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.

On December 22, 2018, the federal funding for certain agencies lapsed, and the United States government entered into a partial shutdown. The U.S. Department of Justice (DOJ), including the United States Trustee Program (USTP), was one of the agencies that shut down. United States Trustees (“UST”) representing the USTP appear and litigate in a multitude of bankruptcy proceedings. USTs also actively participate in out-of-court settlement discussions, plan negotiations, and the like.

Introduction

In Botsman v Bolitho [2018] VSCA 278, the Court of Appeal unanimously allowed an appeal from the decision of Croft J to approve the settlement of two related proceedings arising from the failed merger of Banksia Securities Limited (Banksia) and Statewide Secured Investments Limited (Statewide).

In this proceeding, the Full Court of the Federal Court considered three main issues:

• whether certain on-lending arrangements gave rise to legitimate tax deductions for interest;
• duties and liabilities of directors who were not directly involved in the impugned transactions; and
• costs payable by a representative where claims were brought against the estate of a deceased director and the representative of that estate, in his own right.

Facts

Two companies which contended they were ‘unquestionably solvent’ were unsuccessful in an application to injunct a party from instituting proceedings to wind them up. This decision clarifies the extent to which the case law on abuse of process made prior to the enactment of Part 5.4 of the Corporations Act continues to apply.

Facts

In Longley v Chief Executive, Department of Environment and Heritage Protection [2018] QCA 32, the Queensland Court of Appeal has clarified the ability of liquidators to disclaim onerous property, including obligations that arise in respect of that property under State environmental legislation.

The Victorian Court of Appeal and a Full Court of the Federal Court have each recently held that the statutory priority regime applies to the winding up of companies that act as trustees of trading trusts, confirming that employee claims and a liquidator’s remuneration and costs are priority debts. Special leave to appeal the Court of Appeal’s decision has been sought.

As the effective date for the CFPB’s successor in interest and bankruptcy billing statement requirements quickly approaches, one question we’ve heard multiple times is whether a mortgage servicer is required to know when a confirmed successor in interest is in bankruptcy. The question stems from upcoming provisions in Regulations X and Z that will collectively say, in essence, that a confirmed successor in interest must be treated as if he or she is a borrower for the purposes of the mortgage servicing rules.