Four Significant Changes to Consumer Bankruptcy Included in the Consolidated Appropriations Act, 2021 | Bradley Arant Boult Cummings LLP
On December 21, 2020, Congress adopted the Consolidated finance law 2021 (CAA 2021). Similar to the CARES law of March 2020, several temporary bankruptcy code changes are included in Title X of CAA 2021. Below, we take a look at four of the most significant changes CAA 2021 has made to bankruptcy laws. consumers. These changes are temporary and will end on December 27, 2021 or December 27, 2022.
Section 1001 of Title X of CAA 2021 deals with bankruptcy relief, including: a temporary revision of the definition of “estate ownership” to exclude certain federal coronavirus relief payments; temporary revisions to section 1328 to allow discharge despite the debtor’s failure to make all mortgage payments required under a confirmed plan; protection from discrimination in the loss mitigation process with respect to a borrower’s current or past bankruptcy status; authorization to file additional complaints related to abstentions, modifications and postponements of the CARES Act; and related changes to Chapter 13 plans based on these additional claims.
1. Courts can grant Chapter 13 releases to debtors who have defaulted on multiple mortgage payments.
Section 1001 (b) gives courts temporary discretion to grant, after notice and hearing, a Chapter 13 discharge even if the debtor has defaulted by up to three monthly residential mortgage payments. after March 13, 2020, due to COVID-19. Likewise, the bill gives courts temporary discretion to grant discharge to debtors who include residential property in a “remedy and maintain” plan and enter into a qualifying loan modification or forbearance. This amendment expires on December 27, 2021.
To obtain a Chapter 13 discharge despite the mortgage default, the debtor must establish that the missed payments were directly or indirectly caused by hardship related to COVID-19. The evidence needed to meet this standard will be played out in the courts. However, courts are likely to apply a flexible and lenient threshold in light of past litigation during the pandemic.
Article 1001 (b) does not appear to modify Article 1328 (a) (1) of the Bankruptcy Code, which excludes from the discharge of any long-term mortgage debt paid in accordance with Article 1322 (b) (5) (ie a “maintenance and healing plan”). Therefore, creditors will always have the right to pursue post-discharge remedies, such as foreclosure, if there are valid defaults. However, repairers will need to ensure that the accounting for these defects is correctly and precisely documented to avoid violations of discharge orders.
2. The CARES Act relief cannot be refused on the basis of a person having filed for bankruptcy relief.
Section 1001 (c) of Title X of CAA 2021 includes a prohibition on any discriminatory treatment based on a current or previous bankruptcy filing. Specifically, the bill states that an individual debtor cannot be denied relief from the CARES Act (e.g., a foreclosure moratorium, forbearance or eviction moratorium) based on past bankruptcy filings. or present. This amendment expires on December 27, 2021.
Mortgage agents should be extra careful when denying consumers relief from the CARES Act to ensure that the reason for such denial cannot be interpreted as being based on the consumer’s bankruptcy status. It is not clear at this time what grounds for denying the CARES Act relief for past or current debtors will be considered acceptable by the courts.
3. Mortgage agents may file late additional proofs of claim for claims amended by the CARES Act.
Third, section 1001 (d) allows mortgage agents to file additional proof of claim for payments withheld, deferred or otherwise amended under the CARES Act, even if the claim deadline has passed. In particular, the relief from the CARES Act extends to mortgages guaranteed by the federal government. These additional proofs of claim must include a description of the forbearance agreement or loan modification and a copy of the forbearance agreement or loan modification (to the extent that it exists) and must be filed. no later than 120 days after the end of the abstention period.
A number of practical considerations arise regarding these changes. For example, internal processes may need to be updated to ensure that these additional requests are met consistently and in a manner that accurately describes the relief from the CARES Act. Additionally, mortgage agents should be alert to when the CARES debtor relief expires to ensure that additional proof of claim is filed in a timely manner. If additional proofs of claim are not filed within 120 days of the end of the forbearance period, they will likely be time-barred and any amount owed will be unrecoverable.
4. Mortgage agents can file a motion to amend a Chapter 13 plan to provide for payment of additional proofs of claim.
Finally, Section 1001 (e) allows debtors, the court, the United States Trustee’s Office or any interested party to request the modification of a confirmed Chapter 13 plan to account for deferred payments under the United States. CARES law. This provision expires on December 27, 2021.
As such, mortgage agents with additional proofs of claim regarding the CARES Act relief should ensure that Chapter 13 cases are amended to allow payment on the additional proofs of claim before the end of the period. of the plan and the closure of the Chapter 13 case. If the debtor, or another interested party, does not file a motion to change the Chapter 13 plan, mortgage agents should be prepared to file their own motions requesting a change before the end of the plan period. Another issue that service agents must grapple with is whether and how they can recover the fees for such deposits.
Next Steps Mortgage Agents Should Take in Response to CAA 2021 Changes on Consumer Bankruptcies
Taken together, these bankruptcy provisions require mortgage agents to implement operational changes to ensure that they (1) do not deny relief from the CARES Act to borrowers due to bankruptcy, ( 2) file additional proofs of claim appropriate for borrowers who have received a CARES certificate Prohibit and (3) adjust their transactions to reflect changes to the Chapter 13 process, including responses to the notice of final healing.
CAA 2021 changes to consumer bankruptcy are somewhat vague. In addition, the practical implications of these changes have yet to be tested. For example, while it is beneficial for multiple parties to have the opportunity to file a motion to change the plan to accommodate additional proofs of claim, duty officers are likely to be reluctant to file such motions if they are not. able to recover attorney’s fees for filing and attendance. an audience. Additionally, discharging records before all payments have been made will inevitably lead to confusion for the borrower as to what amounts are properly owed after discharge on long-term mortgage debt.
As the courts interpret these new laws, we will better understand their impact on creditors and the operational changes needed to comply with them. As we await further guidance from the courts regarding these changes, mortgage officers should consider the updates highlighted here and the downstream effects on internal processes. We will continue to report on these developments.