Bankruptcy Law 2020: A Look Back And What To Expect For The Future

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The year 2020 in bankruptcy law began with the goal of increasing the ability of small businesses to use the Chapter 11 process in a more efficient and less costly manner, which has led to a record number of commercial deposits, a reduction in consumer deposits and a test of the bankruptcy system.

SBRA alias subchapter V

In February, the Small Business Reorganization Act entered into force. The SBRA, or subchapter V, allowed companies with liabilities of up to $ 2,725,625 to file a simplified version of chapter 11. The objective of subchapter V was to streamline the reorganization process and reduce costs. for small commercial debtors during the life of the case.

There are key elements of Subchapter V that differentiate it from a typical Chapter 11 reorganization. In a Subchapter V proceeding, only the debtor can file a plan, there is no reporting requirement. disclosure, the debtor repays its creditors over a period of three to five years, a subchapter V trustee is appointed, and there are no United States Quarterly Trustees (UST) fees. The requirements of subchapter V allow the company to complete the plan without spending substantial amounts in legal and UST fees.

This has proven to be a major incentive for companies to file under Subchapter V, as quarterly fees under a typical Chapter 11 could run into the tens of thousands of dollars over the life of a business. Chapter 11 plan. Lawyers’ fees also tend to be reduced under subchapter V, as there is no disclosure requirement or hearing to approve. This allows a greater portion of the debtor’s income to be used to fund a plan. In addition, in Chapter 11 proceedings, it can take months for a plan to be filed. In larger cases, this could take years as some debtors could be granted many extensions. Unsecured creditors would not see any payments during this period. Under the SBRA, a subchapter V debtor is required to file their plan within 90 days of filing the bankruptcy case.

The implementation of the CARES law brought a substantial change to the SBRA: it raised the debt ceiling to $ 7.5 million, allowing more companies to take advantage of subchapter V and avoid the delays and costs of a traditional Chapter 11 procedure. The pandemic and the CARES Act resulted in a monthly increase in bankruptcy filings of about 40% compared to previous years.

No peak in consumer statements

On the contrary, we have not seen the peak in consumer reports that was expected due to the pandemic. This is believed to be due, in part, to the moratoriums on foreclosures and evictions in effect and the federal government’s paycheck and unemployment benefits. The PPP program has also helped prevent companies from putting staff on leave. Whether we see a peak in 2021 will depend on how the government and the financial system continue to respond to the pandemic.

Proof of claim filed in certain states

While the number of consumer filings has not exploded, lawyers for plaintiffs and debtors have continued to pursue actions regarding the breakdown of interest charges and costs in proof of claims. While this problem has not been prevalent nationwide, we have seen increased activity in Florida, Georgia and Virginia. And while we don’t have a circuit court opinion, several bankruptcy courts have made conflicting rulings on how these amounts should be set.

In Thomas v. Midland Funding LLC (17-0510), a bankruptcy judge in the Western District of Virginia issued a lengthy opinion setting out his views on whether the allocation of interest, fees and costs met the detail requirement set out in Federal Rule of Bankruptcy Procedure 3001 (c) (2) (a) which requires “[i]If, in addition to its principal amount, a claim includes interest, fees, expenses or other charges incurred before the filing of the claim, a detailed statement of interest, costs, expenses or charges must be filed with proof. of complaint. “

In Thomas, the court ruled that the obligee, by failing to properly itemize interest and charges, had not fully complied with FRBP 3001 (c), thus exposing itself to potential sanctions under FRBP 3001 ( c) (2) (D). The court has the capacity “to award other appropriate remedies, including reasonable expenses and attorneys’ fees caused by the failure.” We’ll see where the Western District of Virginia proceeds on this issue, but it has established a current roadmap for creditors to follow.

FDCPA, Bankruptcy and Permanent

Addressing the issues of the Fair Debt Collection Practices Act in bankruptcy does not only occur in bankruptcy cases. While the bankruptcy court may be the appropriate forum to raise these issues, we have also seen an increase in cases filed in federal district courts. The question that arises is whether the debtor (plaintiff) has standing to bring such an action.

In Trichell v. Midland Credit Management Inc., 964 F.3d 990 (11th Cir. 2020), the Eleventh Circuit found that the debtor had received a deceptive letter but had suffered no prejudice. Consequently, these “breaches of information” did not confer on the debtor Article III status. As debtors attempt to bring FCDPA actions for breach of the discharge injunction or for failing to properly itemize interest charges and costs in proof of claims, Circuit Eleventh calls into question the validity of these claims .

The Seventh Circuit also issued several similar decisions. See Bazile c. Green Bay Financial System, US application 2020. LEXIS 39433 (7e Cir. 2020), Spuhler c. State collection service, US application 2020. LEXIS 39434 (7e Cir. 2020), Brunett v. Convergent outsourcing, US application 2020. LEXIS 39270 (7e Cir. 2020), and Gunn v. Thrasher, Buschmann & Voelkel, US application 2020. LEXIS 39267 (7e Cir. 2020).

New bill proposes to amend the bankruptcy code

As 2020 draws to a close, we have seen a new bill to amend the Bankruptcy Code. Senator Elizabeth Warren (D-Mass.) And Representative Jerrold Nadler (DN.Y.) introduced the Consumer Bankruptcy Reform Act of 2020. The proposed legislation would eliminate Chapter 7 and 13 bankruptcy filings and replace them with a new one. chapter. 10. This would allow a consumer debtor to have three types of plans, provide very little or no repayment for unsecured creditors, and allow debtors to create their own assessments for the purpose of removing all liens, including including all residential mortgages. And that would help pay off student loans and other currently non-dischargeable obligations.

The bill also provides for FDCPA actions in bankruptcy cases and gives power to the CFPB in bankruptcy cases. The survival of this bill may well be decided by the eventual composition of the Senate. It may also give creditors the opportunity to request the modification of certain rules relating to the proof of debt deposits.

What will the new year bring?

The year 2020 has been a year that many would like to forget. What 2021 will bring will be a waiting scenario. Once foreclosures and evictions get started again, are we likely to see an increase in consumer claims? Can small businesses survive or will there be more closures? Will the CARES law be extended beyond its March 2021 expiration date?

Regarding FDCPA actions and bankruptcy, will circuit courts provide further guidance? At the Supreme Court, will our highest court continue to accept and hear bankruptcy cases? And in Congress, is bankruptcy reform on the horizon?


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