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Bankruptcy and Cram Down Legislation

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Bankruptcy and Cram Down Legislation

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    1. Bankruptcy and Cram Down Legislation May 4, 2009 3:00 p.m. to 4:15 p.m. Patricia Antonelli, Esquire Partridge Snow & Hahn LLP

    2. Bankruptcy Overview Chapter 7 liquidation Chapter 13 individual wage earner Chapter 11 individual or business reorganization

    3. Bankruptcy Overview Cram downs will be done in Chapter 13 Chapter 11 cases are too costly for homeowners All Chapter 13 cases have a Standing Chapter 13 Trustee

    4. Bankruptcy Overview 3 to 5-year Chapter 13 plan Dividend to unsecured creditors Payments to secured creditors direct or from Trustee depending on jurisdiction

    5. Chapter 13 Best Practices For Trustees and Mortgage Servicers Reasonableness of fees and costs Servicers must provide contact for borrowers Better tracking of post-petition payments Info required on Trustee checks Required notices of payment changes and charges

    6. Mortgage Modifications – Currently Known as “cram downs” or “lienstripping” Always allowed for commercial loans, vacation and rental property loans, vehicle and equipment loans

    7. Mortgage Modifications Allowed where property is principal residence of borrower and property brings in income Chapter 12, 13 and 11 cases New legislation is very different

    8. Mortgage Modifications Procedure is “determination of allowed secured claim” Bifurcate secured creditor’s claim into secured and unsecured claims Valuation hearing for collateral

    9. Mortgage Modifications Lots of litigation on whether property is solely the borrower’s principal residence Look for collateral producing income or some other collateral for the loan

    10. Mortgage Modifications Wholly unsecured claims can be stripped off even on principal residences Short term mortgages and almost matured mortgages Determination of interest rate on modified mortgage to account for risky borrower

    11. Mortgage Modifications Chapter 13 modifications must be paid off in plan term (5 years) unless arrearage will be cured and regular payments made – term will just be shortened Alternative is to pay allowed secured claim in 5 years Balloon payments are no longer allowed after BAPCPA changes to §1325(a)(5)

    12. Mortgage Modifications Traps for servicers Servicers must maintain two sets of records in case borrower defaults Borrower can refinance or sell creating windfall

    13. Mortgage Modifications Typically done by adversary proceeding or motion New local bankruptcy rules allow modification by Chapter 13 plan

    14. Questions

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