Chicagoans have found a new avenue through which to regain possession of their vehicle after it has been impounded by the City: file a chapter 13 bankruptcy case. In 2018, 17,603 new chapter 13 bankruptcy cases were filed in the Northern District of Illinois. By comparison, in 2018, the Middle District of Florida, one of the busiest bankruptcy courts, saw 6,650 new chapter 13 cases filed, and the Southern District of California, another large bankruptcy district, saw 1,426 new filings.

The American Bankruptcy Institute’s Commission on Consumer Bankruptcy released its Final Report and recommendations on April 12, 2019. The commission was created in 2016 to research

and develop recommendations to improve the consumer bankruptcy system. During its review, the commission focused on new trends regarding how Americans are incurring debt. At the conclusion of its review, the commission created a Final Report which includes recommendations for amendments to the Bankruptcy Code and Rules to make the bankruptcy system more approachable and efficient.

Two weeks ago, we discussed asset sales under Bankruptcy Code section 363. As that post noted, section 363 requires court approval for asset sales outside the ordinary course of business, with courts ensuring that sales reflect a reasonable business judgment and have an articulated business justification. Debtors may choose to sell assets via a public auction or through a private sale.

When a debtor files for bankruptcy, almost all proceedings to recover property from the debtor are automatically stayed by force of law. See 11 U.S.C. § 362(a). This provision, known as the automatic stay, is a central feature of the bankruptcy process, but uncertainty remains about aspects of its scope.

Part III: Modifications Post-Discharge

When a party files for bankruptcy, the Bankruptcy Code imposes an automatic stay of litigation against a debtor for claims arising prior to the commencement of the bankruptcy case. See 11 U.S.C. § 362(a). Where there is a basis for bankruptcy jurisdiction in federal court, federal law also permits parties to a state court action to remove the state court action to the federal district court for the district in which the state court action is pending. See 28 U.S.C. § 1452(a).

Individuals have several options when filing bankruptcy. Chapter 13 is often preferred for individuals with regular income who wish to keep their homes and other secured assets. In a Chapter 13 filing, the court will approve the debtor’s three-to-five-year payment plan, which generally provides for curing any pre-petition delinquency, maintaining payments on secured debt, and a pro rata payment to unsecured creditors based on the debtor’s disposable income. After a Chapter 13 debtor completes his plan, he will receive a discharge of some of his remaining, unpaid debts.

Welcome to Part II of our series on the servicing of discharged mortgage debt (catch up on Part I). This part will discuss communications to discharged borrowers and evaluate various disclaimers that can be utilized.

Mortgage servicers are plagued by their nebulous relationships with the borrowers who discharge their personal liability in bankruptcy. Issues arise when the borrower whose debt has been discharged continues to engage with the mortgage servicer. These activities include making monthly payments and requesting and participating in loss mitigation. There are few, if any, bright line rules regarding this common scenario.

Fraudulent transfer law allows creditors and bankruptcy trustees, under certain circumstances, to sue transferees to recover funds received where a debtor’s transfers to the transferees actually or constructively defrauded its creditors. Under both the Uniform Fraudulent Transfer Act adopted by most states and the fraudulent transfer action created by federal bankruptcy law, a transferee of an alleged fraudulent transfer may assert a defense from such liability by establishing that it received the transfer in good faith and for reasonably equivalent value. See 11 U.S.C.