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• Bankruptcy Legislation -- House Resolution 3609, introduced 9/20/07 as the Emergency Home Ownership and Mortgage Equity Protection Act of 2007, seeks to amend 11 U.S.C. §§ 109(h), 506(b), 1322(b), 1325(a), and 1328. MBA's opposition paper: Oppose Cramdown Legislation.
• Bankruptcy Filings by Lenders -- Click this topic for info re Ch. 11 filings by various lenders: including Aegis Mortgage Corporation, American Home Mortgage, Copperfield, Delta Financial Corporation, Fieldstone Mortgage Co., First Magnus Financial Corporation, First NLC Financial Services, Fremont General Corporation, HomeBanc, MILA Inc., Mortgage Lenders Network USA, New Century Mortgage Corp., Oak Street Mortgage, Ownit, People's Choice Financial Corporation, ResMAE Mortgage Corporation, and Southstar Funding    
  
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• NACTT -- Suggested "Best Practices for Trustees and Mortgage Servicers in Ch. 13" (5/08) 
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Bankruptcy News by Topic & State

AUTOMATIC STAY RELIEF
FL: In re Striblin, 349 B.R. 301 (Bankr. M.D. Fla. 2006), re new exception to automatic stay [§ 362(b)(24)] and its applicability only to post-petition transfers initiated by the debtor. In re Covert, 355 B.R. 327 (Bankr. N.D. Fla. 2006), re denial of motion to extend automatic stay where local rules require notice within 5 days of filing petition, and notice was actually given on the 30th day.

MA: In re Jumpp, BAP No. MW 06-031 (12/28/06), vacates BK Court's order denying the Debtor's Motion for Determination and Motion to Reimpose the Automatic Stay. In re Jumpp and In re Okyere, Memorandum of Decision re whether termination of stay under § 362(c)(3) applies to the property of the estate as well as to the debtor (Bankr. D. Mass. June 23, 2006).

NY: In re Murphy, 346 B.R. 79 (Bankr. S. D. N. Y. 2006) -- Creditor applied, ex parte, for a "comfort order" confirming that the automatic stay terminated 30 days after the petition was filed. Court was limited to issuing bare comfort order and could not award attorneys' fees to creditor.

NC: In re Brandon, 349 B.R. 130 (Bankr. M.D.N.C. 2006) -- Automatic Termination of Stay in case of repeat filer terminated stay as to property of the debtor but not as to property of the estate.

TN: In re Wilson, 336 B.R. 338 (Bankr. E.D. Tenn. 2005), re denial of motion to extend automatic stay where debtors failed to give at least 20 days' notice as required by local rules.

WA: In re Coan, Case No. 05-11441-PCW13 (Bankr. E.D. Wash. Jan. 13, 2006) -- Memorandum Decision re Debtor's Motion for Order Extending the Automatic Stay.

Recent Articles 

• KS: New Bankruptcy Standing Order 08-1 (September 2008)
• Real Parties in Interest (Summer 2008)
• PA Bankruptcy Court Addresses Post-Petition Fees (July 2008)
• NY: Prior BK Case Dismissial - With Prejudice? (July 2008) 
• Redaction and Bankruptcy Rule 9037 (May 2008)
• Bankruptcy Update: Litigation Increasing (Spring 2008)
• KS: More Bankruptcy Court Mandates (April 2008)
• Payment Application & Claims Tracking (PACT) of Ch. 13 Payments (Feb. 2008)
• Relief from Stay Hearings: Original Note Required by One Judge in CA (Feb. 2008)
• Bankruptcy Update: More Bankruptcy Reform? (Winter 2008)
• Connecticut: Condo Lien, Senior Lien & BK (Winter 2008)
• Moving for Relief from Stay in Bankruptcy Court (Jan. 2008)
•    
• For a complete listing of USFN articles re Bankruptcy, go to the USFN Article Library and search on a related keyword.

Bankruptcy Chapter Overviews: Chapters 7, 11, and 13

CHAPTER 7

A Chapter 7 Bankruptcy is a liquidation bankruptcy where all non-exempt assets may be sold to pay creditors. An Interim Trustee is selected from a panel of private Trustees to serve as the Trustee until the Meeting of Creditors.

In a no asset proceeding, the Meeting of Creditors is normally the only appearance that a debtor is required to make. The Trustee and creditors may examine the debtor and the Trustee will ask questions based upon review of the Statement and Schedules. After the creditors’ meeting, the final event that occurs in a typical no asset Chapter 7 is that an individual debtor or joint debtors will receive a discharge. Receipt of a discharge will be automatic unless an objection is filed to the discharge. The discharge legally relieves a debtor of all dischargeable obligations, voids any existing judgments and permanently enjoins the collection of any debt subject to the discharge. Certain debts are specifically not dischargeable. In general, these include secured debts, alimony and support payments.

If a Chapter 7 is an asset case, it is the Trustee’s duty to liquidate and administer those assets. Often, if the cost of administration exceeds the benefit that will ultimately be given to creditors, an asset may be abandoned. It is the Trustee’s obligation to determine whether assets should be liquidated. The Trustee then submits a schedule of proposed distribution of assets to creditors that needs Court approval.

CHAPTER 11

As with a Chapter 13, the goal of the Chapter 11 is for the Debtor to successfully reorganize its affairs so that it may repay debt, retain assets and remain in business. This is accomplished by a debtor-in-possession proposing a Plan of reorganization and obtaining its confirmation. The Chapter 11 Plan confirmation process is complex and lengthy. In a Chapter 11, the creditors are able to vote for or against the Plan. Chapter 11 may be filed by an individual who owes more than the debt limits in a Chapter 13 or by a business which wishes to continue operation. The debtor-in-possession is the functional equivalent of a Trustee as they are authorized to conduct ordinary business affairs without Court approval in most instances. The debtor’s financial affairs are subject to constant monitoring and the debtor is required to file operating reports on a monthly basis. This is a regular report of the debtor’s ongoing post-petition business operations and will advise the creditors and the Trustee if the debtor is generating profits or losses during the proceeding.

The Chapter 11 Plan must place all creditors within classes and all creditors in a given class must have claims that are substantially similar. The Plan must specify which of the classes reimpaired under the Plan and the treatment to be accorded to an impaired claim must be described. The Plan must advise all parties how the Plan will be performed.

When a Plan is filed, it is accompanied by a Disclosure Statement. Votes may not be solicited from creditors until the Court approves the Disclosure Statement. The Disclosure Statement must contain information sufficient to enable a creditor or party-in-interest to determine whether to vote for acceptance or rejection of the Plan. The Disclosure Statement normally summarizes the Debtor’s progress during the Chapter 11 proceeding, as well as disclosing all relative factors leading up to the Debtor’s need to file bankruptcy. The Disclosure Statement normally contains a summary of the Plan and describes the practical effect of the Plan rather than its technical terms. Once the Disclosure Statement has been approved by the Court, it is sent with the Plan to all of the creditors along with a ballot for voting. Impaired creditors with an allowed claim are entitled to vote for or against a Plan. If a majority of the creditors in number and two-thirds in dollar amount vote to accept the Plan, it will be confirmed. If less than a majority of creditors in numbers or less than two-thirds in dollar amount vote to accept the Plan, then a cramdown procedure will be necessary to confirm the Plan over the rejection.

A confirmed Chapter 11 Plan acts as a new contract between the debtor and all of its creditors. Confirmation re-vests the debtor will all property of the estate free and clear of all liens and interest except as provided for by the Plan. Confirmation also acts as a discharge to all debts that arose before the date of confirmation. A Chapter 11 discharge is virtually identical to a Chapter 7 discharge. A discharge will not be granted in a Chapter 11 where the debtor is liquidating its assets through the Plan, until such liquidation is completed.

CHAPTER 13

Chapter 13 Bankruptcy is a reorganization proceeding where a debtor will attempt to repay a debt and retain non-exempt assets or continue to operate a business. Chapter 13 is a program for individuals with regular income who have unsecured debt of less than $307,675.00 and secured debt of $922,975.00. A debtor may attempt to repay debts over a period of time, not to exceed 60 months. If the Chapter 13 Plan is successfully performed, a Debtor will be able to retain non-exempt assets and will receive a discharge from many of the obligations that would not be dischargeable in a Chapter 7. A Chapter 13 is commenced by the filing of a Bankruptcy Petition. In a Chapter 13 the Automatic Stay is applicable to a co-debtor who is not in a bankruptcy proceeding. If a Chapter 13 debtor is engaged in business, the debtor is permitted to continue to operate the business. The debtor’s post-petition earnings from services are considered property of the estate.

The main component of a Chapter 13 proceeding is the Plan. The Plan is, in essence, a new contract between the debtor and all of the creditors. In order for a Chapter 13 Plan to be approved, it must be approved at a Confirmation Hearing. Once a Chapter 13 Plan has been confirmed, all creditors are bound by the terms of the Plan. Once performance of a Chapter 13 Plan has been completed, then the debtor is entitled to a discharge. A Chapter 13 debtor who has not fully completed a Plan may still apply for a hardship discharge if the Court finds that failure to complete the Plan is due to circumstances which the Debtor should not be held accountable for and if the unsecured creditors have received at least as much as they would have gotten in a Chapter 7 proceeding. A Chapter 13 discharge may be revoked if the Court finds that the discharge was fraudulently obtained. Revocation must be sought within one year of discharge.

Bankruptcy Terms Defined

Special thanks to Randall S. McHugh, Esq. (Reiner, Reiner & Bendett, CT), and the USFN Bankruptcy Committee for assistance in compiling the following glossary. 

Abandonment:
A notice by the bankruptcy trustee that he/she has no interest in keeping certain property as part of the bankruptcy estate. Once abandonment occurs, ownership of the abandoned property reverts back to the debtor subject to any secured claims against that property.

Adequate Protection Order:
A court order requiring the debtor to make payments to the secured creditor, while the case is pending confirmation, to assure that the creditor’s equity position is not worsened.

Automatic Stay:
See the Overview of the BK Reform Bill (BAPCPA) referenced above, as well as relevant articles in the online Article Library, for further information about the automatic stay. Upon filing the bankruptcy petition Section 362(a) of the United States Bankruptcy Code imposes an immediate and automatic stay of all collection activities against either the debtor or the debtor’s property. Since the stay is automatic it does not matter whether an action was taken against the debtor or the debtor’s property without knowledge of the bankruptcy. Any properties taken or monies collected while the automatic stay was in effect must be returned to the debtor and all collection activities commenced while the stay was in effect would be considered void.

Chapter 7:
Chapter 7 is a liquidation, not a re-organization chapter. It allows a debtor to get a quick discharge from his personal debt liability. However, once a debtor receives a discharge under either Chapter 7, 11, 12 or 13 that debtor will not be eligible for a Chapter 7 discharge for another six years. If sufficient equity exists after the debtor’s exemption in any property, the Chapter 7 Trustee will endeavor to sell the property to pay all the unsecured claims. Of all the chapters, Chapter 7 is the easiest to obtain relief from the automatic stay. (see Bankruptcy Chapter Overviews for more detailed information)

Chapter 11:
Chapter 11 is a reorganization chapter. Chapter 11 bankruptcies are typically filed by corporations because corporations cannot file a Chapter 13 to reorganize. Chapter 11 may also be filed by an individual, especially one who does not meet the debt limitations imposed upon the Chapter 13 debtor under Section 109(e) of the Bankruptcy Code. However, rarely does an individual wage earner file Chapter 11 because it is very expensive. The Chapter 11 plan usually pays each unsecured or under secured creditor more than it would receive under a Chapter 7 liquidation. There is no statutory limit on how long the repayment period can be. Further, the debtor receives its discharge upon confirmation of the plan. Prior to confirmation the creditors submit written ballots to the debtor’s attorney indicating whether the creditor either accepts or rejects the plan. The creditors can decide on how to cast their ballots after reviewing the disclosure statement prepared by the debtor. The Disclosure Statement provides the creditors with sufficient information about the debtor’s business and financial affairs to make an informed decision as to how to vote on the plan. (see Bankruptcy Chapter Overviews for more detailed information)

Chapter 12:
Chapter 12 is a reorganization chapter. Chapter 12 provides relief for family farmers whose debt limitations exceed those for a Chapter 13 filing. The code defines a family farmer as “an individual, or individual and spouse, engaged in a farming operation whose aggregate debts do not exceed $1,500,000.00, and not less than 80% of whose debts arise out of a farming operation. Such individual or individual and spouse must also receive more than 50% of his or their gross income from farming operation.” The Chapter 12 allows the family farmer to repay his debts through a plan not to exceed five years. With the exception of the debt limitations and income requirements the Chapter 12 is similar to a Chapter 13.

Chapter 13:
The Chapter 13 is usually known as a wage earner reorganization. Under a Chapter 13 plan of reorganization the debtor must pay all allowed secured claims, priority claims and use his best efforts to pay a dividend to unsecured creditors. The Chapter 13 allows a wage earner to repay his debts through a plan not to exceed five years. Usually the Chapter 13 plan operates to cure a mortgage default and decelerate any accelerated loan. It acts as a type of forbearance agreement. The debtor’s arrears are re-paid through the plan for a period up to five years. At the same time the debtor is required to make regular monthly mortgage payments. If the debtor makes all payments, then at the end of the plan the debtor should be contractually current. If the debtor completes all payments under the plan then he will be discharged of all secured debts set forth in the plan and all pre- petition unsecured debts. The debtor will not be liable for any discharged debts. Chapter 13 plan will be confirmed if it is feasible and if it is the debtor’s best efforts in paying his unsecured debts.(see Bankruptcy Chapter Overviews for more detailed information)

Confirmation Hearing:
The hearing where the debtor’s proposed Chapter 11, 12 or 13 plan is reviewed and either approved or denied by the bankruptcy judge. In a Chapter 12 or 13 the plan will usually be confirmed if the Chapter 12 or 13 trustee recommends confirmation. In a Chapter 11 the plan will usually be confirmed if there are enough ballots from the creditors accepting said plan. However, in a Chapter 11 the plan can still be confirmed even if many creditors reject the plan if the court finds that the plan is in the best interests of the creditors.

Cramdown:
A cram down, also known as lien stripping, is a procedure frequently utilized by debtors to bifurcate a creditor’s claim into a secured and unsecured portion. Thereafter, the debtor will file a plan which seeks to repay only the secured portion of the creditor’s claim. Once the secured portion of the claim is paid the debtor will be discharged from having to pay the unsecured portion. Cram downs are generally allowed unless the debt owed to the creditor is secured solely by property that is the debtor’s principal residence. If the debtor is allowed to cram down the creditor’s mortgage, the debtor will commence the procedure by filing a Section 506 motion also known as a Motion to Determine Secured Status. Through this motion the court will determine the fair market value of the property and will thereafter find how much of the creditor’s claim is secured and how much is unsecured. A cram down can occur in either in either Chapter 11, 12 or 13, the reorganization chapters, but cannot occur in a Chapter 7.

Discharge:
An official act of the bankruptcy court which absolves the debtor of personal liability for any pre-petition debt (except certain debts such as taxes, alimony, child support, fines, penalties and student loans). Any unsecured debts will not be collectible from the debtor after the discharge order. Any secured debts may only be enforced against the collateral after the discharge.

Dismissal with Prejudice:
A dismissal with prejudice means that the bankruptcy case is dismissed with an order preventing the debtor from refiling bankruptcy for a period of time (usually 180 days). Bankruptcy cases dismissed with prejudice are usually done so under Section 109(g) (1) or (2) of the Bankruptcy Code. It is usually the several bankruptcy filers that have their cases dismissed with prejudice to prevent a future filing within 180 days so that the creditor can finish a foreclosure or some other collection activity. It is rare that a good faith filing will be dismissed with prejudice. The serial filings can be evidence of bad faith, and the debtor will be prevented from abusing the bankruptcy process for at least 180 days.

ECF:
Electronic Case Filing.

Lien Stripping:
See Cram Down.

Meeting of Creditors:
Often referred to as the “341 meeting” that is conducted under Bankruptcy Code section 341. In this meeting, the trustee and creditors question the debtor about assets, liabilities, intentions regarding secured property, as well as other related bankruptcy issues. The debtor’s responses are given under oath.

Motion Requesting Relief from the Automatic Stay:
A pleading filed in a bankruptcy case under Section 362(d) of the Bankruptcy Code wherein the creditor requests that the automatic stay provided under 362(a) of the Bankruptcy Code be terminated, annulled or otherwise modified so that the creditor can commence or continue pursuing its rights in the collateral securing the creditor’s loan. Relief from the automatic stay in a Chapter 7 would usually be granted if the total of the liens attaching to the collateral exceed the fair market value of the collateral. In a Chapter 12 or 13 relief from the automatic stay may be obtained usually if the debtor is not making the post-petition monthly mortgage payments to the creditor.

Proof of Claim:
A proof of claim is an official signed statement filed in bankruptcy court by a creditor which sets forth the amount of the arrearages and total debt owed to the creditor as of the date the bankruptcy was filed. In order to ensure that the creditor would be receive payment on its claim in a Chapter 11, 12 or 13 it must file a Proof of Claim with the bankruptcy court prior to the expiration of the bar date, or deadline, to file such proof with the court. Unless the bankruptcy court holds otherwise, once filed the Proof of Claim is deemed to be allowed by the court. If the debt is secured by collateral it would be deemed an allowed secured claim, and if the claim is unsecured it would be deemed an allowed unsecured claim. In Chapters 12 and 13 usually the arrearage portion of the Proof of Claim would be paid through the plan, and the balance would be paid in accordance with the terms of the note and mortgage. In a Chapter 11 the debtor could elect to pay the arrears through the plan and the balance outside the plan in accordance with the Promissory Note or pay the entire indebtedness over a period of time through the Chapter 11 plan. Usually in a Chapter 7 Proofs of Claim are not to be filed unless directed by the court to do so. In a Chapter 7 case where there are assets a Proof of Claim would be required. And in that case the Chapter 7 trustee would liquidate the assets and distribute the proceeds.

Reaffirmation:
A binding agreement between the debtor and creditor, which, if filed with the bankruptcy court prior to the debtor’s discharge, will make the creditor’s claim survive the discharge. Thus, the debtor will remain personally liable for the obligation to the creditor notwithstanding the discharge (unless the debtor rescinds the Reaffirmation Agreement within 60 days after discharge enters or the date the Reaffirmation Agreement is filed with the Court).

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