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Consumer Bankruptcy Law and Practice: 10.4.1 Exemption Planning
Section 522 of the Code provides many protections and powers in connection with debtors’ exemption rights.
Consumer Bankruptcy Law and Practice: 10.4.2.1 General Principles
One of the most far-reaching and exciting changes made by the Bankruptcy Reform Act was its grant to the debtor of the power to avoid many types of prebankruptcy transfers of exempt property. This set of powers, contained in section 522, opened up an entirely new area in which debtors can greatly expand upon the exemption rights given to them by state or federal law. Because this area was new, it was largely uncharted when the Code was enacted.
Consumer Bankruptcy Law and Practice: 11.2.2.1 Overview of the Process
A dispute concerning the amount of the allowed secured claim usually arises28 as an objection filed by the debtor after the creditor has filed its claim.29 The objection, filed under Bankruptcy Rule 3007, may be included in an adversary proceeding if it raises the validity or extent of the creditor’s lien.30 Therefore, any objection that includes a demand for relief of a kind listed in Bankruptcy Rule 7001 must be filed in the form of a complaint in an a
Consumer Bankruptcy Law and Practice: 11.2.2.2.3 Valuation date for real property
The Code does not set a valuation date for real property. Under the law prior to 2005, some courts, perhaps in the interest of simplicity, had chosen the filing date of the petition as the valuation date in all cases, on the theory that the parties’ rights are frozen as of that date in most other respects, and some courts maintain that approach.57 In many cases this approach could be to the debtor’s advantage, because the value of real estate usually tends to increase over time.
Consumer Bankruptcy Law and Practice: 11.2.2.3.2 Valuation of motor vehicles
Valuation issues arise most frequently, as they did in the Rash case, with respect to motor vehicles. Based upon Rash and section 506(a)(2), debtors should have little trouble in convincing bankruptcy courts that creditors should not receive the retail value listed in various industry price guides, because that value includes items such as warranties and reconditioning, precisely the items the Supreme Court held must be excluded from the value, and items that section 506(a)(2) excludes from value by requiring that the age and condition of the property be considered.
Consumer Bankruptcy Law and Practice: 11.5.2 Limitations on the Right to Redeem
Section 722 provides a simple procedure, within the chapter 7 case, for the debtor to remove a creditor’s lien by paying the creditor the real value of the property. There are several limitations on that right, however. It is available only to individual debtors, and only with respect to certain property and certain debts.
Consumer Bankruptcy Law and Practice: 11.6.1.2.2.3 Short-term and balloon payment mortgages
In a 1994 Code amendment Congress cut back significantly on the limitations on modification, and hence limited the Nobelman holding. Section 1322(c)(2) provides that notwithstanding section 1322(b)(2), in a case in which the last payment on the original payment schedule for a claim secured only by a mortgage on the debtor’s principal residence is due before the due date of the final plan payment, the plan may modify the creditor’s rights pursuant to Code section 1325(a)(5).
Consumer Bankruptcy Law and Practice: 11.6.1.2.2.6 Liens that are not security interests in real property
Finally, the limitation by its terms applies only when the claim is secured solely by a “security interest” in real property that is the debtor’s residence.
Consumer Bankruptcy Law and Practice: 11.6.1.2.3 Right to cure defaults is not impaired by section 1322(b)(2)
The limitation of section 1322(b)(2) does not apply to the debtor’s right to waive or cure a default on any secured claim, either under section 1322(b)(3) (for claims maturing before the end of the plan) or section 1322(b)(5) (for claims maturing after the end of the plan).
Consumer Bankruptcy Law and Practice: 11.6.1.3.2 Creditor acceptance of plan or debtor’s surrender of collateral
The first and third of these options are fairly simple. If the creditor consents to modification of its rights, by negotiated settlement or otherwise, there is no reason for the court to be concerned.
Consumer Bankruptcy Law and Practice: 11.6.1.3.3.5 Determination of allowed secured claim
Assuming that a secured claim is filed, it will be allowed in the amount requested unless an objection is raised or the amount is determined in the plan based on a request made under Rule 3012.360 If an objection is raised, the claim must then be determined and allowed or disallowed.
Consumer Bankruptcy Law and Practice: 11.6.1.3.3.6 Trustee’s fee and present value interest
Once the allowed secured claim has been determined, it is then necessary to compute what payments will equal the present value of that claim. In order to do this it is also necessary to know the amount of the trustee’s fees and expenses, if the claim is to be paid through the plan,376 and also the interest rate to be applied.
Consumer Bankruptcy Law and Practice: 11.6.1.3.3.7 Plans not complying with section 1325(a)(5) may be confirmed
A final question that arises as to section 1325(a)(5) is whether the court may, over a creditor’s objection, approve a plan providing for a secured claim that does not pay the amount set forth in section 1325(a)(5)(B). Although most courts seem to have assumed that payment of at least that amount is mandatory, the language of the section indicates otherwise. Unlike section 1322(a) which states that the plan must meet certain requirements, section 1325(a) states that the court shall confirm the plan if it meets certain standards and is silent as to plans that do not meet those standards.
Consumer Bankruptcy Law and Practice: 11.6.1.4 Different Rules for Secured Claims Described in Paragraph at End of Section 1325(a)
The 2005 amendments added language at the end of section 1325(a) that removes certain claims from the protections of section 1325(a)(5). This language, sometimes called the “hanging paragraph” because it is not numbered, states that for purposes of section 1325(a)(5), section 506 of the Code shall not apply to certain claims. The language appears to provide that those claims, therefore, cannot be determined to be allowed secured claims under section 506(a) and are not within the ambit of section 1325(a)(5).
Consumer Bankruptcy Law and Practice: 11.6.1.5 Voluntary Loan Modifications in Conjunction with Bankruptcy
The enormous foreclosure crisis that began in 2007 gave rise to a number of voluntary loan modification programs, including the Treasury Department’s Home Affordable Modification Program (HAMP).412 Although HAMP and all other Treasury foreclosure relief programs terminated at the end of 2016, applications submitted on or before December 30, 2016, continued to be reviewed after that date.413 Another National Consumer Law Center treatise provides a detailed discussion of issues related to the end
Consumer Bankruptcy Law and Practice: 11.6.1.6 COVID-Related Mortgage and Forbearance
Temporary amendments to the Code, enacted in response to the COVID-19 pandemic and now expired, were intended to deal with mortgages with respect to which the debtor had received forbearance or a loan modification on a federally-backed mortgage under 15 U.S.C.
Consumer Bankruptcy Law and Practice: 11.6.2.1 Generally
There are certain claims that the debtor cannot pay within the time period of the proposed plan, which can never exceed five years,438 simply because they are large long-term obligations that have many years of payments remaining before they are due to be fully satisfied. Section 1322(b)(5) allows the debtor to cure a default on such an obligation within a reasonable period of time without having to pay the entire debt balance within the time period of the plan.
Consumer Bankruptcy Law and Practice: 11.6.2.2 Cure of Mortgages After Acceleration or Foreclosure Judgment
Although a few early cases held otherwise, it is now well established that defaults on long-term debts such as mortgages may be cured under this section even if there has already been an acceleration or judgment that caused the entire balance to become due.459 Indeed, at least one state court has held that, because a confirmed plan deaccelerating a mortgage debt is binding on a creditor, if that creditor later gets relief from the automatic stay the creditor must begin its foreclosure anew by reaccelerating the debt.
Consumer Bankruptcy Law and Practice: 11.6.2.3 Cure of Mortgages That Mature Before the Bankruptcy Case or Before the End of the Plan
Section 1322(c) also makes clear that the time period for cure under section 1322(b)(3) may extend beyond the last scheduled payment date on the mortgage, as many courts had held,463 and overrules the result of those courts that had held otherwise.464 Notwithstanding the limitations of section 1322(b)(5), section 1322(c)(1) clearly permits cure of home mortgages under section 1322(b)(3) as well as under section 1322(b)(5), and section 1322(c)(2) permits modification of mortgages that mature befo
Consumer Bankruptcy Law and Practice: 11.6.2.4 Cure Permitted Even If Debtor Has No Personal Liability
A cure may also be effected under section 1322(b)(5) despite the fact that the debtor has no personal liability on the underlying obligation due to its discharge in a prior bankruptcy, as the creditor continues to have a claim, and a “claim against the debtor” is defined to include a claim against property of the debtor.466 Similarly, a debtor who has taken over payments on a mortgage when a property has been transferred to them, often as a result of a death or divorce, may cure despite the absence of personal liability on the original obliga
Consumer Bankruptcy Law and Practice: 11.6.2.5 Length of Time Permitted for Cure
The Code does not define what period of time is “reasonable” for the purpose of section 1322(b)(5).
Unfair and Deceptive Acts and Practices: 12.2.2 Private Cause of Action Issues in Delaware
One of Delaware’s two UDAP statutes, the Deceptive Trade Practices Act,44 explicitly provides a private injunctive remedy and treble damages, but the Delaware Supreme Court has held that these remedies are not available to retail consumers, but only to plaintiffs who have a business or trade interest at stake.45 However, it appears that older or disabled consumers may have a private cause of action for violation of this statute.46