USFN | Vermont: Monthly Statements to Certain Debtors in BK Required

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Vermont: Monthly Statements to Certain Debtors in BK Required

by David R. Edwards
Lobe & Fortin — USFN Member (VT)

On October 10, 2006, the U.S. Bankruptcy Court for the District of Vermont issued standing order 06-09, which requires that secured lenders in all Chapter 13 and some Chapter 7 cases send monthly statements directly to debtors. The court determined that many motions for relief from stay could be avoided if debtors were uniformly sent monthly statements and notices of changes in payments based on interest rates and escrow changes as well as the status of insurance coverage. The court clearly resolved that secured creditors may contact the debtor about the status of insurance coverage and overdue or increased taxes on property. In addition, the court specified that creditors may send the debtor statements, payment coupons, or other correspondence that the creditor sends to its non-debtor customers, without violating the automatic stay, provided that the notice clearly does not seek to collect the debt.

The standing order specifies “account information” required to be included in each monthly statement. This account information includes the following:

the principal balance of the loan

the date of the statement and the date the next payment is due

the amount of the current monthly payment

the amount due for escrow, if any

the amount past due, if any, and from what date

any outstanding late charges

any other amounts due (with date and description of service underlying this charge)

all account activity since the last statement (amount received, date of receipt, how applied, any charges paid by lender for taxes, insurance, or other expenses)

the original maturity date

the current interest rate

the current escrow balance, if any

the interest paid year to date

the property taxes paid year to date, if any

a telephone number and name of a person that the debtor or debtor’s attorney may contact for immediate assistance regarding the loan, recent transactions, and the proper payment address.

It should be noted that cases are arising where debtors move to compel compliance with the requirements of this standing order, even in cases where debtors may be current on payments outside the plan. Such situations raise the possibility of sanctions being imposed where the lender fails to comply.

In any motion for relief, the creditor is required to affirmatively state that it is sending monthly statements. If a creditor fails to comply with this requirement in connection with a motion for relief, the court may deny the secured creditor’s request for recovery of attorneys’ fees or costs in connection with the motion, and the court may order the secured creditor to pay the debtor’s reasonable attorneys’ fees for responding to the motion. Further, it is not unlikely that an otherwise valid motion for relief may be denied by the court simply based on the lender failing to send statements or sending statements that fail to comply with the standing order.

The standing order further creates impediments to filing for relief from the automatic stay. A secured creditor seeking relief from the automatic stay based upon allegations of a post-petition payment default by a Chapter 13 debtor must specify that it seeks relief based on the debtor’s default, articulate with specificity the payments alleged to be in default, and attest that it has provided the debtor with the required account information set forth above in a timely fashion. In the event that the secured creditor has not provided the debtor with the account information set forth above, the court may deny the secured creditor’s request for recovery of attorneys’ fees or costs in connection with the motion, regardless of the terms of its agreement with the debtor; the court may even order the secured creditor to pay the debtor’s reasonable attorneys’ fees for responding to the motion.

Creditors are urged to put time and effort into creating special procedures to comply with the requirements of this standing order. Referrals to attorneys seeking relief from stay should include a full post-petition loan history and copies of monthly statements in addition to other loan documentation. Although the time and effort required to carve out specialized billing for debtors in separate jurisdictions may be cumbersome, it is clear that the bankruptcy court is willing to sanction lenders who fail to comply. Therefore, serious attention to the requirements of this standing order is advised.