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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: D.1.1 Introduction

This Appendix provides guidance in completing the Official Bankruptcy Forms relevant to consumer bankruptcies, in effect as of July 2023. Practitioners should also check whether their local bankruptcy courts have altered the Official Forms.

Consumer Bankruptcy Law and Practice: How to Use the Completed Forms

Reprinted below are the initial forms required to institute a bankruptcy case, including all form changes through July 2023. The forms have been completed for a sample chapter 7 bankruptcy. The completed forms are based upon the fact pattern described below. The completed forms are annotated to offer additional information.

Consumer Bankruptcy Law and Practice: Schedule C

Schedule C is a list of the debtor’s exemptions. All possible good faith exemptions should be listed, because if no party in interest files a timely objection, the exemptions will be allowed as listed. See § 10.3.4, supra. The goal, if possible, is to list all of the debtor’s property as exempt.

Consumer Bankruptcy Law and Practice: How to Use the Completed Forms

Reprinted below are the initial forms required to institute a chapter 13 bankruptcy case, including all form changes through July 2025, completed for a sample bankruptcy. The completed forms are based upon the fact pattern described below. The completed forms are annotated to offer additional information as to how to complete the forms.

Consumer Bankruptcy Law and Practice: 2022-04 Staff Notation

The CARES Act changes Official Forms 122A-1, 122B, and 122C-1 described in the 2020-04 Committee Note lapsed on March 27, 2022. The three forms have reverted to their pre-CARES Act versions (December 2019 in the case of 122A-1, October 2019 as amended in December 2021 in the case of 122B, and October 2019 in the case of 122C-1). In addition, the dollar amounts listed in lines 29 and 40 of 122A-2, and line 29 of 122C-2 are adjusted effective April 1, 2022, as part of the tri-annual dollar adjustments required by 11 U.S.C. § 104.

Consumer Bankruptcy Law and Practice: 2021-12 Committee Note

Official Form 122B is amended in response to the enactment of the Small Business Reorganization Act of 2019, Pub. L. No. 116-54, 133 Stat. 1079. That law gives a small business debtor the option of electing to be a debtor under subchapter V of chapter 11. As amended, the initial instruction in the form includes an exception for subchapter V cases. Because Code § 1129(a)(15) is inapplicable to such cases, there is no need for an individual debtor in a subchapter V case to file a statement of current monthly income.

Consumer Bankruptcy Law and Practice: 2023 Advisory Committee Note on Form 410A

Part 3 of Form 410A is amended to provide for separate itemization of principal due and interest due. Because under § 1322(e) the amount necessary to cure a default is “determined in accordance with the underlying agreement and applicable nonbankruptcy law,” it may be necessary for a debtor who is curing arrearages under § 1325(a)(5) to know which portion of the total arrearages is principal and which is interest.

Home Foreclosures: 9.4.1 Generally

At some point after default, some homeowners resolve their financial problems and are able to resume making their monthly mortgage payments. Others may be able to reprioritize their debts and ongoing expenses in order to free up sufficient funds to make payments. However, a big hurdle for low- and moderate-income homeowners is that most cannot afford to pay their accumulated mortgage arrears in a lump sum.

Home Foreclosures: 9.4.1b Debtor May Cure Even If No Personal Liability

An owner that is not personally liable on the loan note generally has the right to cure a default on the property under section 1322(b)(5). This is because the creditor continues to have a claim, and a “claim against the debtor” is defined to include a claim against property of the debtor.266 This issue arises when property is transferred from the person who obtained the mortgage to another person that files bankruptcy.

Home Foreclosures: 9.4.2.2 Postforeclosure Sale Rights of Redemption

Courts had held in cases decided before the 1994 enactment of section 1322(c)(1) that a debtor may cure a default or pay off the balance owed on a mortgage in bankruptcy even after a completed foreclosure auction, when there is a state law unexpired right of redemption.276 Under those precedents, state law postforeclosure redemption rights come into the debtors’ bankruptcy estate.

Federal Deception Law: 4.2.2.7a Application to Loan Brokers

The FTC Holder Rule gives the consumer rights against the entity holding the credit agreement. Loan brokers do not hold the credit agreement and are generally not subject to liability under the Holder Rule.82 Fraudulent entities seeking to escape liability under the Holder Rule may therefore set up a scheme whereby they provide sellers with referrals to lenders willing to offer financing for seller’s transactions with consumers.

Federal Deception Law: 4.3.5.2 The California Supreme Court’s Reasoning As to Why Attorney Fees Are Not Capped

Pulliam v. HNL Automotive Inc.,164 is the most recent—and now leading—case on whether the FTC Holder Rule caps attorney fees. The California Supreme Court’s 2022 decision sets out a lengthy, well-reasoned analysis as to why fees awarded against a creditor are not capped. The only exception the court found was when the fees are awarded against the seller and the consumer seeks to recover those fees from the creditor.

Federal Deception Law: 4.3.7 Other Remedies

Consumers typically utilize the FTC Holder Rule language to seek damages from the holder, but a consumer’s remedies are not limited to damages. Consumers can seek all claims against the holder that a consumer could assert against the seller.

Federal Deception Law: 4.4.4.2 Holder’s Actions As a Deceptive Practice

When a creditor’s promissory note violates the FTC Holder Rule, the creditor is engaging in a deceptive practice. As one court put it, the creditor engages in “fraudulent conduct which creates a likelihood of confusion or misunderstanding” since the “FTC Regulation preserving defenses serves to eliminate confusion and misunderstanding created through an artificial bifurcation of a transaction by an installment seller in an effort to insulate the duty to pay from the duty to perform.”275

Student Loan Law: 15.4.2.3.9 Debtors should be familiar with their own servicing history and long-term income-driven repayment plan options

Advocates need to be familiar with the status of the borrower’s student loan accounts in order to respond to creditor arguments focused on long-term income-driven repayment (IDR) plans. The Department’s National Student Loan Data System (NSLDS) provides information about the current payment status for all federal loans.494 In addition, the Department’s Loan Simulator tool allows assessment of specific repayment options for a borrower with federal loans.495