Recent Entries

New Local Bankruptcy Rules Effective January 1st in the Eastern District of Kentucky

Published on January 2, 2013 in Chapter 13 and Local Procedures & Rules. 0 Comments

By J. Erin McCabe, Attorney

An order was signed on December 4, 2012 promulgating new local bankruptcy rules in the Eastern District of Kentucky, effective January 1, 2013.  These changes affect both creditors and debtors alike. Highlights of the rule changes include:

  • Objection deadlines to Chapter 13 plans are now limited to seven (7) days past the first date set for the Meeting of the Creditors.
  • Any waiver of the 14-day stay after the granting of relief under FRBP 4001(a)(3) shall include an affidavit setting forth the basis for relief. Given the time and costs involved with obtaining an affidavit, it might not make sense to seek such a waiver of the 14-day stay in most cases.
  • If the deadline for objecting to a creditor’s motion for relief expires prior to the Meeting of the Creditors, as originally noticed, then both the motion and the order tendered to the court must include the following language:

The trustee will have 14 days from the conclusion of the Meeting of the Creditors to object to abandonment of the property of the estate that is subject of its motion. If no objection or motion for extension of time is filed prior to the expiration of this 14 day period, then the property will be deemed abandoned on the 15th day following the Meeting of the Creditors, subject to FRBP 9006(a)(1).

These are just of few of the local rule changes going into effect in 2013.  Creditors must be diligent, especially in reviewing plans for objection deadlines.

If you should have any questions on this matter, please contact J. Erin McCabe. Erin is an attorney practicing in WWR’s Bankruptcy unit and is located in the Cincinnati office. He can be reached at 513.629.2674 and jmccabe@weltman.com.

Eastern District of Michigan’s New Model Plan for Chapter 13 Cases

Published on November 30, 2012 in Chapter 13. 0 Comments

By Cheryl D. Cook, Attorney

Effective January 1, 2013, debtors seeking protection under Chapter 13 of the Bankruptcy Code must use a new model plan which was adopted by order of the Court on October 24, 2012.  A copy of the new model plan can be found by going here.

According to the Court’s notice:

The Chapter 13 Trustees for the Eastern District of Michigan, after consultation with and after soliciting comments from the consumer bankruptcy bar in this district, have drafted and recommended to the Court a new Chapter 13 model plan for use in the Bankruptcy Court for the Eastern District of Michigan.

Importantly, the new model plan contains a prominent notice advising creditors:

YOUR RIGHTS MAY BE AFFECTED.  THIS PLAN MAY BE CONFIRMED AND BECOME BINDING WITHOUT FURTHER NOTICE OR HEARING UNLESS A TIMELY WRITTEN OBJECTION IS FILED.  READ THIS DOCUMENT CAREFULLY AND SEEK THE ADVICE OF AN ATTORNEY. 

In light of the U.S. Supreme Court decision in United Student Aid Funds, Inc. v Espinosa, 559 U. S. 2010 WL 102, 7825 (U.S. March 23, 2010), this notice seems intended to give creditors ample warning of the effect of the failure to timely object to plan treatment. 

This means that when creditors receive a Chapter 13 plan, it is imperative that they review the plan for treatment of their claims (or forward it to their attorneys for such review).  Timing for objections in the Eastern District of Michigan is set by the Court; an untimely objection will be overruled.  Once the Chapter 13 plan is confirmed, the confirmation order changes the contractual relationship between parties.

Proper review of a proposed Chapter 13 plan has to include identification of whether the creditor’s claim is secured or unsecured, whether the debtor’s proposed treatment is consistent with the creditor’s intentions or account documents, and whether the plan is feasible – i.e., whether the debtor can afford to do what he is proposing to do in his plan. 

A couple of items to note specifically: 

  • Although, under the new model plan, a debtor may propose plan provisions different than those contained in the new model plan, the debtor must identify each provision that is different from the new model plan in Section I.B. of their plan, which appears on the first page of the plan. 
  • Further, under the section labelled “Additional Terms, Conditions and Provisions,” the Model Plan specifies the order of payment of claims by class, and it contains a provision specifying that Class 5.1 and Class 6.1 creditors will receive equal monthly payments to the extent that funds are available at the date of each disbursement. 
  • Subparagraph I of this Additional Terms section also requires creditors to apply all disbursements under the Plan only in the manner consistent with the terms of the Plan and to the account(s) or obligation(s) as designated on the voucher or check provided to the creditor with each disbursement. 
  • Arrearages on secured claims are identified as separate claims in the Trustees’ ledgers, so the Trustees will send a separate check for arrearage than for the regular monthly payment on a secured claim.  Those payments are to be applied to the account specified on the check. 

Plans can attempt to change items such as the interest rate applied to the loan, secured versus unsecured status, the amount of arrearage that the debtor is going to pay, the duration of the plan payments, and whether a junior mortgage loan will be stripped from the real estate securing it.  Therefore, it is important to analyze the proposal to reorganize the debtor’s obligations before the objection deadline. 

If you have any questions on this matter, please contact Cheryl D. Cook, Esq.  Ms. Cook is an attorney in the Bankruptcy Group located in the Detroit office. She can be reached at 248.989.3089 and chcook@weltman.com.

WWR Successfully Overturns Lien Avoidance Decisions in New York

Published on October 9, 2012 in Bankruptcy Filings, Chapter 13, Chapter 7 and Real Estate. 0 Comments

By Geoffrey J. Peters, Partner

WWR successfully overturned a line of cases in the Eastern District of New York Bankruptcy Court that routinely allowed debtors to remove wholly unsecured mortgages in a Chapter 7 bankruptcy proceeding.  In the case of In re: Smoot, 465 B.R. 730 (Bankr. E.D.N.Y., 2011), the District Court reversed two bankruptcy decisions that allowed this practice.

In Smoot, the bankruptcy court ruled that the second mortgages held by the creditors were wholly unsecured based upon the value of the property.  The bankruptcy judge ruled that the creditors’ liens were void and should be removed from the property.  In reversing these decisions, the District Court relied upon the U.S. Supreme Court’s case, Dewsnup v. Timm 502 U.S. 410 (1992).  The District Court held that pursuant to the Supreme Court’s ruling in Dewsnup, it does not matter if the second mortgage is fully unsecured or merely under-secured in a Chapter 7 bankruptcy case.  The liens should pass through bankruptcy unaffected.  The Supreme Court in Dewsnup reasoned that the debtor and creditor bargained for a consensual lien which would stay with the real property until foreclosure.  The Supreme Court also held that any increase in value of the real property should accrue to the benefit of the creditor, not the debtor or other unsecured creditors.

The Eastern District of New York Court in Smoot also made a distinction between a Chapter 7 and a Chapter 13 bankruptcy case.  In a Chapter 13 case, a debtor contributes all disposable income for three to five years to repay creditors.  The Smoot Court acknowledged that lien stripping in a Chapter 13 furthers the purpose and intent of repayment to creditors and that lien stripping a wholly unsecured mortgage should be allowed as an incentive to file the Chapter 13 case.  In contrast, a Chapter 7 bankruptcy proceeding is considered a liquidation and does not encourage the debtor to repay creditors.  Therefore, the avoidance of a wholly unsecured mortgage is not applicable in a Chapter 7 case.

The Smoot decision reverses the practice of lien stripping wholly unsecured mortgages in Chapter 7 bankruptcy cases in the Eastern District of New York.  Most other jurisdictions are consistent with this opinion.  However, the Eleventh Circuit, which includes the bankruptcy courts in Florida, Georgia and Alabama, allow mortgages to be avoided in Chapter 7 bankruptcy proceedings.  WWR addressed this issue in an earlier client advisory dated May 31, 2012 on 11th Circuit Dilutes Dewsnup. Go here to view that client advisory: http://www.weltman.com/publications/client-advisories/?i=484&NH.

If you have any questions on this matter, please contact Mr. Geoffrey J. Peters, Esq. Geoff is a partner in the Columbus office of Weltman, Weinberg & Reis Co., LPA practicing in Bankruptcy. He can be reached at 614.857.4324 and gpeters@weltman.com.

Trustee Distribution of Post-Confirmation Funds Issue Up on Appeal to United States Court of Appeals for the 3rd Circuit

Published on June 4, 2012 in Chapter 13 and Chapter 7. 0 Comments

By Keri P. Ebeck, Attorney

The issue of how to distribute funds received by the Chapter 13 Trustee from the debtor post-confirmation but prior to conversion to a Chapter 7 is currently on appeal to the United States Court of Appeals for the 3rd Circuit. The appeal stems from the case of In Re Barry L. Michael, 436 B.R. 323; 2010 Bankr. LEXIS 2318, in which the debtor filed a Motion to Compel the Chapter 13 Standing Trustee to turn over any funds that the debtor had paid into the Trustee during the pendency of the debtor’s Chapter 13 case. The debtor’s Chapter 13 plan was confirmed on June 7, 2006. Upon the debtor’s notice of conversion to a Chapter 7, the Trustee had $9,181.62 in its account to distribute to creditors. The debtor’s Motion to Compel which was granted by the Bankruptcy Court for the Middle District of Pennsylvania, requested that those funds be turned over to the debtor. The Trustee filed an appeal arguing that upon a confirmed plan, those post-confirmation funds are to be distributed by the Chapter 13 Trustee to the debtor’s creditors according to the confirmed plan, as part of the Trustee’s duties under Section 1326 of the Bankruptcy Code.  The Appellate District Court affirmed the lower Court’s ruling. Upon appeal to the United States Court of Appeals for the 3rd Circuit, the Chapter 13 Bankruptcy Trustees for the 3rd Circuit including Western District of Pennsylvania, Eastern District of Pennsylvania, District of New Jersey, District of Delaware and U.S. Virgin Islands filed an Amicus Brief of the Chapter 13 Standing Trustees. Within their Amicus Brief, it is noted that in Pennsylvania, the three bankruptcy courts and one appellate court are divided on the distribution of the funds in question. In addition, while many lower courts across the United States have ruled on the issue, only the United States Court of Appeal for the 9th Circuit has addressed the topic and its’ ruling was prior to the 2005 BAPCPA Amendments. 

The U.S. Court of Appeals for the 3rd Circuit heard argument on May 7, 2012 and a ruling is still pending. Once a ruling has been issued, WWR will provide an update.

Keri is an associate in the Consumer Bankruptcy Group based in the Pittsburgh office at Weltman, Weinberg & Reis Co., LPA. She can be reached at 412.338.7102 and kebeck@weltman.com.

Best Practice in Bankruptcy Notices of Default

Published on April 17, 2012 in Chapter 13. 0 Comments

By Monette W. Cope, Esq.

The mortgage industry is under tremendous scrutiny from the Attorney General and the States’ Attorney Generals, as well as the new Consumer Financial Protection Bureau which just announced it will be drafting rules to regulate all servicers.  In response, most in the industry are stepping up and being more transparent in their communications with borrowers.  A lesser thought of, but important way to do this is in Notices of Default in Chapter 13 bankruptcies.

In Chapter 13, motions for relief from stay are commonly resolved by a provisional order for relief.  Essentially, the debtor agrees to repay a post-petition default in a manner and by a date certain, and simultaneously maintain current payments to a secured creditor. If the debtor defaults on any of the terms, the stay is automatically lifted should the debtor fail to cure the default within a certain period of time after a Notice of Default is sent.

In some jurisdictions, it is acceptable to give a lump sum for the default in the Notice with no other details.  Going forward, the best practice will be for lenders and servicers to provide their attorneys with a detailed payment history showing the default.  Attorneys, in turn, should then provide detailed information in the Notice as to the dates, amounts and nature of the default.

If the default is not cured, and the court requires an Affidavit of Default or Notice of Default to be filed to spring the relief from stay, the best practice is to include the same detail as in the Notice.

This detail in the Notice will show good faith towards the borrower and alleviate any challenge to the Notice for lack of detail and disclosure, while putting the lender or servicer in a good light. 

If you have any questions on this matter, please contact Ms. Monette W. Cope, Esq. Monette is a junior partner in the bankruptcy department of Weltman, Weinberg & Reis Co., LPA located in the Chicago office. She can be reached at 312.253.9614 and mcope@weltman.com.