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Consumer Bankruptcy Law and Practice: 11.6.2.7.2 Interest on arrears

Another important question is how interest is to be computed when a long-term obligation is cured under section 1322(b)(5). Unfortunately, the Supreme Court, in Rake v. Wade,493 rejected the holdings of most lower courts and held that a creditor may demand that interest be paid on arrears being cured through a chapter 13 plan.

Consumer Bankruptcy Law and Practice: 11.6.2.8.2.1 Application of Rules 3001(c)(2)(C) and 3002.1

Federal Rule of Bankruptcy Procedure 3002.1 provides a procedure for resolving the widespread problems in mortgage cure plans caused by inaccurate proofs of claim and creditor postpetition fees and accounting practices. Bankruptcy Rule 3001(c)(2)(C) requires disclosure of prepetition default fees and arrearage amounts on the initial proof of claim filed by the mortgage creditor. Bankruptcy Rule 3002.1 compels disclosure of mortgage payment changes and postpetition fees and expenses.

Consumer Bankruptcy Law and Practice: 11.6.2.8.2.2 Mortgage proof of claim attachment—Rule 3001(c)(2)(C)

Bankruptcy Rule 3001(c)(2)(C) requires the mortgage creditor to attach to its proof of claim the Mortgage Proof of Claim Attachment form.520 The form instructs the creditor to disclose the components of the total amount of the debt, the prepetition mortgage arrearage, and the postpetition mortgage payment amount. Mortgage creditors initially were required to include an itemization of prepetition fees and charges by entering this information in spaces provided on the form.

Consumer Bankruptcy Law and Practice: 11.6.2.8.2.3 Notice of payment change—Rule 3002.1(b)

Rule 3002.1(b) requires the creditor to “file and serve on the debtor, debtor’s counsel, and the trustee a notice of any change in the payment amount, including any change that results from an interest rate or escrow account adjustment, no later than twenty-one days before a payment in the new amount is due.”532 Notice must be given on Official Form 410S1, the Notice of Mortgage Payment Change.533 The form shall be filed as a supplement to the creditor’s proof of claim and is not entitled to pre

Consumer Bankruptcy Law and Practice: 11.6.2.8.2.6 Fee dispute procedure—Rule 3002.1(e)

The debtor, chapter 13 trustee, or any party in interest has one year from the date of the notice to object to the propriety of any postpetition fee or charge.558 The time periods were set so that if there were multiple notices over a period of months, the debtor could more efficiently respond to them with a single objection, rather than multiple proceedings. At the same time, they permit a determination regarding the propriety of the charges before they accumulate to an amount the debtor may be unable to pay.

Consumer Bankruptcy Law and Practice: 11.6.2.8.2.7 Notice of final cure payment—Rule 3002.1(f) and Rule 3002.1(h)

Rule 3002.1(f) provides that “[w]ithin 30 days after the debtor completes all payments under the plan, the trustee shall file and serve on the holder of the claim, the debtor, and debtor’s counsel a notice stating that the debtor has paid in full the amount required to cure any default on the claim.” The notice must also inform the creditor of its obligation to file a response to the notice.

Consumer Bankruptcy Law and Practice: 11.6.2.8.2.9 Rule 3002.1 and the attorneys general settlement with major servicers

The settlement agreement between the state attorneys general and the five leading mortgage servicers, finalized in April 2012, contains terms that mandate compliance by the servicers with Bankruptcy Rules 3001 and 3002.1.590 The affected servicers in the initial settlement were Bank of America, JP Morgan Chase, Wells Fargo, Citibank, and Ally/GMAC.591 The settlement agreement with those entities was concluded in September 2015.

Consumer Bankruptcy Law and Practice: 11.7 Use of Section 506 to Reduce Liens That Are Not Paid Under Section 1325(a)(5)

The allowed secured claim concept is effectuated by section 506(a) and 506(d) of the Code. Section 506(a) bifurcates the claim into its secured and unsecured portion and section 506(d) provides that “[t]o the extent that a lien secures a claim that is not an allowed secured claim [as determined under section 506(a)] such lien is void unless” such a claim was disallowed only because it was for an unmatured domestic support obligation or such claim was not an allowed claim only because no entity filed a proof of claim.605

Consumer Bankruptcy Law and Practice: 11.9 Automobile Title Pawn Transactions in Bankruptcy

Another fast-growing business preying on low income families is “title pawn” lending. The typical title pawn contract is a loan of a small amount of money, accompanied by a “pawn” of the automobile title to the lender and sometimes a lease-back of the car to the borrower. The effective interest rates in such transactions are often several hundred percent or more.630

Consumer Bankruptcy Law and Practice: 6.1.2 Methods of Explaining Bankruptcy

Certainly the most common method of explaining these subjects is through a face-to-face discussion during the client interview. Not surprisingly, many bankruptcy specialists have found that doing this job can be both time-consuming and repetitive. For that reason, some have chosen to give most of this general information in written form and to supplement that information in the interview.

Consumer Bankruptcy Law and Practice: 6.2.1.1 Discharge of Most Debts

In a sense, most of this treatise is devoted to describing the advantages of bankruptcy for consumer debtors and showing how to make the most of those advantages. Before a client can make an intelligent decision on a course of action, the advantages applicable to that client’s case, and the disadvantages, if any, must be explained.

Consumer Bankruptcy Law and Practice: 6.5.2.2a Improving Chances of Student Loan Discharge

As discussed elsewhere in this manual,168 the Department of Justice and Department of Education have recently adopted guidance intended to streamline and facilitate the discharge of student loans in bankruptcy. Debtors who believe that their student loans may be dischargeable should consider consolidation of their loans prior to filing a bankruptcy so that the consolidated loan will qualify for discharge.

Consumer Bankruptcy Law and Practice: 6.5.3.1 Anticipation of Further Debt

It is sometimes said that a bankruptcy should not be filed until a client’s debt load has peaked. If the client anticipates further unavoidable liabilities, such as medical bills, the bankruptcy should, if possible, be delayed until after these are incurred. The object of this delay, of course, is to gain maximum benefit from the discharge.

Consumer Bankruptcy Law and Practice: 6.5.3.2 Paying Favored Creditors

Clients may wish to delay a bankruptcy until after they have paid creditors whose claims they do not want to see discharged, for example, friends or the grantors of credit cards they hope to keep. As noted above, such payments, if over $600 and within the applicable preference period, could be set aside by the bankruptcy trustee. Thus, if a client wants to pursue this course of action, and ensure that the creditor retains the payment, the petition must be delayed until after the preference period has run.171

Consumer Bankruptcy Law and Practice: 6.5.3.4 Tax Reach Back Periods

The dischargeability of certain taxes and their possible treatment as priority debts (which must be paid in full in chapter 13 cases) will depend on various time periods having passed.176 Investigation concerning the exact date of expiration of these time periods is essential if discharging taxes is an objective of the case.177 Many debtors have been disappointed by an attorney’s miscalculation of the relevant dates, which can be complicated by tolling periods and special tax rules.