The bankruptcy rules: changes in the wind

Debtors file bankruptcy cases.

In response, creditors often file claims. A claim is just what you would think it is: a formal statement that the creditor is asserting a debt is owed. Bankruptcy court being a government bureaucracy, claims are made by filling out an official standardized government form.

Although claims can always be disputed, the claim process itself is not typically controversial. But there is now a movement afoot in Congress in Congress to change it in ways that could become important down the road.

First, there is a proposal to change the bankruptcy rule governing claims so that “debt buyers” (that is, collection agencies who have purchased your debts, as opposed to the original creditors) are clearly identified. If the new rule is adopted, in addition to the claim form the collectors would have to identify the original creditor, the date the debt was bought, the date of the latest payment, and when the account was charged off by the original creditor.

There are also proposed changes to the claim form itself. These mostly affect mortgages. On the new form, mortgage holders would have to itemize their claim, instead of just submitting one number that they are owed. The itemization would have to show principal and interest, whether the loan was fixed or adjustable rate, any fees or expenses being tacked on, whether the loan was in arrears prior to the bankruptcy filing, and an itemization of the loan’s escrow account if there is one.

The proposed changes are mostly pro-consumer. They are definitely rooted in the national “mortgage mess,” where dozens of banks have been taken to court and shown to have started foreclosures without an adequate paper trail.

These changes are just proposals at the present time. And even if they are approved, they probably will not take effect until December 2011.


By Doug Beaton

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