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Consumer Bankruptcy Law and Practice: 18.9.1 Lender Bankruptcies

In recent years, a number of large non-bank lending companies and mortgage servicers have filed chapter 11 bankruptcy cases,997 giving rise to numerous new issues in applying bankruptcy law to the anomalous situation in which the lender is the debtor, and the borrowers are creditors. Several of these cases involved “subprime” mortgage lenders and servicers involved in predatory lending practices, who were defendants in various consumer class actions and government enforcement actions.

Consumer Bankruptcy Law and Practice: 11.6.1 Modification of Secured Creditors’ Rights in Claims Not Secured Only by Real Estate That Is the Debtor’s Principal Residence

11.6.1.1 Generally

Perhaps the greatest powers to affect the rights of secured creditors are found in the provisions of chapter 13. Bankruptcy Code section 1322 provides that the debtor’s plan may modify the rights of holders of most secured claims, other than some claims secured only by a security interest in real property that is the debtor’s principal residence. In addition, section 1322(b)(3) and (b)(5) provide that as to any claim, including a claim secured only by the debtor’s principal residence, the plan may provide for the curing of a default over a reasonable period of time.

Consumer Bankruptcy Law and Practice: 12.3.6.1 Priority Claims

One group of unsecured claims must normally be paid in full through the chapter 13 plan. Section 1322(a)(2) of the Code requires that the plan provide for payment in full of all claims entitled to priority under Code section 507(a), unless the holder of the claim agrees otherwise.

A priority creditor who fails to object to a plan proposing less than full payment may be deemed to have agreed to it.277 In any case, if such a plan is confirmed, the creditor is bound by it.278

Consumer Bankruptcy Law and Practice: 12.8.4 Proof of Insurance

Under section 1326(a)(4), a debtor who is retaining personal property subject to a lease or that secures a purchase money claim is required to provide the lessor or creditor reasonable evidence of the maintenance of any required insurance coverage. Normally, such creditors or lessors already know if insurance lapses, as they are named as loss payees in the policy. Only when insurance has lapsed will such evidence be important to creditors or lessors.

Consumer Bankruptcy Law and Practice: 9.3.3.1 Generally

Generally, if a case is dismissed, and a new filing is appropriate, a new automatic stay comes into effect.17 However, counsel should take care that the subsequent filing is in good faith and not barred by the 180 day limit of 11 U.S.C. § 109(g).18 If relief from the stay is granted or the stay is terminated during a case, conversion of the case to another chapter does not create a new stay.19

Consumer Bankruptcy Law and Practice: 9.4.6.6.1 Introduction

The 2005 Act created two new limitations on the automatic stay in landlord-tenant matters. These are likely to cause hardship to some tenants seeking to avoid homelessness by curing rent arrearages through chapter 13 bankruptcy. They are also likely to cause confusion among landlords and lead to violations of the automatic stay.244

Consumer Bankruptcy Law and Practice: What Is Included?

This appendix summarizes state exemption statutes. It focuses on statutes that exempt property of consumer debtors from collection by creditors. Statutes that provide special exemption rules for child support or other family support collections, or for other special types of debts, such as reimbursements to the state, are not summarized here.

Consumer Bankruptcy Law and Practice: 6.5.2.2 Protecting Property and Exemption Planning

The 2005 amendments made it much more likely that exemptions will have to be considered in deciding when to file a bankruptcy case. The time period during which a debtor must be domiciled in the debtor’s current state in order to claim that state’s exemptions was extended from ninety days or less to two years.150 If a debtor’s state of domicile has changed in the two years before bankruptcy, the laws of the debtor’s prior domicile will usually govern.

Consumer Bankruptcy Law and Practice: Table of Contents

TITLE 28—JUDICIAL ADMINISTRATION

CHAPTER I—DEPARTMENT OF JUSTICE

PART 58—REGULATIONS RELATING TO THE BANKRUPTCY REFORM ACTS OF 1978 AND 1994

28 C.F.R. § 58.1 Authorization to establish panels of private trustees.

28 C.F.R. § 58.2 Authorization to appoint standing trustees.

28 C.F.R. § 58.3 Qualification for membership on panels of private trustees.

28 C.F.R. § 58.4 Qualifications for appointment as standing trustee and fiduciary standards.

28 C.F.R. § 58.5 Non-discrimination in appointment.

Consumer Bankruptcy Law and Practice: 9.8.2.1 Procedure

Section 366(a) is significantly limited by section 366(b), which provides that a utility may “alter, refuse or discontinue service” if the debtor does not, within twenty days after filing a voluntary petition, furnish adequate assurance of future payment. A temporary exception to this provision was enacted in response to the COVID-19 pandemic.

Consumer Bankruptcy Law and Practice: Forms Contained in This Appendix

This appendix contains selected forms promulgated by the Administrative Office of the United States Courts that are relevant to consumer bankruptcies. These forms are:

E.2 Adversary Proceeding Cover Sheet (B 1040)

E.3 Motion, Notice and Order for Adequate Protection Payments and Opportunity to Object (B 1130)

E.4 Required Lists, Schedules, Statements and Fees (B 2000)

E.5 Notice Required by 11 U.S.C. § 342(b) for Individuals Filing for Bankruptcy (B 2010)

E.6 Statement of Military Service (B 2020)

Consumer Bankruptcy Law and Practice: 11.4.1 Overview

Section 521(a)(2) requires the debtor in a chapter 7 case to file a statement of certain intentions with respect to property securing debts and with respect to personal property leases. Debtors need not state all of their plans on this statement. All that is required is a statement of whether the debtor intends to retain or surrender the collateral, whether it is claimed as exempt, and whether the debtor intends to reaffirm the debt.

Consumer Bankruptcy Law and Practice: 11.5.1 Purpose

One of the new provisions in the Bankruptcy Code when it was enacted in 1978 was section 722, which provides for a limited right of redemption in chapter 7 cases. In essence, it provides that for certain secured consumer debts the security interest may be eliminated upon payment to the creditor of the value of its collateral, that is, the amount of its allowed secured claim. In a case converted from chapter 13, the amount necessary to redeem is likely to be computed anew and without regard to a prior valuation in chapter 13.203

Consumer Bankruptcy Law and Practice: 11.6.1.3.1 Introduction

In addition to section 1322(b)(2) and adequate protection, a third important factor in determining whether the court will approve the modification of a secured creditor’s rights is compliance with section 1325(a)(5). Section 1325(a) provides that the court shall approve a plan if certain standards303 are met. One of these is that of section 1325(a)(5), which states that as to each allowed secured claim provided for by the plan one of the following conditions should be met:

Consumer Bankruptcy Law and Practice: 9.3.1 Overview

The duration of the automatic stay can vary significantly depending upon the circumstances. Theoretically it can be ended almost immediately, if the circumstances require, by the court granting relief to affected parties.

Consumer Bankruptcy Law and Practice: 11.1 Introduction

One of the greatest advances for consumers under the Bankruptcy Code came in the powers they were given with respect to secured debts. Under the prior Bankruptcy Act, relatively little could be done to protect consumer debtors from the holders of secured claims. A straight bankruptcy generally did not affect the status of otherwise valid liens or security interests and, as a practical matter, few Chapter XIII plans could get very far with respect to secured claims unless the holders of those claims agreed to the plan or were not affected by it.