Business Bankruptcy on Mortgage

							Bankruptcy and Cram Down
       Legislation
            May 4, 2009
       3:00 p.m. to 4:15 p.m.
      Patricia Antonelli, Esquire
      Partridge Snow & Hahn LLP
Bankruptcy Overview

• Chapter 7 liquidation
• Chapter 13 individual wage earner
• Chapter 11 individual or business
  reorganization



                                      2
Bankruptcy Overview

• Cram downs will be done in Chapter 13
• Chapter 11 cases are too costly for
  homeowners
• All Chapter 13 cases have a Standing
  Chapter 13 Trustee

                                         3
Bankruptcy Overview

• 3 to 5-year Chapter 13 plan
• Dividend to unsecured creditors
• Payments to secured creditors direct or
  from Trustee depending on jurisdiction



                                            4
Chapter 13 Best Practices

• For Trustees and Mortgage Servicers
• Reasonableness of fees and costs
• Servicers must provide contact for
  borrowers
• Better tracking of post-petition
  payments
• Info required on Trustee checks
• Required notices of payment changes
  and charges                           5
Mortgage Modifications – Currently


• Known as “cram downs” or
  “lienstripping”
• Always allowed for commercial loans,
  vacation and rental property loans,
  vehicle and equipment loans


                                         6
Mortgage Modifications

• Allowed where property is principal
  residence of borrower and property
  brings in income
• Chapter 12, 13 and 11 cases
• New legislation is very different



                                        7
Mortgage Modifications

• Procedure is “determination of allowed
  secured claim”
• Bifurcate secured creditor’s claim into
  secured and unsecured claims
• Valuation hearing for collateral


                                            8
Mortgage Modifications

• Lots of litigation on whether property is
  solely the borrower’s principal
  residence
• Look for collateral producing income or
  some other collateral for the loan


                                              9
Mortgage Modifications

• Wholly unsecured claims can be
  stripped off even on principal
  residences
• Short term mortgages and almost
  matured mortgages
• Determination of interest rate on
  modified mortgage to account for risky
  borrower                                 10
Mortgage Modifications
• Chapter 13 modifications must be paid
  off in plan term (5 years) unless
  arrearage will be cured and regular
  payments made – term will just be
  shortened
• Alternative is to pay allowed secured
  claim in 5 years
• Balloon payments are no longer
  allowed after BAPCPA changes to
  §1325(a)(5)                         11
Mortgage Modifications

• Traps for servicers
• Servicers must maintain two sets of
  records in case borrower defaults
• Borrower can refinance or sell creating
  windfall


                                            12
Mortgage Modifications

• Typically done by adversary
  proceeding or motion
• New local bankruptcy rules allow
  modification by Chapter 13 plan



                                     13
Questions


            14