Presented by the AFN’s Legal Services Committee
William M. LeRoy - Moderator
CEO
American Legal & Financial Network “AFN”
Carolyn A. Taylor, Esq. - Panelist
Partner
Hughes, Watters & Askanase, L.L.P.
Kelly Ann Poole, Esq. - Panelist
Partner
Rosicki, Rosicki & Associates, P.C.
Matthew C. Abad, Esq. - Panelist
Partner
Burke, Costanza & Cuppy L.L.P.
Michelle Garcia Gilbert, Esq. - Panelist
Attorney
Kass, Shuler, Solomon, Spector, Foyle & Singer, P.A.
H.R. 200 - “The Helping Families Save Their Homes in
Bankruptcy Act of 2009 “
S. 61 - “The Helping Families Save Their Homes in
Bankruptcy Act of 2009 “
H.R. 225 - “The Emergency Homeownership and Equity
Protection Act “
H.R. 200 - 1/27/09 House subcommittee:
be Reported (21-Y/ 15-N)
Ordered to
(R John Conyers-D/MI +16)
S. 61 - 1/6/09 Referred to Senate Committee;
Read
twice, referred to Committee on Judiciary (S. Richard Durbin-D/Il
+7)
H.R. 225 - 1/22/09 Committee hearings held (R.R. MillerD/NC + 13)
H.R. 200
Eligibility for Relief
Prohibit claims –violations
consumer protection statutes
Authority to Modify Mortgages
Combating Excess Fees
Confirmation of Plan
Discharge
Effective Date
§2
§3
--§4
§5
§6
§7
§8
Date of enactment
All cases filed on, before or after date of enactment of Act
H.R. 225
§2
N/A
--§3
§4
§5
§6
§7


Attention on the proposed legislation has been
directed to amendments that would allow for
cram downs of claims secured by debtor’s
principal residence.
Current - Section 1322(b)(2)”... The plan may…
modify the rights of holders of secured claims,
other than a claim secured only by a security
interest in real property that is the debtor’s
principal residence…”

Changing the eligibility requirements will
increase the number of debtors who will be
eligible to file a Chapter 13 and receive the
benefits of the proposed cram down legislation.

SEC. 1. SHORT TITLE.

SEC. 2. ELIGIBILITY FOR RELIEF.

SEC. 3. PROHIBITING CLAIMS ARISING FROM
VIOLATIONS OF THE TRUTH IN LENDING ACT.
Sponsor: John Conyers, Jr. (D) (Mi) 111th Congress
Proposed Amendments change

Computation of debt to qualify for
Chapter 13 [11 U.S.C. 109 (e)]

Mandatory Pre-Filing Credit Counseling
[11 U.S.C. 109 (h)]
Does NOT include secured or unsecured debts
secured by principal residence if

Current value less than secured debt limit OR

Sold at foreclosure or surrendered and current
value less than secured debt limit
Eligibility for Relief-Chapter 13

debtor files written certification

that received notice the note holder

may commence foreclosure against
principal residence
Eligibility for Relief-Chapter 13

Secured by principal residence

Subject to right of rescission under Truth in Lending

Not entitled to payment in bankruptcy

Notwithstanding prior entry of foreclosure judgment

Not affect debtors rights under other consumer
protection laws
11 U.S.C. 502(b) -Claims not entitled to payment
Who may be a debtor (Current)
(e) Only an individual with regular income…(and
such individual’s spouse) that owes, on the date
of the filing of the petition, noncontingent,
liquidated, unsecured debts of less than
$336,900.00 and noncontingent, liquidated,
secured debts of less than $1,010,650.00,

Individual

Regular income

Non-contingent, unliquidated, unsecured debts
under limit (< $ 336,900) *

Non-contingent, unliquidated, secured debts
under limit (< $ 1,010,650)*
* subject to adjustment

Job on payroll (receives IRS W-2)

Self employment (receives IRS from 1099)

Retirement, pension, social security, disability

May include regular 3rd party contributions
Eligibility for Relief-Chapter 13

Is not reliant upon other circumstances or
activities to formulate the amount of the debt

Liability to pay depends upon the occurrence of
an outside event

Capable of ready and precise determination


Viewing documents
Mathematical calculation

In a Chapter 13, a debtor can’t have more than
$1,010,650 in total secured debt. This means
that if a debtor either has a home or apartment
with greater than $1,010,650 in mortgages on
it, or has more than one property — such as a
primary home subject to a mortgage and 2nd
investment property subject to a mortgage —
with total debt on all properties greater than
$1,010,650, then Chapter 13 is not an option.
‘‘For purposes of this subsection, the computation of debts
shall not include the secured or unsecured portions of—
‘‘(1) debts secured by the debtor’s principal residence if
the current value of such residence is less than the
secured debt limit; or
‘‘(2) debts secured or formerly secured by real
property that was the debtor’s principal residence
that was sold in foreclosure or that the debtor
surrendered to the creditor if the current value of
such real property is less than the secured debt
limit.’’



Individual
Regular income
Non-contingent, unliquidated, unsecured debts
< $ 336,900.00, +
Non-contingent, unliquidated, secured debts
< $ 1,010,650.00
Except does not include mortgage on principal
residence when:
 value is less than the secured debt limit
 principal residence is sold in foreclosure or surrendered and the
value is less than the secured debt limit
Example:
John’s property has decreased in value. His
primary residence is currently valued at
$600,000. He has a 1st mortgage on his
primary residence in the amount of $400,000.
and a 2nd mortgage in the amount of $350,000.
He has a second piece of property currently
valued at $400,000. and a mortgage on that
property in the amount of $350,000.


Current
John’s total secured debt is $1,100,000. It is above the
secured debt limit of $1,010.650. Therefore he would
be prohibited from filing a Chapter 13 bankruptcy.
Proposed
The value of John’s principal residence is $600,000,
which is less than the secured debt limit of $1,010,650.
Therefore, in computing the total secured debt, for
purposes of eligibility John would not include the
$750,000. in debts secured by the principal residence.
John would be permitted to file a Chapter 13
bankruptcy.
Current
109(h) “…an individual may not be a debtor
…unless such individual has, during the 180-day
period preceding the date of filing of the
Petition… received from an approved…credit
counseling agency a briefing…that outlined the
opportunities for available credit counseling…”
‘‘(5) The requirements of paragraph (1) shall not
apply in a case under chapter 13 with respect to a
debtor who submits to the court a certification
that the debtor has received notice that the
holder of a claim secured by the debtor’s principal
residence may commence a foreclosure on the
debtor’s principal residence.’’.
Mandatory Debt Counseling
Has received notice


Written, verbal, either?
At what point in time ?
May commence foreclosure
Initial call from debt collector?
 30 day demand (notice of default and intent to
accelerate)?
 Loss mitigation contact?

(a) A claim or interest, proof of which is
filed under section 501 of this title, is
deemed allowed, unless a party in interest
…objects.
Except as provided in subsections (e)
(f), (g), and (h) and of this section, if such
objection to a claim is made, the court,
after notice and a hearing, shall determine
the amount of such claim in … and shall
allow such claim in such amount, except to
the extent that--
Except to the extent
(1) such claim is unenforceable against the
debtor and property of the debtor, under
any agreement or applicable law for a
reason other than because such claim is
contingent or unmatured;
(2) such claim is for unmatured interest;
Except to the extent
(3) if such claim is for a tax assessed against
property of the estate, such claim exceeds the
value of the interest of the estate in such property;
(4) if such claim is for services of an insider or
attorney of the debtor, such claim exceeds the
reasonable value of such services;
Except to the extent
(5) such claim is for a debt that is unmatured on the date of
the filing of the petition and that is excepted from discharge
under section 523(a)(5) of this title; or
(6) if such claim is the claim of a lessor for damages
resulting from the termination of a lease of real property,
such claim exceeds (stated amount)
Except to the extent
(7) if such claim is the claim of an employee for damages
resulting from the termination of an employment contract,
such claim exceeds (stated formula); or
(8) such claim results from a reduction, due to late
payment, in the amount of an otherwise applicable credit
available to the debtor in connection with an employment
tax on wages, salaries, or commissions earned from the
debtor; or
Except to the extent
(9) proof of such claim is not timely filed, except to
the extent tardily filed as permitted…
‘‘(10) the claim for a loan secured by a security
interest in the debtor’s principal residence is
subject to a remedy for rescission under the
Truth in Lending Act notwithstanding the prior
entry of a foreclosure judgment, except that
nothing in this paragraph shall be construed to
modify, impair, or supersede any other right of
the debtor.’’
Purpose:
• enable consumer to evaluate
• cost of cash vs. credit
• cost of credit among lenders
Applies:
• home equity, second lien, refinance (owner
occupied)
• secured by principal dwelling
• each consumer with ownership interest
(not just borrowers)
Applies:
• home equity, second lien, refinance (owner
occupied)*
• secured by principal dwelling
• each consumer with ownership interest (not just
borrowers)
* No rescission: purchase money; construction; refinance of second
home or investment/rental property
Lender Must Deliver:
• 2 copies of notice of right to rescind; and
• 1 copy of “material disclosures” *
to each consumer entitled to rescind
* Annual percentage rate; method of determining finance charge and balance
upon which imposed; amount of finance charge; amount financed; total of
payments; number of payments and due dates
Notice:

on separate document that identifies the
rescission period; and

clearly and conspicuously discloses
• security interest in principal dwelling
• consumer’s right to rescind
•
how to exercise rescission with form designating
lender’s address
To Exercise:
• consumer notifies lender by mail, telegram,
telegraphic or other written means
• at Lender’s designated address
• exercise by one consumer effective to all
Deemed Given:
• when mailed, filed, sent by other means, or delivered
to lender’s designated address
Timing: the later of
• midnight of third business day after
consummation of the transaction; or
• delivery of notice of right to rescind; or
• delivery of all required disclosures
Time computation:
• 3 full business days
• all calendar days except Sunday/ federal holidays
Example:
Closing: Thursday, January 15, 0001
all material disclosures given
Runs:
Friday, Saturday and Monday
Ends:
Midnight, Monday, January 19, 0001
Waiver:
• only for “bona fide personal financial emergency” *
with
• a dated written statement describing the
emergency, waiving the rescission right ; and
• signed by all consumers entitled to rescind
• preprinted forms prohibited
*
Personally or financially devastating, natural disaster, medical emergency
Disbursement of Loan Proceeds:
• rescission period expires; and
• lender reasonably certain no rescission
If exercise by mail, effective upon deposit when
mailed, even if received 4 – 5 days after closing
• written confirmation from all consumers of
no rescission (dated after closing)

security interest void

consumer must return principal

consumer no longer liable for any amount, including
finance charges

w/in 20 days of receipt of rescission lender must
• refund any money/property given
in transaction; and
• terminate the security interest
Effect of Non-Compliance
•
the 3 day rescission does not begin run until all
disclosures and the rescission notice given
•
rescission may occur for up to 3 years
•
the security interest is void
•
must refund all finance charges and other fees
collected over life of loan
Lender Defenses:
Unintentional Violation
Bona Fide Error
•
show by preponderance of evidence
•
not intentional and
•
resulted from bona fide error
•
notwithstanding maintenance of procedures reasonably
adapted to avoid such errors

Are the bona fide error /unintentional violation defenses
available to lenders?

How is the challenge to the claim raised? Claim
objection? Motion? Adversary proceeding?

Who can raise the challenge? The Debtor? The
Trustee? A party in interest?

Do the amendments apply to all other consumer
protection statutes? Both state and federal? Or only to
those with rescission as a remedy?
If you have any further questions that were not
addressed in this presentation, or want to contact one
of our speakers, please email Matt Bartel, COO of
AFN, at mbartel@e-afn.org.
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directed to at the conclusion of this presentation.
* AFN provides the information contained in these webinars as a public service for
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an attorney-client relationship. It is not intended to constitute legal advice or to
substitute for obtaining legal advice from an attorney licensed in the relevant
jurisdiction.