The Consolidated Appropriations Act of 2021 (CAA), which passed in Congress on Dec. 27, 2020, introduced some noteworthy additions to the Bankruptcy Code. One such issue is the changing relationship between chapter 13 debtors and mortgage lenders when it comes to forbearance requests under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).
The Code Gets More Defined
Regarding chapter 13, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) in part allows chapter 13 debtors experiencing a material financial hardship as a result of the COVID-19 pandemic to modify the length of their bankruptcy plan to a maximum of 84 months [1], up to an additional 24 months if the plan was initially set at 60 months, or up to 48 months for those debtors in previously confirmed 36-month plans.
On Oct. 13, 2020, the U.S. Supreme Court heard oral argument that may alter the way bankruptcy courts interpret possession and control under Bankruptcy Code § 362(a)(3), and the right of turnover under the ambit of § 542(a). In Chicago v. Fulton,[1] the Court is set to determine whether the automatic stay requires a creditor who is passively retaining an asset to have an affirmative obligation under § 362 to return the property to the debtor immediately upon the filing of their bankruptcy.
The Child Tax Credit statute (CTC), codified in 26 U.S.C. § 24, has received varying degrees of protection in bankruptcy proceedings. Consumer debtors receiving a tax refund attributable to the statute must decide how to treat tax refund proceeds early on in their bankruptcy proceeding. Two emergent trends from bankruptcy courts around the country demonstrate that consumers may either (1) try to exclude the proceeds as nonestate property, free from the claims of creditors; or (2) acknowledge the proceeds as property of the estate protected by use of an appropriate exemption.
The extensive 2017 changes to the Bankruptcy Rules included a model chapter 13 plan. These changes were designed to bring more uniformity to chapter 13 practice. Uniformity is helpful for both consumers and creditors alike; where courts agree on a majority practice across the country, national lenders become more efficient in their practices. The need created by the absence of uniformity in deadlines imposed by local and federal rules is great. This disparity hits consumer debtors the hardest.
In 2019, the U.S. Supreme Court adopted an amendment to Rule 6007 of the Federal Rules of Bankruptcy Procedure that makes clear that a creditor that files for abandonment of property of the estate under 11 U.S.C. § 554(b) must serve its motion on all creditors pursuant to Fed. R. Bankr. P. 7004. One consequence of the amendment was to increase the administrative burden and cost to creditors and their attorneys of obtaining an order of abandonment. That burden/expense can be substantial in a chapter 7 case with a significant number of creditors.
A recent Fifth Circuit ruling provides significant protection of a debtor’s inherent rights under the Bankruptcy Code. In Brown v. Viegelahn,[1] the court struck down the bankruptcy court’s requirement upon confirmation that the debtor agree to add the following so-called “Molina language” to the Order confirming plan:
As overall consumer debt has increased over the years, student loan debt has correspondingly increased to astronomical levels. In 2019, 45 million borrowers collectively owed more than $1.5 trillion in student loan debt.[1] By comparison, in 2005 — the year the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) went into effect — student loan debt was $391 billion with 24.7 million borrowers. The delinquency rate has increased as well.