors and Debtors. However, if not implemented in a fashion to prevent abuses, such as being used to slow down a bankruptcy case and allow a debtor to live in his or house for a longer period of time without payment, the program could have negative consequences.
The prognosis of the bill passing in the Senate is strong. However, it will have much more difficulty in the Republican controlled House, and the chances of passage do not look good.
Weltman, Weinberg & Reis will continue to monitor the status of this legislation and provide regular updates to our clients.
If you have any questions on this matter, please contact Alan C. Hochheiser, Esq. Alan is the Managing Partner of the Bankruptcy Practice Group of Weltman, Weinberg & Reis co., LPA located in the Brooklyn Heights, Ohio office. He can be reached directly at 216.739.5649 or .
November 2010 saw a change sweeping through Washington and the country. Republicans regained the majority in the House and made some major gains in the Senate. With new faces in both chambers, new leaders in the House and a steady number of Bankruptcies being filed in the United States, what effect will these changes have on Bankruptcy?
Through the end of September 2010, there were approximately 1.1 million bankruptcy filings in the United States and its Territories according to the United States Bankruptcy Court. A look back at the 12-month period from September 2009 to 2010 shows that approximately 1.6 million cases were filed. Compared to the 12-month period from September 2008 to 2009, that was an increase of nearly 200,000 filings. Projections indicate that the number of filings for 2011 may decrease by a small margin. Will the reshaped Congress have any effect on the number of filings? Time will tell, but the chances of seeing the oft talking about change in the Bankruptcy law as to the cram down of mortgages is not likely.
Home Affordable Modification Program (HAMP) was another hot topic in 2010. However, the number of homeowners who were able to qualify for the program to receive permanent modifications and stay current on the modified payments remains low. Although this is a Treasury Department initiative, will we see any changes to the program in 2011? Will there be a Congressional Directive? Will the investigations that the State Attorney Generals are spearheading lead to rules in individual states that then will carry over into Bankruptcy? These are questions that we hope to find answers for in early 2011.
Change is typically a good thing. However, how the waves of change affect creditor’s accounts in Bankruptcy is like the outcome of a good mystery novel: “To Be Determined.”
Weltman, Weinberg & Reis will continue to keep you updated on what is occurring in Washington and its effect on Bankruptcy.
If you have any questions on this matter, please contact Alan C. Hochheiser, Esq. Alan is the Managing Partner of the Bankruptcy Practice Group of Weltman, Weinberg & Reis Co., LPA located in the Brooklyn Heights, Ohio office. He can be reached directly at 216.739.5649 or .
The William J. O’Neill Regional Bankruptcy Institute, a part of the Cleveland Metropolitan Bar Association, is conducting a bankruptcy seminar offering an entertaining and comprehensive approach to the latest and best in the bankruptcy and insolvency arenas at the Marriott at Key Tower on May 12 and 13. The two-day seminar, “What Hath the Great Recession Wrought: The Bend, The Bar and Congress Respond,” will feature regionally and nationally recognized speakers, including principal attorneys and judges from some of the nation’s highest-profile bankruptcy cases.
Beth Ann Schenz, an attorney in the Bankruptcy Department at Weltman, Weinberg & Reis Co., L.P.A. (WWR) played an integral part in putting together these dynamic presentations. Over the last year, Ms. Schenz was Co-Chair of the 2010 Institute. This undertaking involved coordinating over 58 speakers including 12 federal judges to speak on issues which touch the very heart of our economy. For more information or if you would like to attend the discussion, visit www.clemetrobar.org/ONeill_Bankruptcy_Institute.aspx.
The following is a capsule of some of the hot topics that will be discussed:
Revitalizing a City
With lackluster economic growth, high jobless rates and dynamic talent loss in most of Midwest Cities, this lunch will focus on how a region turns around these staggering statistics. The luncheon discussion will focus on the positive efforts that area organizations have gained over the course of the last year and what efforts they have planned to help propel this region into a strong, vibrant economic force.
Who Is Behind the Bankruptcy Statistics The country continues to see statistics of the overwhelming amounts of people filing bankruptcy. With bankruptcy numbers continuing to rise, the questions that are never asked are: what is behind the numbers, who are behind the numbers and what circumstances are behind the numbers. This speaker will address those questions by taking the academia approach mainstream. By understanding the numbers, community and economic leaders can address the situation and make policy that will help our economic future.
Why Are They Too Big to Fail – We Have Chapter 11
Lead counsel from the Chrysler and Lehman Brothers bankruptcies will discuss the effect on bankruptcy sales of the Second Circuit’s ruling in Chrysler, and of Judge Peck’s recent decision allowing a lawsuit to proceed against Barclay’s, the bankruptcy purchaser of Lehman’s. These disputes have reshaped the business landscape in important ways. This will be a great discussion considering the ongoing news stories involving companies and banks that are too big to fail. Also, the discussion will continue on what is in the future of Chapter 11 bankruptcies.
Victims of Madoff & Other Ponzi Schemes Irving Picard will lead a panel of the primary participants in the Madoff case. They will review the hotly-litigated issues governing distributions to victims of the Ponzi scheme fraud.
What is the Federal Legislature Doing John Rao of the National Consumer Law Center and William A. Brandt, Jr. DSI are no strangers to Washington D.C. Come hear what they have to say.
Loan Modification Ordered in Bankruptcy
Economic Issues before the Bench is a panel consisting of Judge Drain, Judge Isgur and Judge Morgenstern-Clarren. Of note is Judge Drain’s piece on court-ordered loan modification procedures, which forces the creditor to enter into talks on loss mitigation.
If you have any questions regarding this bankruptcy seminar or would like a copy of the seminar materials, please contact Beth Schenz. Beth is an associate in the Bankruptcy department of WWR located in the Brooklyn Heights office. She can be reached directly at 216.739.5645 or via email at .
The Supreme Court admits that its decision from March 23, 2010, “is potential for bad-faith litigation tactics” by debtors.
The Facts A Chapter 13 debtor listed his student loan debt in his plan. In the Chapter 13 plan, the debtor proposed to repay only the principal while the remainder (accrued interest) would be discharged. The United States Department of Education (the “Government”) did not object to the plan or appeal the order confirming the plan. During the bankruptcy case, the Government filed a proof of claim and received the principal on the debt. When the Government proceeded to collect on the debt after the debtor received a discharge in the Chapter 13, the debtor filed a motion to enforce the discharge order and direct the Government to cease all collection efforts. The Government responded to the debtor’s motion to enforce and filed a motion under Federal Rule 60(b)(4) to set aside the confirmation order as void.
The Court’s Ruling Whether the confirmation order is void was the focus of the Supreme Court’s ruling. For a judgment to be void, there must be some jurisdictional issue (the court does not have the power to hear the matter) or a due process issues (the creditor did not receive sufficient notice to defend the matter). The Supreme Court states that there was no jurisdictional error or due process violation so the confirmation order providing for a discharge on student loans is binding on the creditor.
Normally, a Chapter 13 debtor receives a discharge for all his or her debts except in some situations. One example where a Chapter 13 debtor would not receive a discharge is under 11 U.S.C. §523(a)(8) – the student loan exception. Some student loans are excepted from discharge and such exception is self-executing. The caveat is that the Court can find that such non-dischargeable student loans create an undue hardship for the debtor and can be discharged. According to the Bankruptcy Rules, such action requesting a finding of undue hardship is brought by the debtor in an adversary proceeding upon summons and complaint.
The Supreme Court found that the undue hardship provision in the Bankruptcy Code is not a limitation on the bankruptcy court’s jurisdiction but only a precondition to obtaining a discharge order. Also, the Court stated that the Bankruptcy Rules that require a complaint to be brought to determine undue hardship are only procedural rules and not jurisdictional rules. Therefore the confirmation order was well within the jurisdictional authority of the Bankruptcy Court and can not be determined as void.
On the positive side, the Court found that, “[g]iven the Code’s clear and self-executing requirement for an undue hardship determination, the Bankruptcy Court’s failure to find undue hardship before confirming the plan was a legal error.” Unfortunately for the Government, a legal error does not make an order void.
Going further, the Supreme Court stated that the Government’s due process rights were not violated as they had ample time to either object to the Chapter 13 plan or appeal the confirmation order. A finding of due process by the Supreme Court means that the confirmation order can not be found as void.
Where the Supreme Court said that the lower court’s ruling went too far is when they considered that any plan can be confirmed if it provides for a discharge of a non-dischargeable debt. “Failure to comply with the self-executing requirement should prevent confirmation of the plan even if the creditor fails to object, or to appear in the proceeding at all.”
What This Means To You
A debtor can put any provision in his or her plan, which may be contrary to the code (i.e. discharging a debt that is otherwise non-dischargeable). This provision should prevent confirmation. However, the creditor may be bound under the order if the Chapter 13 plan confirms. If the creditor fails to object to the plan or appeal the confirmation order in a timely manner, the confirmation order whether contrary to the Bankruptcy Code or not will be binding on the creditor.
As a creditor, you will need to make a business decision whether to object or not. WWR can help guide you through the decision making process.
If you have any questions concerning this matter, please contact Ms. Beth Ann Schenz, Esq. or Mr. Milan Kubat, Esq. Beth is an associate in the Bankruptcy department located in the Brooklyn Heights office. She can be reached directly at 216-739-5645 or via email at . Milan is also an associate in the Bankruptcy department located in the Brooklyn Heights office. He can be reached directly at 216-739-5647 or via email at .
2009 brought us increased bankruptcy filings. The number of filings approached the levels of 2004. 2009 saw 1.4 million consumer filings. Approximately 71% of the filings were Chapter 7’s and 28% were Chapter 13’s. Less than 1% were Chapter 11 filings. The first two months of 2010 has seen a continuation in the increased number of cases. According to the American Bankruptcy Institute, over 111,000 filings were made in February. That represented a 14% increase over February of 2009. It also represented an increase of over 9,000 filings from January 2010. March may well be a signal of what we can expect during the rest of the year.
2009’s statistics continue to show the trend where the majority of Bankruptcy cases are being filed. The 9th circuit, which includes California, Arizona and Nevada, saw 324,000 filings. The 6th Circuit, which includes Ohio and Michigan, was second with close to 214,000 consumer filings. The 11th Circuit, which includes Florida and Georgia, was third, with 198,000 filings. When looking at specific states, California led the way, followed by Florida, Ohio and Michigan. These are the states that are seeing the highest number of foreclosure filings. Of the 50 United States, Alaska had the fewest followed by Wyoming.
As the number of foreclosures increase, so should the number of bankruptcies. WWR will continue to monitor the trends and keep you updated as to the status of filings across the country.
If you have any questions, please contact Alan C. Hochheiser, Esq. Alan is the managing partner of the Bankruptcy Practice Group and is located in the Brooklyn Heights office of Weltman, Weinberg & Reis Co., L.P.A. He can be reached at 216.739.5649 or via email at .
