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HISTORY
• Nelson Act of 1898
• Current Code dated 1978
• Bankruptcy Abuse Prevention and Consumer Protection Act of 2005
CURRENT TRENDS
• 33% increase in bankruptcy filings from 2007 to 2008
• As unemployment continues to rise, more are expected (second wave)
• As modifications under HAMP fail, expect more Chapter 13s
Famous Filers
• P.T. Barnum
• Milton Hershey
• Walt Disney
• Kim Basinger
KEY CONCEPTS
PROPERTY OF THE ESTATE
KEY CONCEPTS
ADEQUATE PROTECTION
KEY CONCEPTS
AUTOMATIC STAY
KEY CONCEPT
PROOF OF CLAIM
KEY CONCEPTS
Dismissal v. Discharge
Reaffirmation
• Agreement between Debtor and Creditor
• Debt does not get discharged
• Debt survives discharge
• Allows creditor to get money judgment / deficiency judgment after discharge
Different Consumer Chapters
• Chapter 13• Reorganization• Debtor must have
income• Debtor pays trustee,
trustee pays creditors• To prevent
foreclosure
• Chapter 7• Liquidation• Debtor does not need
income• Debtor pays secured
creditors directly• Will not prevent
foreclosure
Different Chapters
• Chapter 13• Can’t collect from
non-filing co-debtor• Lasts 5 years• Creditor must file
POC• Debtor pays % of
unsecured claims
• Chapter 7• Can collect from non-
filing co-debtor• Lasts 5 months• Creditor usually does
not file POC• Debtor does not pay
unsecured claims
Different Chapters
• Chapter 13• Trustee does not sell
Debtor’s property• Plan is filed• Object 2 days before
meeting of creditors• No reaffirmation• Plan determines
treatment of creditor’s claim
• Chapter 7• Trustee may sell
property• No plan• No plan, so no
objection deadline• May reaffirm• Statement of Intention
determines treatment of creditor’s claim
Bankruptcy Reform Act (BAPCPA)
• Bankruptcy Abuse Prevention and Consumer Protection Act of 2005
• Effective October 17, 2005
• Slightly more difficult to file bankruptcy and some additional protections for Creditors
Cram Down
• Debtor pays only the value of the collateral
• Debtor does not pay the balance of the secured loan
• Only in a Chapter 13
• BAPCPA reduced the availability of cram down
New Way = No Cram Down, if:
• Vehicle for personal use
• Loan was a purchase money loan
• Loan was not older than 910 days when Debtor filed for bankruptcy
Purchase money loan
• Loan proceeds used to purchase the collateral
• By definition, a refinance is not a purchase money loan
• Means that Creditors should modify loans for troubled members vs. refinance
Chapter 7 “Ride Through”
• “Debtor will retain collateral and continue to pay current”
• This is found in Statement of Intention
• Secured creditor can object to this treatment (unless collateral is real estate)
Debtor’s options in Chapter 7
• Surrender collateral
• Redeem collateral
• Reaffirm indebtedness secured by collateral
• No more “Ride Through” (except real estate)
When Ride Through Proposed
• Wait 30 days from the date of filing
• Have counsel file Request for Confirmation of Stay Termination
• No filing fee and no hearing
• Result is that Stay is Terminated
Debtor fails to perform intention
Debtor has 30 days from 341 meeting of creditors to:
• Actually surrender the collateral
• Actually redeem the collateral
• Actually file the reaffirmation agreement
When Debtor Fails to Perform Intention
• Wait 30 days from the meeting of creditors
• Have counsel file Request for Confirmation of Stay Termination
• No filing fee and no hearing
• Result is that Stay is Terminated
BIG PICTURE
• If Debtor tries to ride through, or won’t reaffirm consider– Value of Vehicle– Balance of Loan– Whether & to what extent Loan is Delinquent– Whether you would prefer to continue to
accept payments v. sell vehicle and suffer loss
Think Like a Debtor’s Attorney
What is your advice to your client if his car loan is current?
LIENS PASS THROUGH CHAPTER 7s
• Most liens are not wiped out by a Chapter 7 discharge
• Creditors may repossess vehicle AFTER the discharge
• If Creditor repossesses vehicle DURING the Chapter 7 case (w/o lift of stay), that is a violation of stay
• After discharge, no deficiency balance, collection of the debt, etc.
Reaffirmation Agreements
• Only in Chapter 7 cases
• Reaffirmed debt survives bankruptcy discharge
• Must be filed with court before discharge order is entered
• Must use current form to be valid
• If Creditor gets Reaff., Creditor can get deficiency judgment
Other options
• If insurance lapses during Chapter 7, file 362 motion.
• If Debtor misses direct payment during Chapter 7, file 362 motion.
• Will allow you to repo now instead of having to wait for discharge
OTHER OPTION?
Reaffirmation Disclosure Statement
• Amount reaffirmed
• APR, using TIL formula
• Explain whether open-end credit
• Describe collateral
• State purchase price or original balance
• Describe repayment schedule
Instructions to Debtor
• Describe Debtor’s Right to Rescind
• FAQs
Attorney’s Declaration
• Debtor’s attorney must sign
• Reaffirmation is not an undue hardship
• Debtor is fully informed
• Debtor knows consequences of default
UNDUE HARDSHIP
• Schedule I = Debtor’s Income
• Schedule J = Debtor’s Expenses
• If I – J is less than loan payment, an undue hardship exists, b/c means that there is not enough in Debtor’s budget for payment
UNDUE HARDSHIP
• If there is an Undue Hardship, the Court will set a hearing and decide whether or not to approve the Reaffirmation Agreement.
• If the Creditor is a Credit Union, the Court does not have to set a hearing. The Reaffirmation Agreement will be automatically approved.
Debtor’s Statement in Support
• If pro se, Debtor must describe income & expenses
• If Creditor is a CU, Debtor only must say reaffirmation is in best interests & can afford payments. No details necessary.
Redemption
• Debtor makes lump sum payment to Creditor
• Debtor keeps the collateral
• Lump sum payment = Wholesale or Retail value?
REDEMPTION
• Debtor must file Motion to Redeem
• Creditor has an opportunity to Object to the Motion to Redeem
• Section 722 companies
Chapter 13
• Direct payments to Creditors was changed in BAPCPA
• Iowa courts are honoring change in law, but with a twist
• Before plan confirmation, Trustees disburse to secured creditors
Ask yourself:
• Is loan secured?
• Is the collateral personal property?
• Does the plan propose to keep collateral?
• Was the loan a purchase money loan?
• Have I filed the POC?
• Has there been no objection to POC?
• Has it been 30 days since Debtor filed?
Iowa Form Plan specifically addresses payments made pre-
confirmation
Motion to Extend Automatic Stay
• Applies when Debtor has filed multiple bankruptcies within one year
• Second bankruptcy – Debtor must file motion to extend stay
• Hearing on motion must be within 30 days of filing for bankruptcy
Multiple Filings
• Second case pending in one year
• Date of dismissal of first case matters, not the date of filing of first case
EXAMPLE
• Debtor files Chapter 13 on October 23, 2009
• Debtor’s case is dismissed on August 18, 2010
• Debtor files another Chapter 13 on October 13, 2010
• Are there two cases pending within one year?
To get stay continued
• Debtor must prove good faith filing of second case
• Shift in burden of proof from Creditor to Debtor
• Substantial change in circumstances
EXAMPLES
Result
• If stay is not continued, Creditors can repossess/ foreclose on the 31st day of the second bankruptcy, b/c no stay
• Caveat: confirmed plan could still bind creditor to bankruptcy, so Creditor should also object to the plan
Ask Yourself:
• Has Debtor’s income changed?
• Has Debtor’s expenses changed?
• Debtor done anything in bad faith?
• Lower value on your collateral in second case than in first case?
• If so, Debtor made payments during that time?
• Inconsistencies with schedules?
Objecting to Motion to Continue Stay
• Stay not continued
• Stay not continued as to CU only
• Settle = higher value for collateral
• Settle = drop dead clause on payments
Multiple Filings
• 8 years between discharge in one Chapter 7 and the filing of a new Chapter 7.
• 2 years between discharge in one Chapter 13 case and the filing of a new Chapter 13 case (no discharge in second case).
• Debtor can file second 13 in two years; just won’t get discharge in second case
“Chapter 20”
• Not a real chapter under bankruptcy code
• Debtor first files Chapter 7
• Then Debtor files Chapter 13 immediately after discharge in 7
Conversion from 13 to 7
• Terms of original contract apply
• No more Chapter 13 interest rate
• No more Chapter 13 cram down (if you were crammed down in the 13)
• Important when reaffirming
EXAMPLEBottom of Page 17
Set Off
• Can freeze shares after receive notice of bankruptcy
• Must get stay lifted before you can set off shares
• Can only freeze pre-petition money. Can only freeze money that was on deposit before the debtor filed. Use First In – First Out principle
First In = First Out
• Debtor has $1500 in account on Feb. 19
• Debtor files bankruptcy Feb. 20
• Debtor withdraws $800 on Feb. 22
• Debtor deposits $900 on Feb. 26
Procedure
• Freeze pre-petition funds
• Lift the automatic stay (by agreed order or by motion)
• Set off the funds
• Costs about $400 to lift the stay, so freeze accordingly
POCs and Cross Collateralization
• Useful if equity in vehicle and CU also has personal loan
• Not useful if no equity in vehicle
• Can assign equity in vehicle to personal loan, lessening loss on personal loan
Example
• Plan proposes to pay net balance of vehicle loan
• $1500 equity in vehicle
• CU has personal loan with $3500 balance
• File POC for personal loan so that $1500 secured/ $2000 unsecured
Criminal Indictments
• Trustees, judges must report criminal activity to US Attorney
• Perjury at Meeting of Creditors
• Perjury contained in Schedules & Statements
New Privacy Rules
• Do not file POC with private information on it
• Once POC filed, available on PACER and by going to clerk of court’s office
• Debtor will file ex parte motion to disable access to POC
• Creditor will have to file amended POC with private info redacted
Private Information:
• Social Security Number
• Taxpayer ID Number
• Names of Minor Children
• Financial Account Numbers
• Dates of Birth
• Home Address of Defendant in Criminal Cases
SKIT
Problematic b/c:
• Violates discharge order
• Attempts to collect payment on a discharged debt
• If loan officer refuses to take application, must send adverse action notice
MANTRA
• We do not provide services for members who cause the Credit Union a loss
FLOW CHARTS
For the POC Examples:
• Assume that all loans are purchase money loans for Debtor’s personal use.
• If equity in vehicle, apply that equity to unsecured loans.
• Determine whether bankruptcy was filed within 910 days of the loan.
• Determine if plan needs to be objected to.
• File your POC as if you win your objection.
EXAMPLES
