Grand Rapids Bankruptcy Law Blog

Chapter 13 is often used to stop foreclosures on homes. Once a chapter 13 petition is filed, a Stay is issued that prevents the mortgage company from foreclosing and allows the Debtor an opportunity to make payments to catch up, or pay off, the mortgage arrears over the life of the bankruptcy. One problem faced by many past chapter 13 Debtors in this situation was that the mortgage company would sometimes charge fees and other costs that occurred subsequent to the filing of the case. In other words, even when all payments were made, some Debtors would finish a chapter bankruptcy and receive a letter from the mortgage company notifying them they were still in arrears. This would often result in the filing of back to back chapter 13 cases.

New Federal Bankruptcy Rule 3002.1, which has recently been enacted, is designed to solve this problem and provides a substantial benefit to chapter 13 Debtors. Rule 3002.1 (b) requires that mortgage creditors file a notice of any change in the mortgage payment amount, including changes from interest rate or escrow changes, at least 21 days prior to the effective date of the change. This will allow chapter 13 Debtors, and their attorneys, to understand the changes that are happening to the mortgage payment at the actual time they occur, rather than months or years following the actual event.

Rule 3002.1 (c) requires the mortgage company to file an itemization of all fees, expenses, or charges added to an account, within 180 days of incurring the same. Debtors may then contest those fees, expenses, or charges up to a year after the notice is filed with the court.

Finallly, Rule 3002.1 (f) - (i) describes the procedure whereby a Trustee or Debtor notifies the mortgage company of the final payment that cures, or brings current, the mortgage arrears. If the mortgage company disagrees and believes more payments are necessary, a contested hearing takes place to establish what amounts are actually due. If the mortgage company fails to provide the information required by the new Rule 3002.1, the Court may preclude the omitted information from use as evidence in the contested hearing, and may award other relief, including reasonable expenses and attorney fees caused by the failure.

In summation, the new Federal Bankruptcy Rule 3002.1, when used properly, will be an effective tool for chapter 13 attorneys and Debtors to ensure and verify that all mortgage debts are current at the conclusion of a successful chapter 13 proceeding.

From an early age we are often expected to answer questions with a simple yes or no response. This is a mistake during a bankruptcy intake meeting with your attorney. Simply answering yes or no questions can be problematic, especially with increased scrutiny now being given to the information contained in bankruptcy pleadings under FRBP 9011. For example, you must explain to your attorney that you have a fractional ownership interest in a hunting cabin, be certain to disclose that your name is on your college son's vehicle, or that you share a bank account with a relative for estate planning purposes only. Many practitioners face the unpleasant circumstance in which a debtor gains full understanding of the importance of questions when asked by the Trustee at the 341 meeting of creditors. Ask important questions more than once, and make sure you understand what the attorney is asking of you. Insist on examples if you don't understand what the attorney is inquiring about.

Under the current Bankruptcy Code full disclosure is absolutely necessary. You can jeopardize your discharge by failing to disclose things that you may think have nominal value. Under certain sections of the Bankruptcy Code it is irrelevant whether you fail to list a gun worth a $1,000. The fact alone that you intentionally hid that asset even though it may have no financial impact on the estate results in your discharge being denied. In real estate they say location, location, location; in bankruptcy we say disclosure, disclosure, disclosure.

Grand Rapids residents might get their mail a little slower very soon as the U.S. Postal Service -- that venerable icon of dependability -- prepares to cut almost $3 billion from its budget. The postal service has said it may need to file for bankruptcy if things don't change soon.

While the postal service is a government entity and its filing would probably be quite different from a personal or bankruptcy filing, the principles are the same in that bankruptcy could potentially offer it a chance to get its debt and spending in more manageable shape and allow it to move into the future.

Essentially, the postal service is facing two big problems. The first is that fewer people are sending first-class mail, like letters and bills. The second is that it has significant "legacy costs," or costs associated with former employees, such as pension and healthcare benefits.

The postal service plans to close 250 of its 500 processing centers, shutter 3,700 post office locations and raise the price of a first-class stamp from 44 cents to 45 cents beginning in June. If these measures are not enough, the postal service has said it may need to file for bankruptcy. Presumably, that would give the postal service more latitude in getting its expenses in line and would give it more options for remaking its business model into something that will work for the changed business landscape.

As we said, any bankruptcy filing for the postal service that might occur would be different in some ways than a personal or business bankruptcy filing, but generally speaking, all bankruptcy filings have the same goal; to help the entity seeking bankruptcy protection get its finances into workable order and allow them to go forward unencumbered by completely unmanageable debt.

Source: The Associated Press, "Facing bankruptcy, US Postal Service plans unprecedented cuts to first-class mail next spring," Hope Yen, Dec. 5, 2011

In what is surely a testament to our still-troubled economy, the parent company of American Airlines filed for bankruptcy protection earlier this week. But that does not necessarily mean that Grand Rapids residents looking to escape our wintry weather will see one less airline next time they head to the airport to start their vacations. Delta and Continental both successfully used Chapter 11 bankruptcy proceedings to get back on track and are doing fine today.

Company officials said high fuel costs, burdensome labor expenses and less leisure travel (again, a side effect of a bad economy) left it with little choice but to seek bankruptcy protection.

American Airlines is hoping the Chapter 11 reorganization will allow it to make some headway with labor negotiations. Many airlines, American Airlines included, are saddled with what are called "legacy costs," a term for the expenses incurred by providing contractually obligated benefits to employees who are no longer working for the airlines (i.e. pension benefits and healthcare for retired former employees). American Airlines has about 130,000 retired workers for whom it provides pensions.

Labor costs associated with current employees are also an issue. American Airlines employs 88,000 people and has for years been negotiating with the unions that represent its workers in an attempt to keep labor costs manageable, but has had little success so far.

Whether American Airlines can follow the path of Delta and Continental and use bankruptcy protection as a chance to get a fresh start and re-align its costs to a changed economy remains to be seen, but we will be sure to keep you updated.

Source: Reuters, "American Airlines files for bankruptcy," Kyle Peterson and Matt Daily, Nov. 29, 2011