BankruptcyProf Blog

Quoted in BusinessWeek

I am quoted by Karen Klein in her Smart Answers column for BusinessWeek.  The article can be accessed here.

New HAMP Guidelines

Hello all,

The Treasury Department released new HAMP guidelines last Wednesday; the guidelines include various new protections for borrowers facing foreclosure, as well as protections for borrowers in bankruptcy. The document is called "New HAMP Borrower Outreach and Communication Guidelines" and can be accessed here. See below a brief summary of the new HAMP bankruptcy guidelines.

Marisa H. Hawkins
Senior Staff Attorney, Public Counsel
Debtor Assistance Project &
Consumer Law Project

mhawkins@publiccounsel.org

From John Rao to the BK listserv on 3/26/2010:

Supplemental Directive 10-02 marks a significant change in Treasury's HAMP policy with respect to borrowers in bankruptcy. Treasury's initial policy as stated in SD 09-01 was that a borrower actively involved in a bankruptcy proceeding was eligible for HAMP "at the servicer's discretion." Many of us urged Treasury to change this policy, noting that servicer discretion has meant that borrowers in bankruptcy are often not considered for HAMP. After SD 10-02 takes effect on June 1, 2010, servicers will no longer be able to contend that their refusal to consider a HAMP modification was a proper exercise of discretion. Borrowers in an active chapter 7 or chapter 13 bankruptcy case must be considered for HAMP if the borrower,  borrower's counsel or bankruptcy trustee submits a request to the servicer. In addition, borrowers who are in a trial period plan and subsequently file for bankruptcy may not be denied a permanent HAMP modification on the basis of the bankruptcy filing.

SD 10-02 also requires the servicer and its counsel to work with the borrower or borrower's counsel to obtain any court or trustee approvals of the modification as required by local court rules and procedures. Some courts have required that a motion be filed seeking approval of a permanent modification, while others have  permitted approval to come from the trustee followed by the submission of an agreed order. SD 10-02 provides that if additional time is needed to obtain the necessary approvals, the servicer should extend the trial period plan for up to an additional two months (resulting in a total five-month trial period).

SD 10-02 also addresses the problem of servicers filing motions for relief from the stay and plan objections while the borrower is being considered for a HAMP modification. We had urged Treasury to prohibit this practice even before a trial plan is approved, as long as the borrower has been paying an amount equal to a greater than the anticipated trial plan payment. Although the policy adopted in SD 10-02 does not extend to the pre-trial plan period, it should help reduce unnecessary litigation costs for borrowers. SD 10-02 provides that if a borrower in a chapter 13 case is in a trial period plan and making post-petition mortgage payments as required by the trial period plan, a servicer must not object to confirmation of a borrower's plan, move for
relief from the automatic stay, or move for dismissal of the chapter 13 case on the basis that the borrower paid only the trial period plan payments rather than the scheduled mortgage payments.

SD 10-02 also restates the policy contained in SD 09-01 that borrowers who have received a chapter 7 discharge and did not reaffirm the mortgage debt are eligible for HAMP. As under the prior SD, the following language must be added to the modification agreement: "I was discharged in a Chapter 7 bankruptcy proceeding subsequent to the execution of the Loan Documents. Based on this representation, Lender agrees that I will not have personal liability on the debt pursuant to this Agreement."

Several other suggestions from consumer advocates and chapter 13 trustees were adopted in part by Treasury:

Substitution of Income Documents - For borrowers in bankruptcy, the servicer may accept copies of the bankruptcy schedules and tax returns filed in the case in lieu of the RMA and Form 4506T-EZ, and may use this information to determine eligibility. If the schedules are more than 90 days old, the borrower must provide updated evidence of income. Borrowers must still provide a Hardship Affidavit (or RMA).

Waiver of Trial Period Plan - Borrowers in a chapter 13 case who are determined eligible for HAMP may be converted to a permanent modification without completing a trial period plan if:

* The borrower makes all post-petition payments on the mortgage to be modified and at least three of those payments are equal to or greater than the proposed modified payment;
* The modification is approved by the bankruptcy court, if required; and
* The trial period plan waiver is permitted by the applicable investor guidelines.

Waivers under this policy will not begin until "system capability" and reporting issues have been worked out by Treasury. Moreover, the effectiveness of this policy change is uncertain because SD 10-02 gives servicers discretion to grant these waivers and servicers may also contend that investor guidelines prohibit such waivers.

John Rao
Staff Attorney
National Consumer Law Center(r)
7 Winthrop Square, 4th Floor
Boston, MA 02110

www.nclc.org

Supreme Court Considering Cert in Ransom

Scotusblog has listed the Ransom cert petition being considered to day in the Supreme Court's private conference as a "petition to watch."

Title: Ransom v. MBNA, America Bank
Docket: 09-907
Issue: Whether, in calculating the debtor’s “projected disposable income” during the plan period, the bankruptcy court may allow an ownership cost deduction for vehicles only if the debtor is actually making payments on the vehicles.

•Opinion below (9th Circuit)

Bankruptcy Program at Widener Law

Rethinking Bankruptcy Law in the Aftermath of a Financial Crisis
Lecturer: Melissa B. Jacoby

The John Gedid Lecture Series sponsored by Aspen Publishers
Tuesday, April 6, 2010-4:30 p.m.
Widener University School of Law
Law & Government Institute
Harrisburg Campus

For more information contact: Sandy Graeff at 717-541.3965 or slgraeff@widener.edu.  You can access more information here. 

Nice Article on Elizabeth Warren

You can access the NY Times article here.

Circuit Court of Appeals Cases from Last Week

Supreme Court, March 23, 2010
United Student Aid Funds, Inc. v. Espinosa, --- U.S. ---- (2010)(Order confirming chapter 13 plan cannot be attacked years later even though it contained improper provision discharging student loans - lender had sufficient notice)

2nd Circuit Court of Appeals, March 22, 2010
In re Johns-Manville Corp., --- F.3d ---, 2010 WL ------- (2nd Cir 2010)(objector-insurer not given constitutionally sufficient notice of the bankruptcy court's 1986 orders, so that due process absolved it from following them, whatever their scope)

2nd Circuit Court of Appeals, March 26, 2010
In re WestPoint Stevens, Inc., --- F.3d ---, 2010 WL ------- (2nd Cir 2010)(chapter 11 plan affirmed in part and reversed in part re distribution of securities but court of appeals lacks jurisdiction to review the sale order unless a stay had been entered or there was a challenge to the "good faith" aspect of the sale; and 2) in withdrawing the motion for "a stay of the closing of the sale," the parties' stay stipulation permitted the transfer of assets and the lien release, claim satisfaction, and distribution to occur as a single integrated transaction)

3rd Circuit Court of Appeals, March 22, 2010
In re Philadelphia Newspapers, LLC. , --- F.3d ---, 2010 WL ------- (3rd Cir 2010)(proposed bid procedure is affirmed as section 1129(b)(2)(A) unambiguously permits a debtor to proceed with any plan that provides secured lenders with the "indubitable equivalent" of their secured interest in the asset and contains no statutory right to credit bidding)

6th Circuit Court of Appeals, March 24, 2010
In re Westfall, --- F.3d ---, 2010 WL ------- (6th Cir 2010)(negative equity qualifies for protection from cramdown under the hanging paragraph of 11 U.S.C. section 1325(a) because negative equity financing constitutes a purchase money obligation under the UCC and thus the associated security interest satisfies the UCC's definition of a purchase money security interest)

7th Circuit Court of Appeals, March 25, 2010
Ojeda v. Goldberg, --- F.3d ---, 2010 WL ------- (7th Cir 2010)(bankruptcy court reversed where: 1) it clearly erred in finding that the creditor was unjustified in relying on the debtors' misrepresentations about the asserted continued ownership of McDonald's restaurants and by finding that the creditor did not establish a claim for fraudulently induced forbearance; and 2) the bankruptcy court committed an error of law in finding that only the unpaid interest and attorney's fees were non-dischargeable)

9th Circuit Court of Appeals, March 22, 2010
In re Marshall, --- F.3d ---, 2010 WL ------- (9th Cir 2010)(In an action based on defendant's purported tortious interference with a substantial inter vivos gift that plaintiff's late husband intended to give to her, judgment for plaintiff is reversed where a prior Texas probate court judgment should have been afforded preclusive effect because it was the earliest final judgment on matters relevant to the proceeding)

9th Circuit Court of Appeals, March 22, 2010
In re Taylor, --- F.3d ---, 2010 WL ------- (9th Cir 2010)(bankruptcy court reversed where court's determination of the value of the security interest in vehicle was clearly erroneous, because there was no evidence to support the finding that the value of the security interest equaled the amount of the original loan at the time the bank perfected its security interest)

D.C. Circuit Court of Appeals, March 26, 2010
Burns v. George Basilikas Trust, --- F.3d ---, 2010 WL ------- (D.C. Cir 2010)(Rule 9011(b)(2) sanctions reversed where requesting counseling from an unapproved credit counseling agency could satisfy 11 U.S.C. section 109(h)(3), and thus counsel did not violate that statute)

Thanks to Findlaw.com