Bankruptcy 101

1. Bankruptcy 101 Click Start to begin the course. Confidential and Proprietary - For Internal Use Only - © 2012 Bank of America

2. This course and its contents (generally, the “Training Materials”) are the property of Bank of America. • Participation in training involving or which makes use of the Training Materials does NOT create an employer / employee relationship between you and Bank of America. If you are a contractor on assignment at Bank of America, or an employee of a joint venture in which Bank of America is a participant, and you are invited to participate in training which involves the use of the Training Materials, such training is being delivered to you either by the Company or by your employer because this training and the Training Materials are unique, specialized and essential to your ability to complete your assignment successfully and to enable you to perform work on assignment at Bank of America. Without Bank of America’s collaboration in delivering this training and making the Training Materials available to you, your employer would not have been able to deliver to you this unique and specialized training deemed necessary and essential for your work. • No part of these Training Materials is authorized for distribution outside of the Bank of America. • The Training Materials are intended solely to be used for the specific training purposes described. • Bank of America reserves the right to monitor all use of the Training Materials. • The substantive content contained in these Training Materials is subject to revision at any time. • Note: The information in this course has been designed for associates of Bank of America. There are some references to policies in this course that do not apply to joint venture associates. If you are a joint venture associate, be sure to follow your policies and procedures as outlined in your company’s guidelines and as instructed by your venture manager. • The information provided in this training is intended to help you understand the Company’s policies and procedures.  It is not, however, a substitute for a clear understanding of those policies and procedures.  You should fully familiarize yourself with these policies and procedures as they pertain to your employment and your role at the Company or to your assignment at the Company as a contractor.  The Company reserves its full discretion to change or modify its policies and procedures, or to adopt / implement new policies as its business needs require. • Contingent Workers Training Materials Disclaimer

3. Welcome . 1. Set Up 2. Proof of Claim 4. Motion for Relief 3. Case Maintenance 5. Closing Validation

4. Welcome • Main Menu The Bankruptcy 101 course includes the chapters below, which must be completed in order. You are required to complete an assessment at the end of this course to demonstrate your knowledge on the topics. You must achieve a score of 80% or higher to receive completion credit. Click the next available chapter to view. Welcome What is Bankruptcy? How Does a Typical Filing Flow? Activity: Jeopardy Where Does Your Role Fit in the Bigger Picture? Course Summary Bankruptcy Process Map

5. Introduction • Learning Objectives • Upon completion of this self-paced training, you should be able to: • Discuss how U.S. Federal law influences bankruptcy proceedings. • Identify the Federal Rules of Bankruptcy. • Explain the role of the U.S Department of Justice (DOJ) and the significance of the Office of the Comptroller of the Currency (OCC). • Recognize and define a selection of current vocabulary used within the bankruptcy industry. • Characterize the types of serviced loans at Bank of America. • Summarize characteristics of chapter 7, 11, 12 and 13 bankruptcies. • Explain the end-to-end bankruptcy process at a high level. • Describe the main divisions of bankruptcy activity within the organization. • Distinguish key milestones within the high-level bankruptcy process flow. • Identify where to efficiently find bankruptcy-specific job aids.

6. What is Bankruptcy? • What is Bankruptcy?

7. What is Bankruptcy? • The Who, What, Why, Where and When of Bankruptcy What happens when bankruptcy begins? Who participates? Click each tab to learn more about the why, when and where of bankruptcy proceedings: Bankruptcy is a complex, technical area of federal law which applies to individuals or businesses unable to pay their bills. Federal courts have exclusive jurisdiction over bankruptcy cases. This means a bankruptcy case cannot be filed in a state court.

8. What is Bankruptcy? • What is bankruptcy? What happens when bankruptcy begins? Who participates? Click each tab to learn more about the why, when and where of bankruptcy proceedings: A bankruptcy petition may be filed by an individual, by a husband and wife together, or by a corporation or other entity. The parties owing debts which they are unable to pay are the debtors. Parties who have claim to the debtor’s assets are creditors. A trustee is appointed to oversee each case, with differing roles depending on which kind of bankruptcy is filed. Generally a trustee represents the creditors, and helps administer the process. Attorneysare needed to file, schedule, record, amend, order and complete required legal materials. A debtor's involvement with the bankruptcy judge is usually very limited. A typical debtor will not appear in court and will not see the bankruptcy judge unless an objection is raised or a plan confirmation hearing is necessary.

9. What is Bankruptcy? • What is bankruptcy? What happens when bankruptcy begins? Who participates? Click each tab to learn more about the why, when and where of bankruptcy proceedings: Bankruptcy allows citizens of the United States who are burdened with excessive debt to shed those debts and get a fresh financial start by repaying creditors in an orderly manner.

10. What is Bankruptcy? • What is bankruptcy? What happens when bankruptcy begins? Who participates? Click each tab to learn more about the why, when and where of bankruptcy proceedings:  ”The decision on whether or when to file bankruptcy can only be made by the debtor and their attorney. Advice on the timing and necessity (or lack thereof) of a bankruptcy may constitute legal advice which could be deemed to be the unauthorized practice of law and be actionable by State authorities.” ~from The Department of Justice’s Frequently Asked Questions on Credit Counseling

11. What is Bankruptcy? • What is bankruptcy? What happens when bankruptcy begins? Who participates? Click each tab to learn more about the why, when and where of bankruptcy proceedings: There are a total of 94 bankruptcy courts in the US including territories.  Much of the bankruptcy process is administrative and is conducted away from the courthouse. Usually, the only formal proceeding at which a debtor must appear is the meeting of creditors, often held at the offices of the U.S. trustee. This meeting is informally called a "341 meeting" because section 341 of the Bankruptcy Code requires that the debtor attend this meeting so that creditors can ask questions about debts and property.

12. What is Bankruptcy? • Knowledge Check - U. S. Bankruptcy Vocabulary • Do you recognize these current terms used within the bankruptcy industry? • Drag the correct term to the matching definition

13. What is Bankruptcy? • History of Bankruptcy Modern bankruptcy law has been formed from a number of distinct historical strands. Roman Law In ancient Roman law, an unpaid creditor could have the debtor’s estate sequestered and sold for the benefit of all creditors. Proceedings of this type caused loss of civil rights. To alleviate this hardship a debtor was given the privilege of relinquishing voluntarily his assets to his creditors by petitioning a magistrate. Middle Ages ~from "History of Bankruptcy Law"

14. What is Bankruptcy? • History of Bankruptcy Modern bankruptcy law has been formed from a number of distinct historical strands. Roman Law The Middle Ages During the Middle Ages, medieval cities enacted statutes dealing with the assets of debtors, especially merchants who had absconded or caused insolvency. Such bankrupts were subject to severe penalties and their estates were liquidated. The SietePartidas, published during the 13th century, contained detailed provisions relating to insolvent debtors, enabling voluntary liquidation of assets under judicial supervision. An unpaid creditor could insist on either payment or assignment of his estate by the debtor to all creditors. Middle Ages ~from "History of Bankruptcy Law"

15. What is Bankruptcy? • History of Bankruptcy Modern bankruptcy law has been formed from a number of distinct historical strands. Roman Law The Middle Ages Middle Ages European Law Laws modeled after the statutes of the medieval cities spread throughout Europe. Charles V of Flanders inserted provisions for bankruptcies in his Decree for the Administration of Justice and Good Order of 1531. The English “acteagainstesuchepersones as doo make Bankrupte,” passed in 1542 governed proceedings instituted against absconding or concealed debtors. Voluntary proceedings were not provided in England until 1844 and not in the United States until 1841. ~from "History of Bankruptcy Law"

16. What is Bankruptcy? • History of Bankruptcy Modern bankruptcy law has been formed from a number of distinct historical strands. Roman Law In 1787, the power of the federal government to establish uniform laws on bankruptcies was adopted into the Constitution as the Bankruptcy Clause. These bankruptcy powers remained largely unexercised by the federal government until 1800, when Congress enacted the first federal bankruptcy law. During the Civil War, the debate on the Bankruptcy Act of 1867 was conducted along the Mason-Dixon line, with the northern states seeking passage, and the southern states expressing opposition. Permanent federal bankruptcy legislation arrived with the Bankruptcy Act of 1891. The Bankruptcy Reform Act of 1978 repealed the Bankruptcy Act of 1891. When the current Bankruptcy Code was passed in 1978, it became the first such statute to be passed in Congress that was not in a direct response to a financial crisis or panic. The Middle Ages Middle Ages European Law US Bankruptcy ~from "History of Bankruptcy Law"

17. What is Bankruptcy? • Knowledge Check • Select a single response, and then click the Submit button to check your response. • The power of the US federal government to establish uniform laws on bankruptcies • was adopted into the Constitution as the • Bankruptcy Reform Act of 1978 • Bankruptcy Clause • Bankruptcy Act of 1891 • Chandler Act of 1938 Correct Answer: Option 2 (Bankruptcy Clause) Correct feedback: That's correct. The correct answer is the Bankruptcy Clause. Incorrect feedback: That's not correct. The correct answer is the Bankruptcy Clause.

18. What is Bankruptcy? • U. S. Federal Bankruptcy Law

19. What is Bankruptcy? • U. S. Federal Bankruptcy Law • How does U.S. Federal bankruptcy law influence proceedings at Bank of America? • Bank process is established by Federal law. • The Bank follows specific legal requirements, all of which are established by Federal Law. Click to learn about five bankruptcy issues all associates must understand: Five bankruptcy issues all associates must understand: • The bank can’t collect when an Automatic Stay is in place. • Creditors can’t take action on cases until a Proof of Claim has been filed. • The bank can’t foreclose on a debtor’s property during a bankruptcy without a Motion For Relief From Stay. • There are complex rules relating to escrow that have a large impact on collection. • The manner in which payments are made is critical to resolving cases successfully. The Bank also works with various Federal entities throughout the bankruptcy process. Click Next to learn about a few of them:

20. What is Bankruptcy? U. S. Federal Bankruptcy Law DOJ Settlement Requirements Federal Rules • As part of the DOJ settlement, servicing standards were established which impact Bankruptcy, requiring remediation through the enhancement or development of processes (being assisted by Change Management) • Servicing standards for Bankruptcy are listed in the Appendix Supplements to the POC Proof of Claim (POC) Payment Change Notification (PCN) Post-Petition Fee Notice (PPFN) Cure Statement • Establishes cure amount for default as of the petition date • All foreclosure or other default fees prior to the petition date must be included in the POC or waived • All pre-petition escrow claims must be included in the POC • The Bank must send out and file advance notifications of payment changes, at least 21 days ahead of the date of change in all jurisdictions (must be communicated to all impacted and with the court) • A PCN is required to be filed for any escrow, interest rate or other change in the monthly payment • A PCN for an escrow change is based on the annual post-petition escrow analysis which requires manual intervention to avoid double-charging escrow amounts included in POC • The Bank must be able to identify and address PCNs it fails to file (manual, ad-hoc process) • A PPFN is required to be filed within 180 days of thedate the fee was incurred • The PPFN must account for applicable state and bankruptcy law, limiting fees owed by borrower (partly automated/ partly reliant on local counsel advice) • The Bank must be able to identify and address PPFNs it fails to file or fees disallowed by the court (manual, ad-hoc process) • 30 days after the payment plan’s completion date, the trustee or debtor may serve on the Bank a notice stating that all amounts owed under the plan have been paid. The Bank must respond within 21 days to the trustee, debtor’s attorney, and debtor. • Determination of whether debtor made all cure payments due under the Plan and is post-petition current • Manually track cure payments to pre-petition arrears Manually track post-petition payments to post-petition obligations • Need to manually audit for escrow shortage; escrow error; post-petition fees unpaid; post-petition fees disallowed; PPFN/ PCN notice failures

21. What is Bankruptcy? • How does US Federal law influence bankruptcy proceedings at Bank of America? • The Bank works with various Federal entities, and follows specific legal requirements established by US Federal Law. • In order to better understand these requirements, click each term to review, or click Next to continue. The most relevant way the DOJ participates in the bankruptcy process is through the appointment of trustees. The DOJ United States Trustee Program consists of 21 regional U.S. Trustee Offices nationwide and an Executive Office for U.S. Trustees (EOUST) in Washington, DC.  EOUST ensures that proceedings progress as they should and that law is being followed. If issues arise, objections are raised, specifically in instances where the bank has played a part.

22. What is Bankruptcy? • How does US Federal law influence bankruptcy proceedings at Bank of America? • The Bank follows specific legal requirements established by US Federal Law. • In order to better understand these requirements, click each term to review, or click Next to continue. Bank of America entered into a settlement in 2012 with the U.S. Department of Justice and State Attorneys General which requires the Bank to establish a primary point of contact: This is where various government agencies (including the U.S. Trustees) bring questions about complaints or inquiries from individual borrowers in default or those who have applied for a loan modification.. ECR will be responsible for responding to complaints from, all government “watchdogs” responsible for monitoring bankruptcy cases. .

23. What is Bankruptcy? • How does US Federal law influence bankruptcy proceedings at Bank of America? • The Bank follows specific legal requirements established by US Federal Law. • In order to better understand these requirements, click each term to review, or click Next to continue. The Office of the Comptroller of the Currency (OCC) does not play a specific, assigned role in the daily bankruptcy proceedings at Bank of America but it does seek to ensure that banks’ actions are compliant with the law. The OCC does this by examining business operations through on-site examinations. If issues are detected, the OCC can and will take regulatory action, if required.

24. What is Bankruptcy? • How does US Federal law influence bankruptcy proceedings at Bank of America? • The Bank follows specific legal requirements established by US Federal Law. • In order to better understand these requirements, click each term to review, or click Next to continue. The United States Code contains the permanent laws of the US. It is divided by broad subjects into 51 titles and was first published in 1926. Title 11 of the US Code details the existing federal laws related to bankruptcy. The complete text of Title 11 is available from the U.S. House of Representatives site.

25. What is Bankruptcy? • How does US Federal law influence bankruptcy proceedings at Bank of America? • The Bank follows specific legal requirements established by US Federal Law. • In order to better understand these requirements, click each term to review, or click Next to continue. The procedural aspects of the bankruptcy process are governed by the Federal Rules of Bankruptcy Procedure . Often called the "Bankruptcy Rules“, this document contains a set of official forms for use in bankruptcy cases, and sets forth the formal legal procedures for dealing with the debt problems of individuals and businesses.

26. What is Bankruptcy? • How does US Federal law influence bankruptcy proceedings at Bank of America? • The Bank follows specific legal requirements established by US Federal Law. • In order to better understand these requirements, click each term to review, or click Next to continue. There are 94 bankruptcy districts across the country. .Each district has a bankruptcy court and each court generally has their own clerk's offices, functioning under a set of local rules. Here are some examples of local rules of bankruptcy from various US district courts: Northern District of California: Eastern District of Virginia District of Wyoming District of Hawaii

27. What is Bankruptcy? • Knowledge Check • Select a single response, and then click the Submit button to check your response. • The procedural aspects of the bankruptcy process in the US are governed by a set of official federal government forms. • The document which contains these forms is called the • Motion For Relief From Stay • Federal Rules of Bankruptcy Procedure • DOJ Settlement • Bankruptcy Act of 1891 • Correct Answer: Option 2 (Federal Rules of Bankruptcy Procedure) • Correct feedback: That's correct. The correct answer is the Federal Rules of Bankruptcy Procedure. This document is often simply called the "Bankruptcy Rules“. • Incorrect feedback: That's not correct. The correct answer is the Federal Rules of Bankruptcy Procedure. This document is often simply called the "Bankruptcy Rules“.

28. What is Bankruptcy? • Which Loan Types • Does Bankruptcy Service?

29. What is Bankruptcy? Which Loan Types Does Bankruptcy Service? Click on each image to learn about the four main loan types serviced by the Bankruptcy organization:

30. What is Bankruptcy? • Knowledge Check - Which Loans Types Does Bank of America Service? • Do you recognize these loan types currently being serviced by the bankruptcy organization? • Drag the loan type to the matching description.

31. What is Bankruptcy? • Types of Bankruptcy

32. What is Bankruptcy? • Types of Individual Bankruptcy Cases: Click each folder to learn more about bankruptcy cases filed by individuals Liquidation Chapter 7 Reorganization Chapter 11 Debt Adjustment Chapter 13 Family Farners/Fishermen Chapter 12 Which types of bankruptcy cases are filed by an individual debtor? • Chapter 7 : Liquidation • Chapter 11: Business Reorganization • Chapter 13 : Debt-Adjustment Plan • for Individual with Regular Income • Chapter 12: Family Farmers Fisherman

33. What is Bankruptcy? • Types of Individual Bankruptcy Cases: Click each folder to learn more about bankruptcy cases filed by individuals • A debtor who files a Chapter 7 bankruptcy (liquidation) essentially turns over all non-exempt assets to the Chapter 7 trustee. The trustee liquidates the assets and distributes them to the creditors. • The Chapter 7 trustee will investigate whether there are assets with value in excess of liens that could be sold to fund the payment of unsecured creditor claims • The large majority of Chapter 7 cases are “no asset” cases with no distribution to unsecured creditors. Typically, a chapter 7 debtor is surrendering a house which has negative equity. In such cases, the mortgage servicer usually files a motion for relief from stay in order to foreclose on the house . Alternatively, a servicer can wait until the end of the case, when the stay expires, and then foreclose. If a chapter 7 debtor wants to keep the house, the bankruptcy court must approve, before discharge, any reaffirmation of the mortgage debt (in which the reaffirmed debt is not discharged). More commonly, debtors simply continue paying the mortgage without electing to reaffirm; if they later default, the home can be foreclosed, but the debtor will be discharged from personal liability.

34. What is Bankruptcy? • Types of Individual Bankruptcy Cases: Click each folder to learn more about bankruptcy cases filed by individuals Chapter 11 is generally used for reorganization, and is often the form of bankruptcy filed by a corporation or partnership. However, individuals and small businesses can seek relief in chapter 11 as well. A Chapter 11 debtor usually proposes a plan of reorganization to keep a business alive and then pays creditors over time. Chapter 11 is the most complicated type of bankruptcy, and can take months or years to complete. Due to high Unpaid Principal Balances, many homeowners are forced to use Chapter 11. Individuals who live in states with high property values may be forced to use Chapter 11 because their property is worth more than the allowed limits of a Chapter 13 case. Let’s look more closely at what those Chapter 13 requirements are:

35. What is Bankruptcy? • Types of Individual Bankruptcy Cases: Click each folder to learn more about bankruptcy cases filed by individuals Chapter 13 allows an individual who has a regular income to keep assets and repay debts over 3 to 5 years. If the debtor completes the repayment plan, they obtain a discharge. The debtor’s discharge generally will not apply to mortgage debt . • The mortgage holder files a proof of claim showing the total payoff amount and any arrearages owed. • The debtor’s Chapter 13 plan can’t modify the rights of a mortgage holder to the debtor’s principal residence, except that the plan may provide for “cure” payments of the arrearages over 3-5 years. • Chapter 13 trustees receive the “cure” payments from the debtor during the bankruptcy and distribute funds to creditors. • During the bankruptcy, the mortgage holder provides notice of any post-bankruptcy fees, any payment change, or any escrow shortage to the debtor • An act to collect amounts that accrued during the bankruptcy and were not disclosed to the chapter 13 trustee or court may be alleged to violate the “fresh start” principle underlying chapter 13.

36. What is Bankruptcy? • Special Bankruptcy Cases: What is Chapter 12 Bankruptcy? SPECIAL CASES: CHAPTER 12: Chapter 12 enables financially distressed family farmers and fishermen to propose a repayment plan making installments to creditors over three to five years. Generally, the plan must provide for payments over three years unless the court approves a longer period "for cause.“ In no case may a plan provide for payments over a period longer than five years. Debt-Adjustment Plan for Family Farmers or Family Fisherman

37. What is Bankruptcy? • What Are the Differences Between Chapter 7, 11 and 13 cases? Chapter 7 Chapter 11 • Chapter 7: • Approximately 38% of Bank of America cases • Debtor’s assets are sold now • Trustee distributes proceeds to creditors now • Debtor’s mortgage can be reaffirmed Chapter 13 Chapter 12

38. What is Bankruptcy? • What Are the Differences Between Chapter 7, 11 and 13 cases? • Chapter 7: • Approximately 38% of Bank of America cases • Debtor’s assets are sold now • Trustee distributes proceeds to creditors now • Debtor’s mortgage can be reaffirmed Chapter 13: Approximately 60% of Bank of America cases • Debt is repaid over 3-5 years • If mortgage payments are made during the repayment period, debtor may keep their home. • Chapter 11: • Often used to reorganize businesses • Future assets can be used to repay debt • Most complicated bankruptcy type WHAT ARE THE CHALLENGES? The servicing of the debtor’s loan during the repayment period in Chapter 13 cases is an operational challenge, and is a key subject of the DOJ Settlement.

39. What is Bankruptcy? • Knowledge Check – Four Most Common Types of Bankrptcy • Bankruptcy cases are divided into four main groups. Can you tell which is which? • Drag the correct term to the matching definition

40. Main Menu Chapters must be completed in order. Click the next available chapter to view. Welcome What is Bankruptcy? How Does a Typical Filing Flow? Activity: Jeopardy Where Does Your Role Fit in the Bigger Picture? Course Summary Bankruptcy Process Map

41. How Does A Typical Filing Flow?

42. How Does a Typical Filing Flow? • How Doea a Bankruptcy Case Begin and End? A bankruptcy case is completed when the debtor has obtained (or been denied) a discharge and all assets have been distributed to creditors. Such a case is now “closed” A bankruptcy case begins when a “petition” is filed with the bankruptcy court under the applicable chapter. A bankruptcy case may be “converted” from one chapter to another under certain circumstances. For instance, Chapter 13 cases can be converted to Chapter 7 cases. If the debtor fails to comply with obligations under law, a case may be dismissed . The automatic stay ceases to apply and all parties return to the position they were in before bankruptcy. Pre-petition and post-petition refer to debts or events arising before, or after, the petition filing.

43. How Does a Typical Filing Flow? • Bankruptcy Process Flow: Basic Steps Typical bankruptcy cases generally go through five stages. Later in this course, you will explore a Process Map that will provide more detail. Here is a brief overview of the five typical bankruptcy process areas you should recognize. • The Set Up team collects: • Date bankruptcy was filed • Who filed bankruptcy • Which chapter was filed • Bankruptcy case number • District and state filed in • Attorney’s name, phone number and address • When a loan is identified as bankruptcy, a Warning Code 3 is placed on the account.

44. How Does a Typical Filing Flow? • Bankruptcy Process Flow: Basic Steps Proof of Claim: Proof of Claim (POC) is the document filed by a creditor showing the amount of debt owed to them at the time of the bankruptcy filing. POC’s can move through stages, too: liquidated, not liquidated, fixed, contingent, matured, not matured, secured, unsecured, subordinated, legal or equitable

45. How Does a Typical Filing Flow? • Bankruptcy Process Flow: Basic Steps Case Maintenance: Case maintenance includes all aspects of working with continuing bankruptcy: validating information, processing payments and assuring that all legal requirements are being met, among other specialized tasks. Case management is entwined with many other people and teams throughout the bankruptcy organization.

46. How Does a Typical Filing Flow? • Bankruptcy Process Flow: Basic Steps Motion for Relief (MFR) When a consumer files for bankruptcy, an automatic stay immediately goes into effect, prohibiting creditors from taking action of any kind to collect a debt. In certain situations, creditors have the right to ask the bankruptcy court to “lift the stay”, which is done via a Motion for Relief. If the court grants the MFR, other steps begin so collections can then proceed.

47. How Does a Typical Filing Flow? • Bankruptcy Process Flow: Basic Steps Closing The Closing team handles the necessary documents and processes to complete a bankruptcy case.

48. How Does a Typical Filing Flow? • How Long Does a Typical Bankruptcy Case Take? • Chapter 7 provides for the sale of the debtor’s nonexempt property and the distribution of the proceeds to creditors. • The Trustee evaluates assets (but the majority of Chapter 7 cases are “no asset” cases with no distribution to creditors.) • Typically, a Chapter 7 debtor is surrenderinga home which has negative equity. If the debtor wants to keep the home, the bankruptcy court must approve any reaffirmation of the debt. • Chapter 13 debtors keep their assets and repay debts over time (3 – 5 years), using an approved Plan. • The Chapter 13 Trustee receives the debtors payments and distributes to creditors based on the Plan.

49. How Does a Typical Filing Flow? • How Does a Typical Filing Flow?

50. How Does a Typical Filing Flow? • Knowledge Check – How Does a Typical Filng Flow? • A typical bankruptcycase is handled by various teams within the Bankruptcy organization • How many of these do you recognize? • Drag the correct term to the matching definition This team completes all necessary audits to verify that requirements have been met to complete a bankruotcy case.