Web posted and Copyright © 1/12/98, American Bankruptcy Institute.

The following abstract summarizes the text of submissions made to the National Bankruptcy Review Commission. The abstract is organized by NBRC working group and topic.

The Final Report of the NBRC can be viewed on-line. To obtain a copy of any document shown below, contact the Center for Legislative Archives, Room 205, National Archives Building, Washington, D.C. 20408. The telephone number is 202/501-5350. Mr. R. Michael McReynolds, Deputy Director, will be able to assist with specific inquiries. (The NBRC documents will be housed at this location until June, 1999. Thereafter, the records will be transferred to the Center's archives in College Park, MD.)

Consumer: Liens
IDNameGroupOtherCode
Sec
Cross
Ref
Problem ReferencedProposed Solutions
NBRC-
0002
Jack N. BeasleyPresident; Liberal Loans of Louisiana, Inc. (Credit Company)11/13/95 Letter from Rep. Jim McCrery361503Chapter 13 plans permit debtors to retain oversecured property without paying creditors use value.Creditors should have option of retaining collateral in lieu of debt.
NBRC-
0074
William E. CumberlandGeneral Counsel; Mortgage Bankers Ass'n of America


Emphasis should be given to stated Congressional goal of home ownership and recognition of protections afforded home mortgage holders in chapter 13.The Code provides too much room for decisions that are not sympathetic to the manner in which home ownership is financed. System prior to '94 amendments worked just fine. Congress should clarify its expressed intent to provide protection to home mortgage finance in bankruptcy.
NBRC-
0101
Ike SchulmanPresident; National Association of Consumer Bankruptcy AttorneysInvited Participant to numerous NBRC meetings.

Although debtors do have the right to cure their mortgage defaults in ch. 13, the case of Rake v. Wade impaired debtors' ability to save their homes by requiring them to pay interest on mortgage arrears, even if interest is not permitted by the underlying contract or state law. The 94 Act partially addressed this problem by reversing Rake v. Wade, but only for mortgage contracts entered into after 10/22/94. Not only does the additional interest on arrears make it impossible for some debtors to save their homes through ch. 13, but it also provides creditors with an unexpected and unjustified windfall.NACBA recommends that the reversal of Rake v. Wade be extended to all mortgage contracts.
NBRC-
0101
Ike SchulmanPresident; National Association of Consumer Bankruptcy AttorneysInvited Participant to numerous NBRC meetings.

A key feature of ch. 13 is the debtor's ability to "strip down" most secured claims. Permits debtors to repay secured creditors the value of their secured interest through the ch. 13 plan while reducing the balance of the creditor's claim to unsecured status. Enables many debtors to retain secured goods, including vehicles, which, if the debtor were required to pay the full contract balance through ch. 13 would make the plan unfeasible. Without ch. 13 protection for the debtor, the creditor would most likely repossess and liquidate its collateral and be left with an unsecured claim. Instead, under ch. 13, the secured creditor receives through plan payment of an amount which is equivalent to the expected net recovery on a hypothetical surrender of the collateral. The strip-down thus prevents the partially secured creditor from exercising unfair leverage to the detriment of both the debtor and unsecured creditors. The result is consistent with and based upon the historical treatment of partially secured creditors' claims in bankruptcy, known as the "bankruptcy Rule" which can be traced back to 16th century English law.NACBA recommends that there be no change in the current law allowing strip-down of partially secured claims.
NBRC-
0101
Ike SchulmanPresident; National Association of Consumer Bankruptcy AttorneysInvited Participant to numerous NBRC meetings.

Under current law, ch. 13 debtors may not strip down partially secured claims of mortgage lenders involving long-term loand where the sole security is the debtor's residence. The limitation on the strip-down has been defended as necessary to protect the policy of promoting home ownership by encouraging home lenders to make purchase money loans to home buyers without the risk of strip-down security interests. However, current law incidentally protects non-purchase money lenders as well as purchase money lenders, even though no public policy is furthered by such protection.NACBA recommends that the bankruptcy code be amended to alow chapter 13 debtors to strip down the claims of all non-purchase money mortgage lenders.
NBRC-
0101
Ike SchulmanPresident; National Association of Consumer Bankruptcy AttorneysInvited Participant to numerous NBRC meetings.

In 1992, the Supreme Court in Dewsnupp v. Timm, held that a chapter 7 debtor could not strip down the claim of a partially secured consensual mortgage lender. Although the facts in Dewsnupp were quite unique (involving a pre-Code mortgage contract) and the Supreme Court decision itself cautioned against the application of its holding to other factual situations, many courts have extended Dewsnupp and severely curtailed debtors' right to strip down other types of liens in ch. 7 cases. This extension of Dewsnupp's holding has diminished the "fresh start" for ch. 7 debtors intended by congress.NACBA recommends that the Bankruptcy Code be amended to clarify that liens, except for consensual mortgage liens, of partially secured creditors may be stripped down in ch. 7 and all other chapters of the bankruptcy code.
NBRC-
0116
Kenneth J. DoranLaw Offices of Kenneth J. DoranParticipated at Consumer Bankruptcy Working Group on July 19.

Standard applied in valuation of a creditor's allowed secured claim for property debtor wishes to retain in a Chapter 13 is unclear.With respect to property that a debtor wishes to retain in a Chapter 13 case, secured claims should be valued at a "wholesale" rate.
NBRC-
0119
William C. WhitfordProfessor


Debtors who cannot afford to file a chapter 13 case do not have the same legal rights to protect collateral from repossession as do better healed debtors.Provide similar rights for secured creditors in chapters 7 and 13.
NBRC-
0120
Judith ElstonChrysler Financial Services, Toyota Motor Credit Company, Ford Motor Credit Company, General Motors, and American Financial Services


Debtors who purchase new vehicles on the eve of bankruptcy are able to obtain the new car for less than the contract amount.Amend the Code to provide that secured collateral/vehicles purchased within 90 days of the petition date should be placed in the plan as a secured debt for the full amount of the contract and at the full contract rate of interest.
NBRC-
0120
Judith ElstonChrysler Financial Services, Toyota Motor Credit Company, Ford Motor Credit Company, General Motors, and American Financial Services
348521Secured creditors must release their liens in bankruptcy prematurely.Amend the Code to provide that a secured creditor need not release its lien in a Chapter 13 case prior to entry of a discharge order. Amend the Code to provide that at the time of the conversion to Chapter 7, secured collateral should be treated as if a Chapter 7 had been filed (thereby triggering the requirement that the debtor file a statement of intention).
NBRC-
0120
Judith ElstonChrysler Financial Services, Toyota Motor Credit Company, Ford Motor Credit Company, General Motors, and American Financial Services


Varying applications of the Bankruptcy Code to secured creditors decreases predictability and increases transactions costs.The Code should be amended to specify when confirmation of Chapter 13 plans will take place, when adequate protection payments will be made, and require secured creditors to be paid concurrently with administrative and priority creditors. Adequate protection payments should cover the depreciation of the collateral/vehicle or a statutory 2% of the secured value. Creditors who have repossessed collateral prior to the petition date should be allowed to keep the collateral without penalty of violating the automatic stay until adequate protection payments have begun.
NBRC-
0120
Judith ElstonChrysler Financial Services, Toyota Motor Credit Company, Ford Motor Credit Company, General Motors, and American Financial Services
506
Undersecured creditors are not entitled to interest on their undersecured claim between the petition date and confirmation or effective date. Thus, undersecured creditors are irrevocably harmed and the Chapter 13 debtor receives a windfall.Modify § 506(b) to state that interest begins accruing on secured claims and the secured portion of undersecured claims upon the petition date, not the effective date of the plan.
NBRC-
0120
Judith ElstonChrysler Financial Services, Toyota Motor Credit Company, Ford Motor Credit Company, General Motors, and American Financial Services
506
Valuation of property on which secured creditors hold liens varies wildly by jurisdiction.Amend § 506 to provide that personal property retained by debtors during bankruptcy should be valued at the replacement value (as it would have been at the time of the petition), without deduction for sale costs.
NBRC-
0120
Judith ElstonChrysler Financial Services, Toyota Motor Credit Company, Ford Motor Credit Company, General Motors, and American Financial Services
362
The automatic stay is inconsistently applied, thereby decreasing predictability and increasing expense for secured creditors attempting to obtain a lift of the stay.The Code should be amended to provide that the automatic stay hearing be conducted within 30 days from the date the motion is filed. If there is no opposition, no hearing should be required and an order entereed. If no decision is rendered in the 30-day period, the stay should be automatically lifted.
NBRC-
0133
William E. CumberlandGeneral Counsel; Mortgage Bankers Ass'n of America


Congress has a priority of widespread home ownership and the intricate system that finances home ownership. Courts continue to try and thwart this priority. See Lomas Mortgage (first cir.) and In re Johns (third cir.). The Code as currently drafted provides room for decisions that are not sympathetic to the manner in which the home finance system actually works.Clarify that home mortgages may not be modified. NBRC should recommend that Congress clarify its expressed intent to provide protection to home mortgage finance in bankruptcy proceedings.
NBRC-
0123
Henry J. SommerNational Bankruptcy ConferenceSubmitted report entitled "Reforming the Bankruptcy Code"506
Lien stripping law in Chapters 7 and 13 is not uniform.Permit a Chapter 7 debtor to use § 506 to strip down a lien on any collateral and, for loans secured by a lien on consumer goods or on the debtor's principal residence, the bankruptcy court should be empowered to determine the resulting terms of the lending agreement with respect to the time and amount of payments by the debtor to satisfy the lien indebtedeness.
NBRC-
0123
Henry J. SommerNational Bankruptcy ConferenceSubmitted report entitled "Reforming the Bankruptcy Code"

The 1994 amendments only partially overrruled Rake v. Wade. This decision cost almost every Chapter 13 debtor desiring to save a home from foreclosure thousands of dollars of additional interests on interest, and interest on other fees and charges.Amend the Code to clarify that when a default on a long-term obligation is cured under a chapter 12 or 13 plan, interest and other costs shall be payable only if, under the contract and applicable nonbankruptcy law, such interests and costs would have been paid in a nonbankruptcy cure of the default.
NBRC-
0123
Henry J. SommerNational Bankruptcy Conference
1325722Case law is confused regarding valuation of property and interest rates in chapter 13.Clairfy the Code to provide that, for purposes of giving creditors present value under § 1325(a)(5)(B), the appropriate interest rate is one which approximates the creditor's cost of funds, and should be, presumptively, the prime rate of interest. The Code should be clarified to provide that collateral should be valued for purposes of sections 1325(a) and 722 based upon the amount the secured creditor would realize if it were permitted to liquidate the property, taking into account costs of sale, i.e. at wholesale value.
NBRC-
0152
Kenneth L. RobinsonPresident; National Ass'n of Federal Credit Unions


Problem of lack of uniformity in automobile valuation. Valuation is inconsistent throughout the country.Many jurisdictions value cars at blue book value, however, blue book value does not always reflect actual condition of the car or price vehicle will command on the market. A more just representation of a vehicle's worth is the retail value. Courts can arrive at retail value by using a general purpose vehicle pricing guide.
NBRC-
0223
Frank R. KennedyProfessor, Michigan Law School; former Executive Director, Commission on the Bankruptcy Laws of the United States (1973)List of additional recommended topics for consideration

The 1973 Commission concluded that the Bankruptcy Act did not contain adequate provisions dealing with statutory liens. The Bankruptcy Reform Act of 1978 fell far short of curing these inadequacies.Bankruptcy Code should be amended to address the inadequacies of the statutory lien provisions (author does not provide further detail).
NBRC-
0223
Frank R. KennedyProfessor, Michigan Law School; former Executive Director, Commission on the Bankruptcy Laws of the United States (1973)Cover letter discussing various areas of concern

Author provides a list of 30 "Topics for Consideration by Commission on Bankruptcy Laws." The recommended topic relating to liens was: Statutory liensNone.
NBRC-
0228
Vicent P. ZurzoloBankruptcy Judge (C.D. Cal.)Article in "Bankruptcy Court Decisions" about a survey conducted by members of the American Bankruptcy Institute506(d)
"Does the decision of the Court in Dewsnup v. Timms, 502 U.S. 410, 112 S.Ct. 773 (1992) apply in all chapters so that liens cannot be avoided simply because the lienholder is undersecured"None provided.
NBRC-
0320
Robert M. Zinman, on behalf of the Bankruptcy InstituteAmerican Bankruptcy Institute ("ABI")Numerous position papers, memoranda and research material1322(b)(2)
The author attaches a white paper by Janna L. Countryman entitled "Mixed Collateral Under § 1322(b)(2)". The paper summarizes cases that address bifurcation of mortgage liens.None.
NBRC-
0334
Vicent P. ZurzoloBankruptcy Judge (C.D. Cal.)
506(d)
The author poses the following question about the treatment of liens: "(1) Section 506(d) -- Does the decision of the Court in Dewsnup v. Timms, 502 U.S. 410, 112 S.Ct. 773 (1992) apply in all chapters so that liens cannot be avoided simply because the lienholder is undersecured"None.
NBRC-
0334
Vicent P. ZurzoloBankruptcy Judge (C.D. Cal.)
365
The author poses the following question about the treatment of leases: "Does the rejection of a lease pursuant to 11 U.S.C. Section 365 constitute a termination of the lease and all benefits that go with it"None.
NBRC-
0335
Kirk SwinneyAttorney
724(b)
The author represents Texas local ad valorem tax jurisdictions in bankruptcy courts, and notes that in Texas ad valorem taxes are protected by a senior lien on all property taxed, recognizing the extreme importance of the tax base to local jurisdictions. The effect of § 724 is to totally upend the state ordered property rights at the expense of the local jurisdictions which have provided police protection, fire protection, education, roads, a judicial system, and all other forms of local government that enhance the value of the taxed property.Section 724(b) of the Bankruptcy Code should be repealed.
NBRC-
0337
Jonathan V. MaxwellCounty Attorney, Guilford County, North Carolina
724(b)505In recent years, the author has observed an increase in a number of situations where creditors, often unsecured, "gang up" on the Tax Collector in order to deprive the Tax Collector of the preferred status he is afforded by state and bankruptcy laws. Section 724 and to a lesser extent § 505 are being used in creative ways to circumvent the preferred lien status given to tax liens.Section 724(b) should be repealed, or at least amended to prevent this section from being used to deprive the Tax Collector of preferred lien status.
NBRC-
0461
Win Lievsay Private citizen
1123(b)(5)1322(b)(2)"Resolving in favor of a debtor's fresh start the intracircuit and intercircuit judicial controversy on 11 USC 1123(b)(5) and 11 USC 1322(b)(2) as regards what constitutes 'additional security' that is not a debtor's primary residence." Author is currently in bankruptcy proceedings and fighting to keep his house. He asserts it is ironic that while the creditor fights on principle to take the house, if debtor prevails everyone will be better off."The code must be changed to eliminate this anomoly."
NBRC-
0541
Dean S. CooperAssociate General Counsel, Federal Home Loan Mortgage Corporation ("Freddie Mac")
1322(b)(2)

"If the Commission is inclined to modify existing section 1322(b)(2), we suggest that home improvement loans be given the same protection against cramdowns as purchase money mortgages and refinances of such mortgages under the Working Group's proposal."
NBRC-
0582
Fred ThompsonUnited States Senator, Tennessee


Senator Thompson writes on behalf of a consituent, Ray Berryman, who owns a used car dealership in Jackson, Tennessee, and who has complained of sizeable litigation costs incurred while attempting to recover property under current bankruptcy laws.Author wanted a letter responding to Mr. Berryman's concerns, and for his comments to be kept in mind as the Commission prepares its report to Congress.
NBRC-
0583
John C. AkardBankruptcy Judge, Northern District of TexasSix other letters of the same date dealing with Chapter 13 issues.

Under Federal Rule of Bankruptcy Prodecure 3002(a), only unsecured creditors are required to file a claim....Administrative difficulties are created when the secured creditor does not file a claim." Chapter 13 trustees would like verymuch tohave a requirement that secured creditors file a claim within a specified time. But what happens if the car creditor does not file within the specified timeAuthor sympathizes with the trustee's desire for administrative ease; however, "[w]ithout some very detailed and definitive rules, [author is] afraid a requirement that secured creditors file claims by a particular time would result in more problems than it solves."
NBRC-
0605
Kenneth L. RobinsonPresident, National Association of Federal Credit Unions (NAFCU)


If creditors believe their liens are not secure, as the result of a possible bankruptcy filing, they are more likely to increase the cost of these loans and less likely to make home equity loans.Non-purchase money liens against an individual's home shold be treated like all other secured debt.
NBRC-
0694
James H. CossittAttorney


In the Final Report of the National Bankruptcy Conference's Code Review Project, issued 5/1/94, the Conference recommended that chapter 7 debtors should be able to "strip down" liens under §506 and the In re Dewsnup be overruled. The Conference articulates sound reasons for this proposal which the NBRC ought to give more consideration in formulating it's consumer proposals.
NBRC-
0697
Jo WhiteLaw Clerk to Judge John C. Akard, U.S. Bankruptcy Court, Northern Distric of Texas



"A change in the Code to permit debtors to treat nonpurchase money liens against the home like all other secured debt is a good way to make sure the debtor is not paying second and third mortgages that exceed the home's value. It is not necessary to institute a uniform income-based repayment plan in order to allow debtors to deaccelerate and cure."
NBRC-
0726
Ken Crone, Saul Eisen, Hank Hildebrand, Ike ShulmanAmerican Bankruptcy Institute Consumer Bankruptcy Reform Forum
7221325How should rent-to-own contracts, which do not fit neatly into the definition of "lease" or "sale" be treatedThese types of obligations should be recharacterized as installment sales to allow the treatment as afforded under the applicable provisions of the code; however, this must be crafted in a manner to avoid any negative impact on "true leases." This could be done by treating the transaction as an installment sale for purposes of bankruptcy by amending Section 365.
NBRC-
0729
Gerald L. White & Gary H. GaleAttorneys, White & Gale


"The IRS liens attach to all of a debtor's assets held as of the date of filing, even if the underlying debt is subject to discharge. It doesn't make sense that the lien attaches to assets that aren't subject to levy under Internal Revenue Code provisions. It works an extreme hardship to debtors who have a retirement plan. In a chapter 7, even if the debtor is not entitled to withdraw retirement benefits without penalties the IRS takes the position it can force a withdrawal, including any amounts the debtor can borrow, by enforcing its lien. The IRS then charges the taxpayer for any penalties and tax on the seized funds! In a chapter 13, the lien value has to account for the present discount value of the plan.""...these policies severly limits [sic] the ability of retirees to support themselves and should be re-considered."
NBRC-
0730
Thomas C. LeducDirector of Regulatory Issues, Michigan Credit Union League


"Under Chapter 13, secured creditors are only treated as secured up to the value of their collateral. In other words, the secured debt is "crammed down" to that value (and the balance is treated as an unsecured claim).""The Taks Force Recommends that the debtor's ability to cram-down secured debts in Chapter 13 should be removed from the Code."
NBRC-
0753
Neil J. FogartyPresident, Consumers League of New JerseyFact summaries of 4 cases; 2 copies of Lease Agreement and Consumer Lease Disclosure Statement.

Written copy of testimony before Commission. Speaker addressed the issue of "Rent to own," which he said "is a retail installment sale pretending to be a lease", quoting the Superior Court of NJ."The Bankruptcy Code should treat rent to own in law according to its economic reality: RTO is a credit sale, with a security interest, at usurious interest rate, under deceptive circumstances."
NBRC-
0766
Gary KleinNational Consumer Law Center, Inc.Copy of article by Professor Julia Patterson Forrester in "The Brief" of the Southern Methodist University Law School, entitled: Home Equity Financing: Is the Federal Government Mortgaging the American Dream"; and, package of recent home equity loan transactions;506(a), (d)
Author is forwarding article on home equity lending, as well as a package of recent typical home equity loan transactions which have driven the borrowers involved into bankruptcy. "The process of limiting a security interest to the value of the creditor's collateral pursuant to 11 U.S.C. § 506(a), (d) is a well thought out balancing of the relative rights of secured and unsecured creditors as well as a key provision of the fresh start for consumers who own homes.""I hope the Commission will not recommend a substantial exception to the rule allowing stripdown of secured claims which is broad enough to apply to high rate home equity loans."
NBRC-
0768
Alan OlsenManager/Treasurer, Evergreen Federal Credit Union


Author opposes permitting debtors to strip-down or cram-down values on collateral such as automobiles and junior lien mortgages because it would have a detrimental affect on all borrowers by raising interest rates to pay for potential losses, lowering lending limits on collateral to ensure that the financial institution is protected or possibly eliminating small institutions from granting any such type of loan because they can't afford to risk the huge losses this proposal would grant to borrowers.Do not allow debtors to cram-down value on collateral.
NBRC-
0789
John BechtholtCEO, TAPCO Credit Union


Author is concerned by the proposal that would treat subsequent mortgages differently from first mortgages. "We do not use second mortgages as a subtitute for an unsecured line of credit. Frequently the purpose of the loan is for home improvement. The member must meet our lending parameters and there must be sufficient equity in the property....Modification of our rights, such as 'lien stripping,' would certainly affect our lending program in this area....The threat to 'lien strip,' even if we are adequately protected by sufficient equity, could trigger expensive valuation litigation."No specific solution proposed.
NBRC-
0794
Karen CordryBankruptcy Counsel, National Association of Attorneys General (NAAG) (comments are her own, however, because there was not enough time to review the issues in depth with the Attorneys General)


With regard to the treatment of conversion claims, author "generally agree[s] with the thrust of this provision and the related provisions in the consumer bankruptcy proposal. They obviously seek to strike a reasonable compromise between the creditor's right to protect a true security interest, and the debtor's right not to be harassed or coerced with respect to 'security interests' taken in goods which could not reasonably be viewed as supporting any asset-based collection activities. The states were concerned with these issues with respect to the controversy involving Sears and its efforts to obtain reaffirmation agreements.""I take no position on whether the $500 per item value is an appropriate amount (to determine whether the creditor truly views the goods as supporting any asset-based collection activities), but the proposal might also want to consider some cumulative minimym as well. A debtor who buys and resells ten $490 VCRs the week before filing bankruptcy is probably guilty of conversion even if each individual purchase was for less than $500."
NBRC-
0804
Robert R. WeedAttorney, Law Office of Robert Ross Weed


"The general rule in bankruptcy is that the creditor receives the value of his secured interest. The exception giving more than the value in Chapter 13 to home mortgages is supported by public policy concerns about the mortgage industry. Those concerns do not apply to under secured second mortgages." Second mortgage lenders whose loan amounts fall within the value of the mortgaged property do not have to worry about a lien stripping provision, only those who lend for more than the value of the property at exhorbitant rates. There is no public policy which would justify an exception for the latter type of lender."I also agree strongly with the lien stripping of second mortgages in Chapter 13."
NBRC-
0804
Robert R. WeedAttorney, Law Office of Robert Ross Weed


"You may know there is a substantial body of opinion among the debtor bar that says we should advise the client to ignore all claims that retailers are secured, and simply deal with the very rare action in replevin when they arise. I don't think that's consistent with our position as officers of the court, but it gives a competitive advantage to attorneys who follow that policy compared to attorneys that feel these claims need to be negotiated or litigated.""The $500 compromise on purchase money security interests also seems reasonable."
NBRC-
0806
Jill M. SturtevantAssistant General Counsel, Bank of America


Bank of America opposes the Commission's proposal to allow liens on homes other than first mortgages and refinanced first mortgages to be stripped. Among other problems, this proposal will result in increased rates and harsher credit underwriting which will harm consumers seeking to obtain home equity financing."If the intention of this proposal is to discourage lenders from knowingly lending over the value of the property, then the stripdown shoule be based on the property's appraised value at the time of the loan, rather than the present value of the property at the time of filling." Also, the non-stripped portion of the loan should be paid pursuant to the original contract terms for interest rate.
NBRC-
0806
Jill M. SturtevantAssistant General Counsel, Bank of America


"Bank of America opposes the Commission proposal's use of unequal standards for determining the value of collateral.""We urge the Commission to codify the "replacement value" rule recently decided by the U.S. Supreme Court."
NBRC-
0806
Jill M. SturtevantAssistant General Counsel, Bank of America


The Bank of America opposes the proposal to void security interests on collateral worth $2500 or less.Secured creditors whose collateral secures principal balances as of the day of filing that are less than $500 would have the option to choose whether to take their collateral back, or to be treated as unsecured. No reaffirmations or surrenders would be permitted.
NBRC-
0811
Sharon KellyPresident, Alaska State Employees Federal Credit Union


"The [Consumer Bankruptcy Working] Group's proposed reform would...treat non-purchase money mortgages like any other secured debt. This would mean the amount owed to second mortgage holders could be crammed down if the property value had dropped below the total amount owed. This practice has already been abandoned once with great success and we are unclear why there is now an attempt to bring it back. In effect, this proposal would only hurt lenders who are trying to help individuals consolidate debt and therefore avoid bankruptcy in the first place. Surely the Commission does not want to create law that will diminish debtors' alternatives to bankrutpcy.""We encourage the Commission to leave...mortgages unchanged."
NBRC-
0812
Bernard S. Via, IIIAttorney, Via & Frye


Why should the creditor get more in value for the collateral in a chapter 13 than they would if there was a repossession and sale at auction value."Secured interest should follow the test of what they would get if the debtor was in chapter 7, that being less than retail value. At least no more."
NBRC-
0832
Arthur S. WeissbrodtU.S. Bankruptcy Judge, Northern District of California


Author supports the Commission's proposals regarding the stripping down of second and third home loans. "A basic principle of bankruptcy is that a secured creditor is only secured to the extent of the value of the creditor's collateral. Second and third home loans should be no different."Second and third home loans should be stripped down, as well as refinanced first loans.
NBRC-
0841
Wendell J. SherkAttorney


"Regarding the revocation of those security interests, the $500 threshold in the draft sent out seems reasonable.""As with most specific dollar amounts in the Code, I suggest it is appropriate that this one be subject to inflation adjustment."
NBRC-
0841
Wendell J. SherkAttorney


"The ability to cramdown home equity and other second mortgages will alleviate some very abusive lending tactics. I respect the §1322(b)(2) balance in favor of protecting the market for home mortgages. I do not understand why a new lender who is doing nothing to create a market for home loans - thus furthering the ploitically important American dream of home ownership - should not be subject to exactly the same cramdown as any other asset-based lender."N/A
NBRC-
0846
Paula E. LangguthAuthor, Bounce Back From Bankruptcy, Pellingham Casper Communications, LLC.


Author agrees that "[c]reditors' petitions for a purchase money security interest should be granted if the item's value is $500 or greater and not granted if the value is less than $500."
NBRC-
0849
Ron Haas Chairman, Bankruptcy Task Force, Alabama Credit Union League

11 "Recently, in the Associates Commercial Corp. v. Rash case, the United States Supreme Court finally ruled on the issue of cramdowns. Hopefully, the commission will now abandon its proposal that automobiles and other personal property be valued at an average between wholesale and retail value." The Commission should recommend that Congress codify the Supreme Court's ruling requiring retail value when collateral is to remain with the debtor.
NBRC-
0874
Robin L. LambAuthor writes on behalf of the Board of Directors, Staff and Credit Committee of Allsteel Employees' Credit Union.


A standard for valuation is needed."A mean between wholesale and retail valuation on collateral would be acceptable if there was a standard used....The standard should be published and know [sic] to both the debtor and creditor prior to entering into a credit agreement. Both the debtor and creditor should have some recourse at the time of filing if they feel the valuation is not fair."
NBRC-
0883
Eugene R. WedoffU.S. Bankruptcy Judge, Northern District of Illinois
521(2), 522(f)
The proposal makes clear that to retain collateral in a Chapter 7, debtor must: 1) redeem the property; 2) become current and 'ride through'; or, 3) obtain creditor's waive of default and ride through. Also, "[a]lthough if may be implied, the Proposal does not state that the lien avoidance spedified for household furnishings and similar collateral will continue to be limited to property claimed exempt by the debtor." Finally, it may well happen that purchase money loans are extended to allow a debtor to purchase a collection of items (such as rare booke, colletible coins, or tools/appliances) that are individually worth less than $500 but are collectively quite valuable.If debtor fails to exercise one of these options within 30 days, creditors should be allowed an expedited procedure for relief from the automatic stay. Also, lien avoidance under §522(f) should continue to be limited to property that the debtor claims as exempt. Finally, the $500 limit for purchase money security interests should not apply to separate items of a collection.
NBRC-
0883
Eugene R. WedoffU.S. Bankruptcy Judge, Northern District of Illinois


The Proposal should set forth a valuation standard based on a rationale consistent with underlying policy. "The relevant policy, I believe, is that secured creditors should be allowed the net amount they could reasonably obtain from their collateral under relevant nonbankruptcy law, and that any value in the estate beyond this amount should be shared by unsecured creditors according to the priorities set out in the Code.""...the standard state by the Proposal for real property should apply to all collateral."
NBRC-
0884
Norma HammesPresident, National Association of Consumer Bankruptcy Attorneys


"The current proposal would not allow the strip-down of an abusive, high-interest complete refinancing of the debtor's home." Such mortgages are often abusive.The proposed Consumer Framework should provide for the strip-down of all on-purchase mortgages.
NBRC-
0884
Norma HammesPresident, National Association of Consumer Bankruptcy Attorneys


Valuation of secured claims."The review of this issue should be set aside pending the U.S. Supreme Court decision in Associates v. Rash, expected by the end of June, 1997. NACBA continues to believe that valuation of secured claims should be set at the creditor's expected net recovery upon a hypothetical repossession of the security."
NBRC-
0885
Ronald Barliant U.S. Bankruptcy Judge
522(f)
"The proposal to amend §522(f) to require creditors to petition for continued recognition of purchase money security interests in certain personal property is generally a good idea, but the $500 limit is much too low and not well focused." Such interests "should be allowed only when the grant of the lien was important to the decision to extend credit in the first place." "I suggest that the creditor be required to show a liquidation value for each item of at least $1,000 after deducting costs of repossession and sale."
NBRC-
0886
William J. PerlsteinAttorney
1322(b)(2)
Author is concerned about the proposal to limit the protection of section1322(b)(2) to first mortgages and refinanced first mortgages. "This is, we submit, an artificial distinction without a substantive basis in law or policy." "The creation of a protected class of 'refinanced first mortgages' is guaranteed to lead to substantial litigation, just as has happen whenever legislation has tried to limit protections to purchase money loans." "It seems particularly ill-advised to amend the bankruptcy laws in a way that is harmful to lenders and borrowers to attack what is, at bottom, a consumer protection issue" namely, the misuse of §1322(b)(2) protections by some unscrupulous home improvement companies. "The elimination of these protections for some home mortgages will force lenders to underwrite and price these loans as unsecured loans, making them more expensive to some borrowers and unobtainable to others." "The ability to strip down a secured loan is a serious problem...in the case of a home mortgage, since a home fluctuates in value over time.""Rather than reducing the protections of section 1322(b)(2), the provisions of that section should be expanded to include in 'real estate that is the debtor's principal residence' fixtures, escrow accounts and other related collateral that are customarily part of a home mortgage transaction."
NBRC-
0896
Samuel L. BuffordUnited States Bankruptcy Judge, Central District of California


"It is not always the case that property that is fully encumbered with secured debt should be abandoned to the secured creditor(s). There are circumstances where it is in the best interests of the estate, and sometimes even of the debtor, for the trustee (or the debtor in possession) to sell the property, rather than abandon it to the secured creditor. This situation occurs when there is reason to believe that an auction sale will produce a substantially higher prpice than the trustee is able to obtain by marketing the property privately.""I think that the Bankruptcy Code needs to preserve flexibility for the court to determine how to proceed with respect to such property in each case, in light of the individual facts of the case."
NBRC-
0898
James H. ShenwickAttorney


Under the "best interest of the creditors test" in a case involving the valuation of the debtor's home, can such costs as the broker's commission, real estate transfer taxes, federal income taxes, etc. be deducted from the equity the debtor has in the home to determine the equity value to be paid to creditors, or notAuthor urges that the Commission develop a uniform set of rules to determine how chapter 13 collateral should be valued.
NBRC-
0903
Jill M. SturtevantAssistant General Counsel, Bank of America


Author writes to comment on the ABI Working Group Proposals. "The proposal appears acceptable but is silent on what hapens upon plan default to secured debt that had been srammed or stripped down by the chpater 13 plan. Obviously, unless the creamdowns and stripdowns disappear upon default of the plan, the Bank CANNOT [emphasis in original] support this proposal."All secure debt goes back to square one (as it would have been in a chapter 7) if the chapter 13 plan is converted to a chapter 7, dismissed, or closed without discharge.
NBRC-
0903
Jill M. SturtevantAssistant General Counsel, Bank of America


Author writes to comment on the ABI Working Group Proposals. Author is concerned about the effect of allowing junior mortgage liens to be stripped down. Author is also concerned about how the debtor will pay back the remaining secured portion of the lien, since this is not dealt with in the proposal.Author could support the NBRC proposal to allow the strip down of junior mortgage liens, provided certain, provided certain enumerated provisions existed in the process. However, author sees no justification for cramming down other terms on the junior lender.
NBRC-
0917
Tyler F. Parker and Stacy S. AugustineSenior Vice President and Director of Governmental Affairs, respectively, of the Washington Credit Union League & Affiliates


"The second cause of concern among our member credit unions pertains to the permissibility of permitting the strip down of non-purchase money mortgage loans under a Chapter 13 repayment plan." "...there is an important distinction between permitting the strip-down of debts securing personal property, and permitting the strip-down of debts securing real property. While personal property generally depreciates in value, real property often appreciates in value. Second and third mortgages are underwritten with the expectation that property values will rise." Permitting strip-downs of second and third mortgages will result in higher loan rates and more stringent risk analysis standards.Do not permit the strip-down of second and third mortgages.
NBRC-
0925
C. Michael StilsonBankruptcy Judge, Northern District of Alabama, Western Division

11Author feels that the "substantial" changes proposed to the Bankruptcy Code are not necessary, and that remedies already exist for most of the problems addresed by the Consumer Bankruptcy Working Group. Author addresses each proposal of the Working Group. It is proposed that certain items worth $2,500 or less for each item shall be deemed unsecured. "It is not clear to me if this proposal is to be used under the current §522(f) lien avoidance provisions for non-purchase money security interest and judgment liens, or if it is meant to apply to all loans, purchase money and non-purchase money. Either proposal would be an improvement in the exemptions available to debtors in Alabama."N/A
NBRC-
0925
C. Michael StilsonBankruptcy Judge, Northern District of Alabama, Western Division
1322(b)(2)11Author feels that the "substantial" changes proposed to the Bankruptcy Code are not necessary, and that remedies already exist for most of the problems addresed by the Consumer Bankruptcy Working Group. Author addresses each proposal of the Working Group. Author views as a positive change the proposal to allow Chapter 13 debtors the opportunity to deaccelerate and cure a mortgage in default and limiting the restrictions in seciton 1322 (b)(2) to first mortgages and refinanced mortgages.N/A
NBRC-
0925
C. Michael StilsonBankruptcy Judge, Northern District of Alabama, Western Division

11Author feels that the "substantial" changes proposed to the Bankruptcy Code are not necessary, and that remedies already exist for most of the problems addresed by the Consumer Bankruptcy Working Group. Author addresses each proposal of the Working Group. "This proposal (on other secured debt) offers no change from existing law but for the fact that it would adopt a national standard for valuation of property and proposes an interest rate for determining the future value of a secured creditor's claim. These changes would be an improvement so long as both standards were presumptive and could be varied by individual bankruptcy courts to fit individual facts."N/A
NBRC-
0934
Jean BraucherProfessor of Law, University of Cincinnati College of LawJean Braucher, "Counseling Consumer Debtors to Make Their Own Informed Choices--A Question of Professional Responsibility", 5 Am. Bankr. Inst. L. Rev. 165 (1997).


Author supports the proposal to codify the ride-through in chapter 7 of secured debts not in default because it would help debtors who have kept current on home and car loans but who have incurred unmanageable unsecured debts.
NBRC-
0936
Joe IrishCollections Officer, Fergus County Federal Credit Union


"You recommend a permit 'ride-through' of secured asset." "If you give them a permit to ride-through and expect them to treat this debt the same as a reaffirmation, you may find they do not." "If they are allowed to keep our collateral and not be responsible to repay the debt, we have no recourse to collect our debt if they decide not to make thheir scheduled monthly payments."No specific solution proposed.
NBRC-
0936
Joe IrishCollections Officer, Fergus County Federal Credit Union


"You recommend a permit to 'cramdown' second mortgages." "You allowing the member a huge opportunity to watch the market and stick it to his creditors when the market conditions dictate to do so."No specific solution proposed.
NBRC-
0955
ABI Consumer Bankruptcy Reform ForumAmerican Bankruptcy InstituteLetter from Jill M. Sturtevant, Assistant General Counsel, Bank of America Re: ABI Consumer Forum Contribution dated June 4, 1997; Letter from Dean S. Cooper, Associate General Counsel, Freddie Mac, Re: Freddie Mac's Comments on ABI Consumer Bankruptcy Working Group's Proposal on Repeat Filings dated May 21, 1997.

The ABI sponsored a Consumer Bankruptcy Reform Forum which met twice. The goal was to create a process, rather than to produce a spedific set of proposals. This report was prepared by four members to summarize the events of the second meeting held May 15, 1997. It contains options considered for and discussions of the following issues: 1. Default Discharge Option for Failing Chapter 13 Cases; 2. Chapter 13 Superdischarge; 3. Credit Report Forum; 4. Option on Repeat Filings; 5. Disposable Income; 6. Treatment of Rent-to-Own Contracts; and, 4. Stripdown of Mortgages/Interest on Arrears.Solutions are proposed for each issue mentioned above.
NBRC-
0955
ABI Consumer Bankruptcy Reform ForumAmerican Bankruptcy InstituteLetter from Jill M. Sturtevant, Assistant General Counsel, Bank of America Re: ABI Consumer Forum Contribution dated June 4, 1997; Letter from Dean S. Cooper, Associate General Counsel, Freddie Mac, Re: Freddie Mac's Comments on ABI Consumer Bankruptcy Working Group's Proposal on Repeat Filings dated May 21, 1997.

The ABI sponsored a Consumer Bankruptcy Reform Forum which met twice. The goal was to create a process, rather than to produce a spedific set of proposals. This report was prepared by four members to summarize the events of the second meeting held May 15, 1997. It contains options considered for and discussions of the following issues: 1. Default Discharge Option for Failing Chapter 13 Cases; 2. Chapter 13 Superdischarge; 3. Credit Report Forum; 4. Option on Repeat Filings; 5. Disposable Income; 6. Treatment of Rent-to-Own Contracts; and, 4. Stripdown of Mortgages/Interest on Arrears.Solutions are proposed for each issue mentioned above.
NBRC-
0956
The Secured Creditors' Subcommittee of the Business Reorganization Committee, American Bankruptcy InstituteAmerican Bankruptcy Institute (ABI)


The Secured Creditors' Subcommittee submits a lengthy (104 pages) treatise on "Selected Issues of Interest to Secured Creditors" in which eleven (11) issues are exhaustively discussed through a review of cases in each circuit.Conclusions are given at the end of each discussion.
NBRC-
0957
Eugene R. WedoffBankruptcy Judge, Northern District of Illinois
506(a)
Author writes on the issue of valuation of collateral for cramdowns.No specific solution proposed.
NBRC-
0958
G. Ray WarnerProfessor, University of Missouri - Kansas City, School of Law
506(a), 1325(a)(5)(B)
"I am writing to implore the Commission to propose clearer statutory guidelines on the question of valuation in bankruptcy cases." Author discusses the Supreme Court case of Associates Commercial Corp. v. Rash and different methods of valuation.No specific solution proposed.
NBRC-
0964
Lee H. Bettis President/CEO, AGE, Southwest Georgia's Credit Union

11 "Permitting the 'ride-through' of secured assets is a legislative reversal of the Taylor Decision handed down by the 11th Circuit Court on October 13, 1993. This simply allows the debtor to keep our assets until they are fully depreciated and then walk away without us having any recourse whatsoever." Do not allow 'ride-throughs'.
NBRC-
0968
Vincent P. ZurzoloU.S. Bankruptcy Judge, Central District of California
506(d)
Author believes "that the Commission can do a great deal of good by focusing Congress's attention on problems arising out of 11 U.S.C. Section 506(d), Dewsnup and Nobleman." "The fundamental question is whether a debtor, trustee or other appropriate party in interest can cause a lien on property of the estate or debtor to be determined void only because the collateral encumbered by the lien, including consensually placed deeds of trust or mortgages, is worth less than the amount of debt owed to the holder of the lien."None
NBRC-
0987
Jerry AffolterCollection Manager, Community America Credit Union

10"If cram downs were allowed in home equity loans, credit union bankruptcy losses would only increase.. "This recommendation would only add additional risk to the credit union and may ultimately result in an increase of loan interest rates."Do not allow cramdowns of second mortgage loans.
NBRC-
0988
Perry CaligiuriPresident and CEO, First Iowa Community Credit Union


Author takes exception to the proposal to eliminate security interests in property valued at less than $500. The hearings on valuation required by the proposal would overburden the courts. Loans for small items like refigerators may become more difficult to find because creditors will shy away from making unsecured loans."I ask the Commission to seriously review this proposal and its potential to increase credit costs for individuals of small financial means."
NBRC-
0988
Perry CaligiuriPresident and CEO, First Iowa Community Credit Union


Author is concerned about the proposal that only purchase money mortgages be protected against valuation cramdowns. "This proposal will make home equity lending a riskier product for lenders and thus harder to obtain for consumers, driving up these rates and excelling bankruptcy filings."None
NBRC-
0992
Kay L. CampbellCompliance Officer, McDonnell Douglas West Federal Credit Union


However, we do not support the proposed valuation of property in a Chapter 13 repayment plan to be set at a median point between wholesale and retail.""We believe valuation of property should be based on an appraisal."
NBRC-
0993
Deborah A. Kloberdanscitizen, taxpayer, and collection officer of a Credit Union.


"Requiring creditors to hire attorneys to petition the court to recognize security interests in household items will encourage more bankruptcies!...This may alleviate the court system of some paperwork...but it will certainly encourage department stores such as Sears to tighten their credit requirements and increase their interest rates to compensate for losses!"None
NBRC-
0993
Deborah A. Kloberdanscitizen, taxpayer, and collection officer of a Credit Union.


Allowing cramdowns on second mortgages and equity loans will devastate small institutions and allow the big banks to have a monopoly on the financial industry.None
NBRC-
0993
Deborah A. Kloberdanscitizen, taxpayer, and collection officer of a Credit Union.


"Most dealers charge average retail, most consumers are willing to pay average retail, and most lenders will lend the average retail value for purchase....""Valuation of collateral in Chapter 13 should be the average retail."
NBRC-
1003
Vincent P. ZurzoloJudge, U.S. Bankruptcy Court, Central District of California
506(d)
"The most pressing problem created by the Court in Dewsnupp is whether, in a case under any chapter commenced under the Code, a debtor or a trustee...can obtain an order woiding a portion of or an entire lien simply because the collateral to which is [sic] attached is worth less than the debt secured by the lien.""Frankly, I am not advocating that the Commission adopt the rule that such 'unsecured' or 'under secured' liens are void. Rather, I advocate that the Commission make the fundamental rule clear to all of us who work with the Code and this section of it on a regular basis."
NBRC-
1006
Cheryl L. ForsmanAttorney, Montgomery County teachers Federal Credit Union


Author is concerned about the proposal which would allow the cramdown of all non-purchase mortgages in a Chapter 13. In such a case, the debtor "would not only be rid of all undersecured mortgages, but would also reap the benefit of any susequent increase in the value of the property. Not only are these results unfair to the lender, they could negatively effect [sic] the lender's pricing of non-purchase loans in the future."Do not allow cramdowns of non-purchase mortgages.
NBRC-
1011
Charles E. BeamCollection Supervisor, K-25 Federal Credit Union


The U.S. Supreme Court ruled in Rash that lien stripping would not be permitted on personal property since creditors are entitled to the replacement value. Author does not understand "why this issue is rearing its ugly head again!"No specific solution propose.
NBRC-
1011
Charles E. BeamCollection Supervisor, K-25 Federal Credit Union


"In regards to unnecessary valuation heaarings, we do not feel that requiring creditors to petition the court to prove the value of a 'purchaase money' and/or 'non-purchase money' security interest is merited.""A clearly defined distinction should be drawn between 'purchase money' security interest and 'non-purchase money' interest."
NBRC-
1013
Jill M. SturtevantAssistant General Counsel, Bank of America


Author feels the commission's concerns about 125% loan to value loans would be valid it these were the only type of lending subject to cramdown, since Bank of America does not make such loans. "However, the Commission's recommendation fails to consider the impact of such cramdown provision on loans with 100% or less LTV.""Many of the Bank's objections owuld be resolved if the Commission revised its proposal to state that, as a matter of law, the appraisal obtained by the lender at the time the loan was made would be the 'value' for purposes of cramdown."
NBRC-
1016
Richard T. WargoCompliance and Information, Pennsylvania Credit Union League & Pacul Services, Inc.


"With absolutely no empirical evidence, the Commission is attempting to eliminate a valid security interest in consumer goods based on its determination that collateral worth less than $500 does not represent true asset-based lending. Whether teh collateral will provide a return is a business decision by a creditor." "In addition, this scheme creates a time consuming valuation hearing."Do not void otherwise valid security interests just because the value of the collateral is less than $500.
NBRC-
1016
Richard T. WargoCompliance and Information, Pennsylvania Credit Union League & Pacul Services, Inc.


"The proposal exposes secured creditors to greater risks from cramdowns, which will impact credit standards in connection with home-equity-type lending....Facing such undue risk, many credit unions will be reluctant to provide credit for provident purposes unless the credit union will enjoy first lien position." "The Commission recommends that value, in connection with other secured debt, be set at the median point between wholesale and retail price."Do not cramdown home equity loans. "Value should be the replacement value of the collateral as determined by the Supreme Court in Associates Commercial Corp. v. Rash.
NBRC-
1018
William CookVice President for Operations and Development, State Department Federal Credit Union


"We also disagree with the recommendation that only the first mortgage holders would retain full security interests in Chapter 13 filings. 'Cramdowns' on second mortgages would allow debtors to reap a 'windfall' profit from any subsequent increase in property values on the home." It would also make it more difficult to get such loans.None
NBRC-
1030
Stephen W. PogemillerPresident/CEO, Mather Federal Credit Union


Author takes exception to the proposal to allow a debtor who is current on their loan to retain the secured asset without reaffirming the debt. This allows the credit union only the option of repossessing the collateral. "Although the current law allows reaffirmation, our district is noted for opposition to reaffirmation. Therefore, any pro per debtors [sic] do not formally reaffirm, even if they want to! The result is that the credit union loses all unsecured debt, and all deficiency balances if the collateral is taken back."None
NBRC-
1030
Stephen W. PogemillerPresident/CEO, Mather Federal Credit Union


Author is not happy with the recommendation to permit cramdowns of second mortgages. Most unsecured debts in Chapter 13 are paid out at less than 10%, and the debtor gets to remain in the house, with the possible benefit of a future increase in the value of the property.None
NBRC-
1033
Denise L. CaristiPresident/CEO, Granite State Credit Union


"Members wishing to retain secured assets should be required to reaffirm this debt. By doing so, the member agrees to abide by the terms of the note including maintenance of important insurance coverages."None
NBRC-
1036
Lois BakerAVP, Loan Servicing Manager, SAFE Federal Credit Union


Author does not like idea of "ride-through" (allowing debtor to retain collateral without reaffirmation.Do not permit ride-through.
NBRC-
1036
Lois BakerAVP, Loan Servicing Manager, SAFE Federal Credit Union


Author is against cramdown of second mortgages.See above.
NBRC-
1042
David DilleyVP-Lending, Colorado Central Credit Union


10"Please do not allow second mortgage "cramdowns" without affording the financial institution the opportunity to take possessionof the property in Chapter 13 bankruptcies."
NBRC-
1164
Barbara J. SellersBankruptcy Judge, Southern District of Ohio, Eastern Division


"Clarification is needed on the status of lien interests for which no collateral value exists at the time of the bankruptcy filing. The treatment of such liens should be uniform, and certainly legislation can be drafted to make it so."See above.