Bankruptcy Update: Recent Trends, New Rules and Revised Forms

by Alan C. Hochheiser, Esq.

NBKRC: Bankruptcies Down Thru Third Quarter 2011

According to statistics from the National Bankruptcy Research Center (NBKRC), bankruptcy filings have declined through the first three quarters of 2011.  Total consumer bankruptcy filings totaled 144,722, which was down approximately 10% from the first three quarters of 2010.  In addition, bankruptcy filings in September 2011 declined substantially, down 17% over the same period of last year.  Bankruptcy filings for September 2011 totaled 108,517.  Although filings continue to decline, the NBKRC still projects an estimated 1.35 million bankruptcies for 2011.  Many factors have contributed to the 2011 decline in bankruptcy filings, including the lack of available credit to consumers, foreclosure moratoriums and reduced spending by debtors.

New Bankruptcy Rules and Forms effective December 1st: Is your organization ready?

On December 1, 2011, certain bankruptcy rule changes and new forms will become effective.  These changes primarily deal with the filing of a Proof of Claim and relate to mortgage creditors as well as debt buyers.  However, the change in the Proof of Claim form will affect all entities who file Proof of Claims in bankruptcy proceedings.

The major change to the form involves attachments that are required to lay out certain fees and costs, and a breakdown of arrearages on the mortgage claims.  It also requires that mortgage creditors provide an escrow statement as of the date of the bankruptcy filing.  The new form provides for payment change notifications to be filed with the Court and the specific form that needs to be used.

The new rule also changes the procedures that are necessary when a Trustee finishes paying a mortgage through a Chapter 13 Plan.  Weltman, Weinberg & Reis Co., L.P.A. (WWR) will be providing extensive information and training sessions for clients through webinars over the next two months to ensure that you are ready for the changes.

In addition to the changes to the procedures and forms pertaining to Proof of Claims, there has also been a change in the Reaffirmation Agreement form.  The B240 form has been altered by a technical amendment to clarify some of the language on the form.  This does not affect the procedure and the information needed within the reaffirmation agreement itself.  The additional language is as follows and can be found in the form on the United States Courts website:

“Even if you do not reaffirm and your personal liability on the debt is discharge because of the lien your Creditor may still have the right to take the property securing the lien if you do not pay the debt or default on it.  If the lien is on an item of personal property that is exempt under your State’s Law or that the Trustee has abandoned, you may redeem the item rather than reaffirm the debt.  To redeem, you must make a single payment to the Creditor equal to the amount of the allowed secured claim, as agreed by the parties or determined by the Court.”

The changes in this language indicate that the redemption, pursuant to 11 U.S.C. § 722, must be made by a single payment.  It also changes the language to say that “the amount of the allowed secured claim which is different from the current value of the property”.  This now becomes consistent with the language contained in § 722 of the Bankruptcy Code.  Although this change does not affect the information that must be included in the Reaffirmation Agreement as to balances, interest rates, monthly payments and arrearages, it is important when preparing a Reaffirmation Agreement after December 1, 2011, that the correct B240A-B alt form is used.

WWR will continue to keep you advised as to breaking news and trends in bankruptcy proceedings.  Should you require further information please do not hesitate to contact Alan C. Hochheiser, Managing Partner of the Bankruptcy Group.

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