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AUTO FINANCE BANKRUPTCY UPDATE: 910 SURRENDER ALLOWS UNSECURED CLAIM As many of you are aware, courts are divided over the effect of a surrender of a "910" motor vehicle in Chapter 13. A majority of courts allow the auto finance creditor to file an unsecured claim for the deficiency. A minority of courts provide the surrender is in full satisfaction of the debt. Colorado has joined the majority by virtue of the decision of In re Ballard, 526 F.3d 634 (10th Cir. 2008), which was announced May 19, 2008. This positive creditor's decision reversed several lower court rulings adverse to the auto finance industry. The 10th Circuit includes Colorado, Oklahoma, Kansas, New Mexico, Wyoming and Utah. Please adjust your Chapter 13 procedures to ensure a deficiency claim is filed in a 910 surrender case. Thanks for visiting http://www.coloradocreditorblog.com/ Doug Koktavy
Retail Value in Consumer Bankruptcy MY ATTORNEY SAID RETAIL VALUE APPLIES, RIGHT? The value of collateral in bankruptcy has always been a point of contention. The new bankruptcy law, known as BAPCPA, became effective October 17, 2005, and sought to clarify this issue. One of the creditor friendly provisions of BAPCPA was contained in 506(a)(2) of the Bankruptcy Code, concerning A value and provides: If the debtor is an individual in a case under chapter 7 or 13, such value [for] personal property [i.e., an automobile] shall be determined based on the replacement valueYas of the date of the filing of [bankruptcy] without deduction for costs of sale or marketing. Replacement value shall mean the price a retail merchant would charge for property of that kind considering the age and condition of the property [at the time of filing]. To date, most secured creditors have forced a capitulation by debtors simply by producing a NADA valuation report of the unit. The "retail" value in the report has sufficed for all but the most stubborn debtor's counsel. A recent case, In Re De Anda-Ramirez, 359 B.R. 794 (10th Cir. BAP 2007), has clouded this previously clear issue. The De Anda-Ramirez Court noted that various appellate courts have long used KBB or NADA valuations as a starting point for vehicle valuation. The core of the disagreement was determining the appropriate KBB value to assign to the unit. The debtors claimed a KBB "private party" value applied while the credit union argued KBB retail applied. The Court looked to KBB definitions and observed that "retail" value meant the unit had received the cosmetic and mechanical reconditioning necessary to qualify the unit as "excellent." KBB further defined "excellent" as applying to fewer than 5% of all used vehicles. The Court noted that other than both containing the word "retail," the Code and KBB definitions "have little in common." The Court further found that the Code's adjustment for "age and condition" further removed the bankruptcy definition from a strict equivalent to KBB retail. The credit union made a mistake, and was punished for it, by presenting no evidence of retail value or "excellent" condition. In fact, the credit union presented no evidence at all. The only evidence before the lower court was the debtors' statement in the plan that the unit was worth a less than retail and had almost twice the normal mileage for a car that age. The De Anda-Ramirez Court, in affirming the bankruptcy decision in favor of the debtors, noted that it was not making a determination of a proper valuation standard going forward. The Court was merely ruling that retail value was not appropriate in this case. Several recommendations can be made to auto finance clients:
NEW RULE ON REAFFIRMATION AGREEMENTS Effective May 1, 2008, a new Cover Sheet shall be required to when filing a Reaffirmation Agreement. This new rule is called General Procedure Order 2008-2. Click the link below for a full text of GPO 2008-2, including the new form: http://www.cob.uscourts.gov/orders/gpo2008-2andform.pdf Thanks for visiting http://www.coloradocreditorblog.com/ Doug Koktavy
NEW RULE ON ROUTINE COMMUNICATIONS WITH DEBTOR BANKRUPTCY UPDATE: Borrowers and lenders sometimes find themselves being held hostage to the bankruptcy code. Consider the following example: Borrower is current on a car loan and files bankruptcy for other reasons. Borrower wants to keep the car and work something out with the bank. However, the bank is advised by counsel not to send monthly statements anymore as such communication violates the automatic stay. The account then falls into default, a relief from stay motion is filed, and the car is picked up. Neither party wanted this result. The Colorado Bankruptcy Court passed a new rule effective March 13, 2008. It is called General Procedure Order 2008-1. GPO 2008-1 now allows lenders (and servicers) to communicate post petition with debtors concerning secured consumer debt. Here's how it works: 1. Creditors may make inquiry concerning insurance coverage, 2. Creditors may respond to inquiries from debtors about the account, 3. Creditors may send monthly statements or payment coupons. However, the communication must indicate it is provided for information purposes and does not constitute a demand for payment. Permissible communications include email, facsimile, USPS, commercial communications carrier or other mutually acceptable means. Click the link below for a full text of GPO 2008-1: http://www.cob.uscourts.gov/orders/gpo2008-1.pdf The free flow of information concerning routine consumer secured debt is advantageous to both lenders and borrowers. You should proactively develop a written policy concerning post petition contacts with debtors in order to take advantage of GPO 2008-1 while protecting the institution from unauthorized communications. Please contact my office if I can help. Thanks for visiting http://www.coloradocreditorblog.com/ Doug Koktavy |
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