Bankruptcy filings for January 2010 are up 15% from January 2009. There were a total of 102,600 bankruptcy filings in January 2010 as compared to 89,000 in January 2009. Overall in 2009 there were a total of 1,434,600 bankruptcy cases filed. These figures are approaching the record set in 2005 when over 1,600,000 cases were filed. Bankruptcy filings in 2010 are expected to increase throughout the year and eclipse last year’s total filings. Total filing numbers are taken from, “The Bankruptcy Database Project at Harvard (http://bdp.law.harvard.edu) in cooperation with Automated Access to Court Electronic Records (AACER).
Author Archive for David Yunghans
A recent case decided in the sixth circuit court of appeals outlines what is considered “reasonable” inquiry under Rule 9011(b) and what documentation is required to support a proof of claim filed which is not listed on the bankruptcy petition. Rule 9011(b) requires when filing documents with the court, the party filing is, “certifying that to the best of the person’s knowledge, information, and belief”, the documents filed are supported by facts. Further, under rule 9011 a party filing documents without “reasonably” inquiring into the factual basis is subject to sanctions. In the context of filing proofs of claims the issue may arise when documentation supporting the proof of claim is difficult to obtain or nonexistent and does not appear on the bankruptcy petition. A creditor filing a claim may be subject to sanctions if they file an unsupported proof of claim. To avoid potential sanctions creditors should keep in mind the following guidelines and procedures for filing a proof of claim and claims regarding debt not scheduled on a bankruptcy petition.
First, a creditor if a debt purchaser should make sure the purchase agreement contains an explicit representation and warranty from the seller that the accounts being purchased are valid obligations of the debtor. Including these terms in the purchase agreement demonstrate that the purchaser has acted in a reasonable manner to support evidence of the debt. Second, the creditor should investigate the claim after purchase by researching the origins of the claim. By contacting the debtor through mail to inform the debtor they have thirty days to dispute the debt owed will validate the claim and be considered sufficient investigation. Third, before purchasing the debt a creditor should verify account information for flaws such as an invalid address or social security number. If these steps are followed creditors and debt purchasers can avoid violations of rule 9011(b) and potential monetary damages.
The next question is once a creditor has “reasonably” investigated the claim under the sixth circuit standard what documents should they attach to the proof of claim. The federal rules of bankruptcy procedure require that a proof of claim based on writing include a copy of the writing. So if the origination document is available it should be attached to the proof of claim. If this is unavailable the creditor must follow the “reasonableness” test outlined above to substantiate the claim and avoid sanctions under Rule 9011. The creditor can also file a document explaining why copies of the originating documents are unavailable.
The bottom line is that even if you attach nothing to a proof of claim if the above steps are followed a creditor can satisfy the “reasonableness” standard and avoid sanctions for filing unsupported claims.
In the Southern District of Ohio, bankruptcy courts are now requiring debtors that file a Chapter 13 bankruptcy to pay secured debts through their bankruptcy plan. Ordinarily, debtors have the option to pay these debts outside or inside the plan as a conduit payment.
Chapter 13 trustees in the Southern District of Ohio adopted a new policy regarding mortgage payments made outside the plan. The current policy is that a debtor in Chapter 13 who previously paid their mortgage payment outside the plan will be required to amend their plan to include the payment inside the plan if the mortgage becomes delinquent post-petition. At this time the rule is only the policy of the 13 offices, not an official rule.
With regard to car loans, the Southern District of Ohio added a local rule requiring that all vehicle payments, whether lease or loan, be paid inside the plan. The policy behind this rule change is to increase the percentage of completed plans in the district. Forcing debtors to pay secured debts through the plan is likely to become the norm in most jurisdictions.
From a creditor’s perspective, there are both positives and negatives with this change. On the positive, creditors are more likely to receive payments through the 13 than if the debtor pays outside the plan. Debtors will want to keep their plans from failing and more likely pay their plan payments then skipping on a car payment to catch up their plan payments. On the negative, creditors will need to stay on top of trustees for disbursements, as trustees do not disburse prior to confirmation and some Chapter 13 plans can take several months to confirm, thereby delaying payments to the creditor.
The form used for reaffirmation agreements will change as of December 1, 2009. Creditors filing reaffirmation agreements will be required to include a completed reaffirmation cover sheet with the filing of an agreement. The cover sheet is a two-page questionnaire filled out by debtors and creditors that discloses financial information necessary for the court to determine whether a reaffirmation agreement creates a presumption of undue hardship for the debtor. Hardship is presumed if a debtor shows negative monthly income and expenses on Part D of the reaffirmation agreement. If there is a difference between the income and expenses listed on schedules I & J of the petition and income and expenses listed on part D of the reaffirmation agreement cover sheet, the debtor is required to explain the difference. The debtor must answer two questions explaining the difference and certify through signature that the information is true and accurate.
The rule change is national and will affect reaffirmation agreements filed in all states. If the reaffirmation does not contain the cover sheet, the bankruptcy courts may reject it after December 1, 2009.
Currently in Ohio before filing a foreclosure action, the lender is not required to participate in a mediation program. This may soon change as Ohio State Representative Matthew Dolan proposed a bill in the Ohio House, which would make mediation mandatory before filing a foreclosure. Under House Bill 306, a lender would be required to come to the bargaining table before a foreclosure action is filed. If the lender refuses to mediate with the property owner, the foreclosure action could be dismissed. The rule for mandatory mediation would not apply to homes in foreclosure for delinquent property taxes, unoccupied residences, or foreclosure actions where the homeowner does not reply to the summons within 28 days of issuance. The bill requires that the mediation take place by a court appointed mediator within 60 days of receiving an answer to the foreclosure complaint. If the filer of the foreclosure action does not attend the mediation hearing, the court may dismiss the foreclosure complaint.
