We all know that section 523 contains exceptions to discharge, but some of those nondischargeable debts, including 523(a)(6) debts (for willful and malicious injury) CAN BE discharged in a chapter 13 case when the debtor completes plan payments. If you represent creditors, you need to know how and when to seek nondischargeability under 523(a)(6) in chapter 13 cases.
Look at the first sentence in 523(a): “A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from” the debts listed in 523(a).
There are two discharge options in a chapter 13 case:
- the debtor can get a discharge upon completion of plan payments under 1328(a); or
- if the debtor has not completed plan payments, s/he can still get a so-called hardship discharge under 1328(b) if certain conditions are met.
Read the first sentence of 523(a) again – those 523(a) debts are nondischargeable only if the debtor gets a discharge under 1328(b) – the hardship discharge. So what can be nondischargeable if the debtor completes plan payments?
The list of nondischargeable debts in completed chapter 13 cases is contained in 1328(a). Upon completion of plan payments, if the debtor certifies that s/he is current on DSO payments, the debtor gets a discharge of all debts provided for by the plan except debts:
- (1) Provided for under 1322(b)(5) (cure defaults and maintain payments on long-term debts);
- (2) Of the kind listed in:
- 523(a)(1)(B) (taxes owed under late-filed returns)
- 523(a)(1)(C) (taxes from fraudulent tax returns or tax evasion)
- 523(a)(2) (fraud; false financial statements)
- 523(a)(3) (unscheduled or late-scheduled debts)
- 523(a)(4) (fraud or defalcation as a fiduciary; embezzlement)
- 523(a)(5) (DSO’s)
- 523(a)(8) (student loans)
- 523(a)(9) (death or personal injury from DUI);
- (3) For restitution or criminal fine included in a debtor’s conviction; or
- (4) For willful or malicious injury that caused personal injury or death of another person.
Note that 523(a)(6) debts are not excepted from discharge if the debtor completes plan payments under 1328(a). Those can be discharged (unless they are for willful or malicious injury that caused personal injury or death under 1328(a)(4)). Also, the 60-day deadline for filing a 523(a)(6) complaint doesn’t apply.
Yes, section 523(c)(1) and Bankruptcy Rule 4007(c) require the creditor to seek a determination of nondischargeability under 523(a)(2), (a)(4), and (a)(6) by filing a complaint no later than 60 days after the first date set for the 341 meeting.
But look at Rule 4007(d), “Time for Filing Complaint Under § 523(a)(6) in a Chapter 13 Individual’s Debt Adjustment Case; Notice of Time Fixed.” When the debtor files a motion for a discharge under section 1328(b) (the hardship discharge), the court shall enter an order fixing the time for filing a complaint under 523(a)(6) and shall give no less than 30 days’ notice of the deadline.
Creditors attorneys, when you have a claim for willful and malicious injury to property, such as a claim that the debtor sold collateral and failed to pay the proceeds to the secured creditor, use caution in filing a 523(a)(6) complaint in a chapter 13 case just because you are accustomed to the 60-day deadline in chapter 7 cases. Think about Rule 9011(b)(2), that when you file the complaint you are representing to the court that the claims and legal contentions are warranted by existing law (or you have a nonfrivolous argument for changing existing law or establishing new law).
There may be reasons why a 523(a)(6) complaint would be filed early in a chapter 13 case. For example, where the same facts support a 523(a)(2) and a 523(a)(6) determination, or if the 523(a)(6) complaint is intertwined with an objection to plan confirmation, it makes sense to have one trial and resolve all factual matters. But I think it would be prudent to acknowledge in the complaint that a finding of nondischargeability under 523(a)(6) would be effective only if the debtor gets a hardship discharge. Then let the court decide whether the matter is ripe or not.
Our local rules mandate the use of a form chapter 13 plan, Local Form 3015-1. Here are a few notes to assist creditors’ attorneys and their clients in their review of plans filed in the EDKY. The tips are also useful for debtors’ attorneys and their staff in preparing the plan.
Secured Claims Valued Under § 506 (Section II.A.2. of the Plan).
This section of the plan serves as a motion to value collateral. The plan provides that the claim “shall be paid through the plan until the secured value [in the plan] or the amount of the claim, whichever is less, has been paid in full. Any remaining portion of the allowed claim shall be treated as a general unsecured claim.”
The creditor should object if it believes the plan undervalues the collateral. If necessary, the court will set the matter for an evidentiary hearing on valuation. Other reasons to object might be if the interest rate is inadequate, the plan is inadequately funded to pay the claim in full within five years, or if the creditor wants a particular fixed monthly payment amount (otherwise, I pay secured claims pro rata).
If the plan provides for a secured value of $0, that means the claim will be paid as a general unsecured claim because there is no value in the collateral to secure the claim under section 506. A claim that is underwater and is being stripped off should be listed in this section of the plan with a secured value of $0. See my blog post on lien-stripping. If the creditor believes there is value to support the claim, object to confirmation.
Secured Claims Not Subject to Valuation Under § 506 (Section II.A.3. of the Plan).
If a claim is listed under this section of the plan (910-claims should be listed here), the plan shows the estimated amount of the claim, but the plan provides that the claim “shall be paid through the plan until the amount of the claim as set forth in the Creditor’s proof of claim has been paid in full.”
[Claims not subject to valuation (such as 910-claims)] “shall be paid through the plan until the amount of the claim as set forth in the Creditor’s proof of claim has been paid in full.”
Do not file an objection to confirmation if the only basis is that the plan underestimates the amount of the claim. I pay according to the claim amount. You may still object to confirmation if the interest rate is inadequate, the plan is inadequately funded to pay the claim in full within five years, or if the creditor wants a particular fixed monthly payment amount.
Curing Defaults and Maintaining Payments on Mortgages and Other Secured Debts (Section II.B.1. of the Plan).
Similarly, the plan asks for the ESTIMATED arrearage amount but states: “[A]ny allowed claim for prepetition arrearages shall be paid through the plan until the amount of the arrearage as set forth in the Creditor’s proof of claim has been paid in full.”
“[A]ny allowed claim for prepetition arrearages shall be paid through the plan until the amount of the arrearage as set forth in the Creditor’s proof of claim has been paid in full.”
It is not necessary to object to confirmation on the grounds that the plan understates the arrearage amount. The arrearage amount in the creditor’s proof of claim controls.
If the debtor’s plan payment is insufficient to cure the arrearage within a reasonable time as required by section 1322(b)(5), then an objection may be warranted. I look at whether the plan will pay secured and priority claims in full within 5 years. It’s up to the creditor to determine whether the time for curing defaults is reasonable.
Special Provisions (Section VII. of the Plan).
Read the last section of the plan to see if there are any special provisions that might apply to the creditor’s claim. Also watch for special provisions regarding the sale of property in which the creditor has a mortgage or security interest. Pay close attention to any plan provision that requires the creditor to release its lien at some point in time and make sure such a provision is justified.
I hope these tips help. Feel free to post comments on the blog, or email me privately.
There is a difference between avoiding a lien under section 522(f) and treating a secured claim as wholly unsecured based on the value of the collateral. The latter is colloquially referred to as lien-stripping, but often it is erroneously considered a lien avoidance action, which causes confusion as to how the claim is to be treated in the plan.
Lien Avoidance Under 11 U.S.C. § 522(f).
The debtor may use section 522(f) to avoid a lien –
- to the extent the lien impairs an exemption;
- and only if the lien is –
- a judicial lien (in Kentucky, judgment liens on real property); or
- a nonpossessory, nonpurchase-money security interest in household goods and other property described in 522(f)(1)(B).
Section 522(f)(2) sets forth the arithmetic formula for determining whether a lien impairs an exemption and can be avoided. The judgment lien does not necessarily have to be junior to all other non-avoidable liens.
In the EDKY, the form chapter 13 plan has a place for listing creditors whose liens are to be avoided under § 522(f) (Section II.E. of Local Form 3015-1). By listing the creditor in the plan, the claim will be treated as unsecured, but that does not actually avoid the lien. The debtor must file a separate motion and get an order avoiding the lien.
Local Rule 4003-2 requires very specific information to be included in the motion and in the order avoiding the lien. If it’s a judgment lien to be avoided, the motion must identify not only the creditor, but the filing date, county, book and page number of the judgment lien as well (which should make it easier to get the lien released after the debtor gets a discharge). The motion also needs to show the calculation required by section 522(f)(2) (in other words, you have to “show your math”).
Even if the information were not required by local rule, it’s a good practice to follow.
The Code does not refer to cramdown, strip down, strip off, lien-stripping, or any other familiar, descriptive terminology, but these terms generally refer to the process of valuing the collateral under 11 U.S.C. § 506 to determine the amount of the creditor’s secured claim, then dealing with the claim accordingly in the chapter 13 plan (or appropriate motion).
Section 1322 provides that a plan may modify the rights of holders of secured claims (except a claim secured only by a security interest in real property that is the debtor’s residence) or of unsecured claims.
To determine the amount of an allowed secured claim, go to section 506(a)(1) (“Determination of Secured Status.”). An allowed claim is secured only to the extent of the value of the property to which the lien attaches; the remainder of the claim is considered unsecured. If there is a junior lien that is “underwater” – in other words, there is no value for the junior lien to attach to – it is entirely unsecured.
For example, property worth $100,000 is encumbered by a 1st mortgage in the amount of $120,000 and a 2nd mortgage of $10,000. There is no value in the property to which the 2nd mortgage can attach. It is a wholly unsecured claim under § 506(a).
How should a claim be treated in the plan if there is no value in the collateral for the lien to attach to? Don’t make the mistake of listing it in the section on avoiding liens under 522(f). You are not using section 522(f) to avoid the lien. List it in the section of the plan called “Secured Claims Valued Under § 506” (which is Section II.A.2. of Local Form 3015-1).
What is the value of the secured claim of the lienholder who is totally underwater? $0. The claim is treated as wholly unsecured.
Here, we are talking about whether there is value in the property for a lien to attach to. The debtor’s exemption in the property plays no role in this analysis. Liens that can be stripped off could be second or third mortgages; second liens on cars; judgment liens on property that is already fully encumbered.
Creditors might argue that it takes an adversary proceeding to strip off a lien, and some courts have so held. Other courts require a separate motion to value collateral and strip off a lien (WDKY). In the EDKY, the plan provision for valuing collateral constitutes a motion, and the lien can be stripped through plan confirmation.
Treating the claim as unsecured in the plan does not necessarily get the lien released at the conclusion of the case. There is no federal or local rule describing how to actually make the lien go away after the debtor gets a discharge. A well-crafted plan or motion will contain language in the Special Provisions section that requires the creditor to file a release of its lien within x days after the debtor’s discharge is entered.
In a future post, I’ll discuss what happens when a lien is not properly perfected, or is perfected during the 90-day prepetition period, or is perfected postpetition. In those instances, the trustee (and in some instances the debtor either directly or derivatively) has the power to avoid transfers, including the granting of a security interest or the perfection of a lien.
Make sure you understand the difference between avoiding a lien under 522(f) and treating the secured claim as unsecured because of the collateral’s value. Use the proper plan provision. File the appropriate motions and tender clear, direct orders. Give good notice to creditors. Then at the end of the case, make sure the affected creditors release their liens.
The first Academy webinar of Fall 2016: Making Money with ‘Consumer Rights’ Claims in Chapter 13
Friday – September 23rd
1:30 Eastern/12:30 Central
Chapter 13 Trustee Jody Bledsoe, Debtors’ Attorney Craig Shapiro, and Thomas Hooper, Staff Attorney to Chapter 13 Trustee Russell Simon, will discuss objecting to claims using the FDCPA.
This webinar is directed primarily to attorneys who represent debtors, although attorneys who represent creditors, trustees and attorneys who represent trustees will also be interested.
Click here to register. (Registration for the webinar automatically places registrant on the Academy’s email list)
Send questions or comments to Questions@ConsiderChapter13.org
I have to confess – sifting through the Federal Rules of Bankruptcy Procedure is not my strong suit, especially when I’m trying to find a deadline or grounds for an extension of time in a hurry. That’s why I first wrote a Quick Reference Guide to Critical Deadlines in Chapter 13 Cases a few years ago for the NACTT Academy‘s Toolbox (plus, right after BAPCPA, some of the rules were more restrictive in terms of when the court could grant extensions of time, and practitioners needed to know which rules were unforgiving).
This version of the Quick Reference Guide to Critical Deadlines in Chapter 13 Cases is updated and includes a few comments and local rule references specific to the Eastern District of Kentucky, but for the most part the guide can be used by chapter 13 debtors’ attorneys and creditors’ attorneys practicing in any jurisdiction (I’ll soon be updating the version on the NACTT Academy’s website without the local rules).
There are 4 sections to this 10-page Quick Reference Guide (all related to chapter 13 cases only):
- Deadlines Applicable Primarily To Actions Taken By Debtors;
- Deadlines Applicable Primarily To Actions Taken By Creditors Or Trustee;
- Deadlines Applicable To Actions Taken By Any Party; and
- Rules Applicable To Extensions Of Deadlines.
Click here to open/download/print a PDF copy of the Quick Reference Guide to Critical Deadlines in Chapter 13 Cases. I hope you find it useful, but remember – I might be wrong; I might change my mind about my interpretation of the relevant rules, so do your own research (but please let me know if you find an error in the Guide!).
It is not unusual for a chapter 13 debtor to own one or more rental properties or to have an interest in an LLC that owns the properties. Rental properties can complicate issues affecting plan confirmation, such as liquidation, disposable income, and feasibility. Attorneys need to be particularly attentive to a review of documents and preparation of Schedules. Here are some tips to help you avoid a few common problems I see in my review of Schedules and documents:
- First, be aware that if the property is owned by an LLC, the property is not property of the estate in the individual debtor’s chapter 13 case. The debtor’s interest in the LLC is property of the estate (see Q.19 on Schedule A/B), but the assets of the LLC are not.
- If the debtor has a fractional interest in the rental property, Schedule A/B must show the value of the property as a whole and the value of the debtor’s interest.
- As you review the deeds and prepare Schedules, try to include the DB/page reference in the description of the property listed in Part 1 of Schedule A/B.
- Note the property address or other identifying information on the copy of each deed you’re providing to my office so we can easily match the deeds to the scheduled properties.
- Schedule all encumbrances against each property on Schedule D – not just mortgages, but delinquent property taxes, judgment liens, tax liens, etc. (and don’t forget that property taxes are secured claims under Kentucky law, not priority claims).
- As you did with the deeds, note the property address or other identifying information on the copy of each mortgage you’re providing to my office so we can match mortgages, scheduled debts, and actual claims.
- Determine if there is a liquidation issue as to each property (not just aggregate property values minus aggregate liens against all properties). If the case were a chapter 7 case, the chapter 7 trustee could sell the properties with nonexempt equity and abandon those properties that are underwater. That’s why you need to look at liquidation on a property-by-property basis. The plan will need to be funded to satisfy the liquidation test.
- Now start working on income and expenses. Question #5 of the SOFA asks for actual gross income. You will probably get that information from the debtor’s tax returns.
5. Did you receive any other income during this year or the two previous calendar years? Include income regardless of whether that income is taxable. Examples of other income are alimony; child support; Social Security, unemployment, and other public benefit payments; pensions; rental income; interest; dividends; money collected from lawsuits; royalties; and gambling and lottery winnings. . . .List each source and the gross income from each source separately.
- On Schedule I, report net income but attach the required separate statement showing the calculation of that net income. Follow the instructions for Line 8 of Schedule I:
8. List all other income regularly received: 8a. Net income from rental property and from operating a business, profession, or farm. Attach a statement for each property and business showing gross receipts, ordinary and necessary business expenses, and the total monthly net income.
The statement of business income and expenses does not need to be on any specific form in the Eastern District of Kentucky, but it should be detailed enough to show some basic information as to each property. For example:
|Monthly average gross rental income:||$___________|
|Other ordinary and necessary business expenses*:|
|Monthly Net Income:||$___________|
*Don’t include “phantom” expenses like depreciation.
- The aggregate monthly net income from all properties should go on Line 8a of Schedule I.
- If the expenses for a rental property exceed the income (negative cash flow), consider whether it is feasible for the debtor to keep the property. I usually object to the retention of these properties because it is the unsecured creditors who are affected when the plan payment is calculated based on the expenses exceeding income. But if the debtor has some equity in the property to justify retaining it, they will need to increase the plan payment to cover the operating loss.
Follow these tips and you increase the likelihood of smooth sailing towards confirmation of your chapter 13 plan in the EDKY.
“I’ve Changed My Mind – I Want to Surrender My House”: What Effect Does Post-Confirmation Surrender Have on the Debtor’s Discharge?
If a confirmed plan provides that the debtors will cure arrearages through the plan and maintain ongoing payments on a mortgage or long-term car loan, and the debtors complete plan payments and get a discharge, those section 1322(b)(5) debts are not discharged per section 1328(a)(1). The debtors still have personal liability on those debts after discharge, just as if the debtors signed reaffirmation agreements in chapter 7 cases.
But what happens if after confirmation the debtors change their mind – they can’t afford the house or the car, and they let the creditor get relief from stay. Is the claim still a 1322(b)(5) claim that is excepted from discharge?
Even if a creditor gets relief from stay on a 1322(b)(5) claim after confirmation, the creditor’s claim remains a 1322(b)(5) claim according to In re Holman, 2013 WL 1100705 (Bankr. E.D. Ky. 2013). Taken to its logical conclusion, any resulting deficiency claim would not be discharged.
What about a post-confirmation plan modification to surrender the house or car – will that change the claim from one provided for under 1322(b)(5) into something else? Is such a plan modification permitted under the Sixth Circuit Adkins/Nolan doctrine? The debtors can try to modify the plan, but it may not be sufficient to protect the debtor from post-discharge collection calls and letters. See In re Spata, Case No. 09-52154 (Order Entered April 22, 2016, Doc. #122) (Bankr. E.D. Ky. 2016).
Is there a solution to protect the debtors? Maybe. Try including something like the following special provision in the original plan:
In the event that relief from stay is granted to any creditor addressed in Section II, or in the event that the Debtor surrenders the collateral to the creditor after confirmation, any resulting deficiency, after liquidation of the collateral, shall be classified and paid only as a general unsecured claim, but only up to the amount of said deficiency. Any amount unpaid on said deficiency claim shall be discharged upon completion of the plan. This special provision is intended to cover any and all secured claims, whether payment on the claims are to be made through the plan by the Trustee or to be made directly by the Debtor.
A plan with this provision was confirmed when no creditor objected. See In re Ratliff, Case No. 14-21064, Order entered Nov. 10, 2014, Doc. #43 (Bankr. E.D. Ky. 2014). The adequacy of the provision has not yet been tested, but it’s (probably) better than nothing. However, if a creditor objects to the provision, who knows what the result will be.
For a more detailed discussion, click here for a handout I prepared on Postconfirmation Mortgage Issues Affecting Discharge for a recent seminar. Part I of the handout discusses this issue (Part II discusses an issue mentioned in an earlier post, that a debtor who is delinquent in postpetition mortgage payments may not be able to get a discharge at all).
This is a more complex issue than what I’ve described here. Creditors’ attorneys, don’t assume that you and your clients have a free pass to collect on these 1322(b)(5) debts after discharge, because it’s not that clear. Debtors’ attorneys, be aware of the issues, and counsel your clients on the risks of changing their minds after confirmation.
NOTE: SAVE THE DATE – THE UK JUDGE JOE LEE BIENNIAL BANKRUPTCY INSTITUTE WILL BE JUNE 8-9, 2017, at the Campbell House in Lexington.
I see A LOT of what I call “fixit” court orders: orders directing parties to fix something or to do something. What really surprises me is the number of show cause orders entered when the parties don’t comply with the first order. If you think this doesn’t apply to you, read on.
I wonder whether attorneys are aware of how frequently they are the subject of fixit orders or show cause orders. If they are, why do they continue to ignore (or allow staff to ignore) court orders? If they aren’t aware of it, shouldn’t they be so they can take corrective action?
Here are some simple tips to help attorneys identify and prevent some common recurring errors:
First, determine if you have a problem. For debtors’ attorneys, spot-check the docket in a few cases you’ve filed within the past six months. Creditors’ attorneys, look at the docket in some cases in which you have recently filed motions or objections. If you’ve had one or more fixit orders (or heaven forbid, show cause orders) in several cases, you have a systemic problem that needs to be fixed. You and your staff are wasting time and money.
Second, review your procedures and make sure you and your staff have a basic understanding of certain local rules and the administrative procedures manual. Make a checklist, or print and highlight relevant provisions of the local rules if you have to. To avoid some common fixit orders, you should know, at a minimum, that:
- You must attach a proposed order to every motion (or objection if that’s the form of your initial request for relief);
- If a motion is filed on notice and opportunity (N&O) and you object to the motion, you have to notice your objection for an actual hearing (date, time, and location);
- Whenever you do a notice of hearing or N&O, the hearing date or deadline for objections that you put in your document must match the hearing date or deadline for objections you enter in ECF;
- You have to give at least 14 days’ notice on all motions or objections, unless:
- There is a longer period required in the federal rules;
- You file a motion to shorten the notice time; or
- Your request is listed in KYEB-LBR 9013-1(c) as one that does not require notice;
- When you file a chapter 13 plan, you must serve it on all creditors and file a certificate of service.
Add to your checklist that the “Chapter 13 Order to Debtor to Turn Over/Produce Documents” entered in every case requires documents to be provided to my office within 14 days of the petition. This is a court order and should not be disregarded, even if you are not “show-caused” for failure to comply.
Third, implement a procedure for promptly dealing with all orders and make sure everyone in your office is aware of the importance of complying with orders of the court.
- Understand that many docket entries are in fact court orders.
- The docket text will say “This Notice of Electronic Filing is the Official ORDER for this entry. No document is attached.”
- If you or your staff think that’s not a “real” order (and more than one attorney has told me that!), pretend you are standing in the courtroom while the judge is reading that docket text to you. Then respond accordingly.
- When you get any order, read it immediately. If it applies to you or your client, calendar the deadline, and do what the order says before the deadline. If you need more time to comply (particularly if you are waiting for information from your client), file a motion for an extension of time.
- If you get a show cause order for failing to comply with the first order, fix the problem immediately, file a response, and show up for the hearing (unless the matter is remanded). If you get a show cause order for failing to show up at a show cause hearing, you’ve got a huge problem.
Of course, deadlines get missed on occasion. Clients don’t always do what the attorney tells them to do. Spam filters eat ECF notices. A key staff person gets sick and the email inbox gets overloaded. Mistakes happen. But take steps to prevent recurring mistakes, which are time-consuming (for all of us) and costly.
Try to get things done correctly and timely the first time. Use checklists. Calendar deadlines. Train staff. Read and follow the rules. Do ECF training again if necessary.
But if you get an order to do something, even if it starts with “Deficiency – Action Required,” comply with it.
This is my last post on practice tips and “OMG!” lessons we picked up at the NACTT Annual Conference a couple of weeks ago, and it’s to give debtors’ attorneys some practical information from the session on tax issues in chapter 13 cases.
- Learn how to get information from and communicate with the IRS on behalf of the debtor by using Form 8821 (“Tax Information Authorization”), Form 2848 (Power of Attorney), the fax number for the IRS (in the instructions for each form), and the Practitioner’s Priority Hotline, 1-866-860-4259.
- Learn how to request and read a “record of account transcript” from the IRS.
- The transcript will show information that is not reflected on the tax return, such as whether there are any missing tax returns, or what collection efforts have been made (which might toll the time periods for determining whether a tax debt is priority or nondischargeable).
- Also get the IRS Transaction Codes Pocket Guide for assistance in reviewing the tax transcript.
- If you file the petition without getting an account transcript from or otherwise communicating directly with the IRS to verify that the client has filed all required tax returns, schedule the IRS and the state taxing entity. If you don’t give notice to the taxing entities, you have no opportunity to deal with tax problems, and all tax debts will be nondischargeable. (Is there any reason not to give notice to the IRS and state taxing entity in every chapter 13 case?).
- Review federal tax liens to ensure the IRS sent the required Notice of Federal Tax Lien to the debtor’s last known address in the time required under the statute. If not, the debtor may have grounds to challenge the validity of the tax lien. A recent report found that the IRS did not have procedures in place to update last known addresses for purposes of sending notices of tax liens.
- Understand that certain prepetition events such as short sales, foreclosures, and repossessions result in “cancellation of debt” (COD) income. Debtors’ attorneys need to be able to counsel their clients on the tax impact of those events and should make the review of possible COD income part of their intake procedures.
Although there were really no “OMG!” lessons in the session on representing debtors with tax issues in chapter 13 cases, there were some great practical tips in the session. To order a video of any of the presentations at the seminar, go to www.considerchapter13.org. Mark your calendars for July 12-15, 2017, for the next NACTT annual conference in Seattle, WA.
Don’t ignore this topic; it’s important for bankruptcy practitioners to know about the Consumer Financial Protection Bureau (CFPB) and educate their clients (whether consumers or creditors). Here are a few tips we learned about the CFPB at the 2016 NACTT Conference a couple of weeks ago.
- Consumers, debtors’ attorneys, and creditors’ attorneys really need to know about the CFPB!
- The CFPB has supervisory, regulatory, and enforcement authority over various consumer financial services and laws.
- Activities and entities covered include: debt collection, credit reporting, mortgage servicers, private student loan lenders and servicers, payday lenders, and many others.
- The CFPB website (www.consumerfinance.gov) has lots of useful information.
- Debtors’ attorneys might want to print out some of the brochures and give them to their clients.
- Everyone should peruse the Consumer Complaint Database to see what some of the hot issues are (like collection of medical debts). Consumer complaints are very effective.
- Creditors’ attorneys need to follow CFPB enforcement actions. Consent orders may not be binding on other parties but they offer guidance on what conduct the CFPB finds improper or unlawful.
- Recent CFPB consent orders with debt buyers and sellers offer guidance on issues that might be grounds for objecting to claims in bankruptcy. For example, one consent order demonstrated how a debt buyer took collection action against consumers based on inaccurate account records.
- The CFPB is expected to issue new rules governing debt collection (and on July 28, 2016, announced its proposal. http://www.consumerfinance.gov/about-us/newsroom/consumer-financial-protection-bureau-considers-proposal-overhaul-debt-collection-market/).
- In the long run, the quality of claims filed in bankruptcy cases should improve due to the actions of the CFPB in its oversight of the debt buying and selling industry.
- OMG!: Attorneys are not necessarily exempt from CFPB oversight and enforcement.