Author Archive for Monette Cope

Debtors May Not Use Bankruptcy To Extend Expired State Court Deadlines

Published
by
Monette Cope
on March 4, 2010
in Bankruptcy Filings and Real Estate
. 0 Comments

Lenders are faced with more and different challenges from debtors in these stressful financial times. One tactic being tried in Illinois is to use bankruptcy to attempt to extend a state court right of redemption on real estate in foreclosure.

Illinois Foreclosure law gives a mortgagor a specified and limited time to redeem a mortgage from foreclosure.  This time may not be extended by the state court judges.  Other states have similar laws.

Debtors are trying to use the bankruptcy courts to extend the time to redeem.  11 U.S.C. § 108 of the Bankruptcy Code is entitled “Extension of Time.”   § 108(b) deals with extensions of time to cure defaults inside a bankruptcy case.  The time to cure is either the state law deadline, or sixty days after the filing of the petition for relief, whichever is later.

If the state law redemption period has not expired when Debtors file bankruptcy, but will expire within 60 days after filing, they can extend the time to redeem to that 60 day date under Section 108. However, Debtors in Illinois are trying to use this section of the Code to extend the time to redeem when it had already expired before the bankruptcy was filed. 

One judge (Judge Schmetterer) in the Northern District of Illinois (Chicago) addressed these attempts in In re Brandi McKenith, in a written opinion that will be published.  While this judge is only one of eleven judges in this District, his is the only opinion on this issue in the District.  He found that an expired state court deadline to the right to redeem real estate from foreclosure could not be resurrected by filing of bankruptcy case.

By analogy, Section 108 could not be used to resurrect other state law deadlines.   For instance, Debtors could not extend an expired deadline to redeem a vehicle before sale at a public auction or extend the time to redeem purchased real estate taxes. 

If you encounter such unwanted improper demands by debtors, contact your bankruptcy attorney immediately to stop the attempt to resurrect expired state court deadlines. If you have any questions, please call Monette Cope at mcope@weltman.com.

Has Mortgage Cramdown Died Its Final Death?

Published
by
Monette Cope
on December 17, 2009
in Chapter 13 and Real Estate
. 1 Comment

The House on December 11, 2009 rejected an amendment to the Wall Street Reform and Protection Act of 2009 that would allow mortgage cramdowns in Chapter 13 bankruptcies.  The surprise is that this is the same amendment that the House passed earlier this year.  This time it was defeated by a vote of 241 to 188 with both Democrats and Republicans voting it down.

The proponents argued that it would have limited effect on the mortgage financing industry because it would only apply to existing loans, not future loans, while slowing the rate of foreclosures and home depreciation.

Opponents argued that it would create havoc and more losses to the already unstable mortgage and lending industries, while increasing interest rates and toughening mortgage standards for all home buyers. 

Because the measure has now been defeated by both the House and Senate, it is unlikely to reappear in another bill, and should ease one of the worries facing lenders and investors from the flurry of new financial regulatory legislation.

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.

7th Circuit Rules That Creditors Must Unequivocally Return Property to Chapter 13 Debtors

Published
by
Monette Cope
on June 16, 2009
in Chapter 13
. 0 Comments

Creditors may not condition the return of property on a lack of adequate protection.  If one does, then it has violated the automatic stay and may be subject to sanctions. The most common scenario in Chapter 13 bankruptcies is a vehicle is repossessed prior to the bankruptcy filing, but has not yet been sold. In many districts, creditors may demand proof of insurance or a valid driver’s license before the return of the vehicle.  Not so anymore in Illinois, Indiana, and Wisconsin.

In Thompson v. GMAC (08-2077); In re Thompson (08 B 2560), the Seventh Circuit ruled that “a creditor must first return an asset in which the debtor has an interest to his bankruptcy estate and then, if necessary, seek adequate protection of its interests in the bankruptcy court.”  This means that even if a vehicle is uninsured, it must be turned over to the debtor.

There are two applicable exceptions to this rule: 
1) The property is of inconsequential value or benefit to the estate.  (If there is no equity in the vehicle, but the debtor needs it to go to work, it is a benefit to the Chapter 13 estate.)  
2) A good faith transfer of the property is done without the creditor having actual notice or knowledge of the bankruptcy.  (I.e. The car is sold prior to knowledge of the Chapter 13 filing.)  These exceptions are narrow, and will not be of much aid to a creditor lacking adequate protection.

The court reasoned that a creditor may not assume authority to determine whether it is adequately protected; this is to be decided by a bankruptcy court.

The best practice in the Seventh Circuit would be to agree to turn the vehicle over, and at the same time, request proof of insurance.  If the debtor does not provide it, then the creditor should refer the case to counsel to file an emergency motion for adequate protection and/or relief from stay.  While this Advisory uses a vehicle as an example, the decision applies to any property that the debtor demands returned.  If you have any doubt about how to proceed when a Chapter 13 debtor demands return of property, contact your bankruptcy attorney.  Better to get advice than to get sanctioned for violating the automatic stay.

Possible Compromise This Week on Bankruptcy Cramdown Legislation

Published
by
Monette Cope
on April 21, 2009
in Chapter 13 and Real Estate
. 0 Comments

While the House passed a bill permitting mortgage cramdowns, the Senate has yet to do so.  However, it hopes to have a compromise in place this week.  Senate Majority Whip Dick Durbin (D-Ill) met with banks, credit unions, and consumer groups to negotiate terms for the Senate bill.

Details are sketchy, but it appears that the terms would further limit the pool of borrowers who may be permitted to reduce the principal balance on mortgages in bankruptcy.  If a lender offers a refinance that reduces the interest rate through the current Obama plan, a borrower may not be permitted to reduce the principal balance in a Chapter 13 plan.  This is obviously an incentive for lenders to offer refinancing to certain borrowers in an attempt to avoid a reduction of the principal balance by a bankruptcy judge.

“At-risk low income borrowers” and those who spend less than 31% of their income on home mortgage payments would be ineligible as well for principal write-downs.  The program would apply only to loans originated before 2009, and would end in 2014, thus limiting bankruptcy cram downs to approximately five years from enactment of any bill.

WWR will continue to keep you informed as this Senate bill takes form.