Operating a consumer finance company in normal times is no simple process—in the on-going pandemic, it is even tougher.  

This may be a good time to step back a minute to examine the most common mistakes that we see made by finance companies.  I offer the following for your consideration:  

COVID-19 has quickly and vastly impacted our world and created a lot of uncertainty. Most courts in the country are operating on atypical and limited schedules while conducting many hearings on a telephonic basis. The same is true of the bankruptcy courts in Alabama. However, the prophylactic measures currently in place do not limit financially troubled borrowers’ ability to file for bankruptcy protection. While the full extent of COVID-19’s impact remains unclear, we can safely assume that many, if not most, businesses will be negatively impacted.

It is hard to deny the growing sense of uncertainty that has developed since 2011 when the Bankruptcy Rules were amended to add Rule 3002.1 which requires, among other things, a notice to be filed itemizing any post-petition fees, expenses or charges incurred in connection with their claim.  With more and more disputes arising between Chapter 13 creditors, debtors and trustees over the reasonableness and entitlement of those fees it is imperative that creditors understand the best practices for recovering the full amount of their fees and how to defend against any unwanted objections.

Bankruptcy is always a hot topic among consumer creditors. After all, it is the “necessary evil,” which all lenders learn to address—sooner or later. I want to take a moment to address the aspect of bankruptcy being used as a sword and not a shield as it was intended by Congress.

Breach letters have been heavily litigated in many states, but up until now, Alabama has generally stayed out of the fray. Not any longer. In September 2017, the Supreme Court of Alabama found that failure to strictly comply with the requirements of the mortgage invalidates a foreclosure sale. Ex Parte Turner, __ Ala__ (2017). In this case, after the borrowers defaulted on their loan, the loan servicer sent a letter notifying them of its intent to foreclose on the property (the “Default Letter”).

The chorus is getting louder from the stakeholders in the consumer finance and housing industries for legislative, executive or judicial re-structuring of the CFPB, so the CFPB probably thinks it has it pretty tough right now.

Finally, after several years of debate, major changes have been approved that will have a profound impact on consumer bankruptcy cases. On April 27, 2017, the Supreme Court of the United States, through Chief Justice John Roberts, submitted to Congress amendments to the Federal Rules of Bankruptcy Procedure which set forth extensive changes dealing with forms and filing of claims.

Imagine a creditor filing a claim in a chapter 13 bankruptcy case where neither the debtor nor the bankruptcy trustee objects to the claim. Imagine the chapter 13 plan is confirmed, including the claimed debt, though the creditor receives little to nothing in return for its claim. Can the debtor later bring a separate action under the Fair Debt Collection Practices Act or does res judicata bar the FDCPA claim?

This week we present for your consideration two cases: (a) an Alabama Court of Civil Appeals decision setting aside a default judgment against a car dealership because the defendant’s delay in answering complaint was not unreasonable when defendants tendered complaint to attorney when served; and (b) an Eleventh Circuit decision regarding the classification of promissory notes from an involvement developer as senior debt in a bankruptcy.

In this week's Alabama Law Weekly update, we report on two decisions. The first case is from the Alabama Supreme Court and considers whether an employee, who was a significant contributor in the creation of intellectual property patented by his employer, is entitled to a portion of the income that the employer received in a subsequent stock sale. The second decision is from the Eleventh Circuit Court of Appeals and considers the factors for bankruptcy courts to analyze when approving releases of claims against non-debtors, such as officers and directors of reorganized entities.