Recent Entries

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

Published 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.

Bankruptcy Cramdown Legislation On Shaky Ground

Published on April 13, 2009 in Bankruptcy Act 2009, Chapter 13 and Real Estate. 0 Comments

The Senate may leave the proposed cramdown legislation behind as it considers other remedies for the housing and mortgage meltdown.

The legislation would allow bankruptcy judges to modify certain home mortgage loans by reducing the principal, the payments, and/or the interest rates.  The lending community has fiercely opposed it, and some lawmakers on both sides of the aisle are reconsidering their support of the bill. 

Senate Majority Leader Harry Reid has indicated that he is willing to drop the cramdown provisions to focus on other housing measures such as creating new financial regulations and increasing measures to battle mortgage fraud.  The Senate will reconvene on April 20, but it is doubtful that the bankruptcy cramdown legislation will be a priority.

Unintended Consequences: Bankruptcy Cram Down May Actually Case Decrease in Bankruptcy Filings

Published on April 8, 2009 in Bankruptcy Act 2009, Chapter 13 and Real Estate. 0 Comments

With the proposed amendments to the Bankruptcy Code placed on temporary hold by Congress until at least late April, it seems appropriate to take a step back and examine the possible unintended consequences of the passage of such a law.

While providing troubled borrowers with an effective tool to rework their mortgage terms under the protection of the Bankruptcy Code, is it possible that the mere threat of such a modification by a borrower could lead an increasing number of lenders to agree to rework the loan terms outside of the bankruptcy process?

Debtor’s counsel have always operated with the knowledge that, while they have the ability to tie up a pending foreclosure for months or even years by aggressively opposing the case, the reality has always been that mortgage lenders held the upper hand once a Chapter 13 bankruptcy was filed. A borrower could not alter the terms of the loan, but could only seek breathing room to bring delinquent payments current.

If the proposed amendments become a reality, the leverage will clearly shift into the borrower’s favor, which may lead more and more lenders to seek a negotiated modification prior to bankruptcy, saving both sides from litigating over valuation of the home and risking assessment prior to plan confirmation.  The end result could be a decrease in Chapter 13 filings within the pool of borrowers who, but for their mortgage delinquency, might not be in financial difficulty.

Of course, the flip side to this argument would be that with all the economic indicators clearly showing a downturn, the actual number of borrowers whose only financial difficulty consists of their mortgage, is likely becoming smaller and smaller each month.  Therefore, it is likely that even with the offer of a voluntary loan modification by the lender, the vast majority of borrowers will still seek bankruptcy relief.

In Attempting To Limit Certain Mortgage Modification Bankruptcies, House Bill Has Loopholes

Published on March 13, 2009 in Bankruptcy Act 2009, Chapter 13 and Real Estate. 0 Comments

H.B. 1106 attempts to limit the mortgages that may be ìcrammed downî or otherwise modified. It permits modifications only on loans that were originated before the billís enactment.  A case may not be reopened to modify a mortgage.  These are substantial (however, debtors are not prevented from filing a new case).

Several provisions are designed to discourage debtors that would file bankruptcy solely to modify their mortgage, but they may not be effective.  Thirty days before filing, a debtor must contact the mortgage holder or servicer for a modification.    The creditor must be provided with the same schedules and statement of financial affairs that would be filed in bankruptcy.  While this would give the creditor some needed information to consider a modification, some issues arise immediately.

While the debtor is required to contact the lender 30 days before filing, it is not clear that the debtor must also provide the information within that thirty-day period.  Consider the scenario where a debtor writes a letter requesting modification thirty days before filing, but does not provide the creditor with the required information until one day before filing.  Is this a good faith issue that would result in a denial of confirmation? Even if the information is provided thirty days before filing, is this enough time for a creditor to consider a modification? Finally, because debtors must prepare their bankruptcy documents while seeking modification, doesnít this encourage bankruptcy filings?  Moreover, debtors that are facing a foreclosure sale on their residence within thirty days after filing a bankruptcy are exempted from these requirements.

The Senate Bill would permit far more modifications at this point, but is expected to also place some limits on filing.  We will advise you of any changes to the Senate Bill as they arise.

Ohio House Bill Proposes Mortgage “Cram Down” Without Filing Bankruptcy

Published on March 11, 2009 in Bankruptcy Act 2009, Chapter 13 and Real Estate. 0 Comments

Currently Congress is hammering out the details of a law that will change the Bankruptcy Code and grant bankruptcy judges the authority to cram down mortgage loans to the current market value of the real property and modify interest rates.  On February 17, 2009 Ohio representatives Mike Foley and Denise Driehaus introduced Ohio House Bill 3 in the 128th General Assembly.  House Bill 3 takes the mortgage cram down a step further as it gives state court judges the power to reduce the principal amount of a mortgage loan and adjust the interest rate on the loans for properties in foreclosure without the need to file bankruptcy.

The proposed legislation grants a “judge”, the discretion to reduce the principal amount of the loan if, (1) both parties would benefit from such a modification, (2) the court finds under all circumstances, the modification appears just and equitable, and (3) the modification would enable the borrower to make payments and retain the property. A judge may also reduce the interest rate of the loan to an amount the judge determines is just and equitable as long as reducing the interest rate would enable the borrower to make payments and retain the property. The cram down provision would be effective for three years after the passage of the legislation.

If this becomes law, it will be a tremendous inducement for lenders to work with borrowers who are behind on their mortgage payments rather than taking a chance with a state court judge who may be more interested in being re-elected than crafting an equitable solution for the lender.