It's the Leased You Can Do

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CHECK YOUR DOCUMENTATION ON QUESTIONABLE LOANS AND FIX ANY PROBLEMS YOU CAN IF YOU DO NOT HAVE TO JEOPARDIZE YOUR LIEN POSITION

One of the easiest ways for a Chapter 7 trustee to turn a no asset case into an asset case is to avoid an unperfected lien. One of the easiest ways for a Chapter 11 or Chapter 13 Debtor to get a windfall is to avoid an unperfected lien. 11 U.S.C. §544(a) lets a trustee or debtor in possession step into the shoes of a hypothetical creditor with a judicial lien as of the date of the bankruptcy petition or to step into the shoes of a hypothetical bona fide purchaser for value. In other words, in bankruptcy the opposing party has the right of a judgment creditor under South Carolina law and can avoid an unperfected security interest or mortgage or automobile lien or mobile home lien. See In re J.M. Smith Corp., 341 S.C. 442, 448, 535 S.E.2d 131, 133 (2000) (“[A] secured party who perfects its security interest before a creditor acquires a lien upon the collateral by “attachment, levy, or the like” has priority over the lien creditor. S.C.Code Ann. § 36–9–301(1)(b) & (3) (Supp.1998). A landlord does not become a lien creditor until it levies for distress.”); Jolly v. Founders Federal Credit Union (In re Jolly), 98-04590-D, Adversary No. 98-80201-D (Bankr. D.S.C. 4/1/99)(JBD)(unperfected lien on a mobile home was subject to the rights of a creditor pursuant to S.C. Code §56-19-620.).

ON NON-PERFORMING LOANS, WHERE POSSIBLE OBTAIN GUARANTEES.

The general rule is that the filing of a bankruptcy case only protects the debtor only and not non-debtor parties like co-obligors, guarantors or officers of the debtor corporation.

See, Kreisler v. Goldberg,  2007 WL 572125, at 2-3 (4th Cir. 2007)(Section 362(a)(1) did not protect wholly owned subsidiary of Chapter 11 debtor.); Credit Alliance Corp. v. Williams, 851 F.2d 119,121 (4th Cir. 1988)(" Nothing in §362 suggests that Congress intended that provision to strip from the creditors of a bankrupt debtor the protection they sought and received when they required a third party to guaranty the debt."); In re Jones, 21-01034-B, 2021 WL 2483104 (Bankr. D.S.C. 5/24/21)(HB)(Automatic stay in  Debtor's individual Chapter 13 case did not apply to the real estate owned by the Corporation.); CresCom Bank v. Terry (In re CCT Reserve, LLC), C.A. No. 2:12cv-00063-PMD, 2013 WL 868522 (D.S.C. 3/7/13)("CCT's filing for bankruptcy automatically stayed CresCom's action against CCT, but not against Terry."). Hazel v. Blitz U.S.A. (In re Blitz U.S.A.),  S.E.2d, Slip op. 28016 (S.C. 3/17/21)(Defective gas can manufactured by Debtor (Blitz) and sold by retailer (Fred's Stores) in South Carolina caused injury to a Minor. Minor's legal guardian and the Minor's mother filed two suits against Blitz alleging  products liability theories of strict liability and breach of warranty. Legal guardian and the mother also filed suits against Fred's solely for its negligence in selling a gas can Fred's knew, or should have known, might be dangerous. Due to numerous other similar suits in other states, Blitz filed Chapter 11 in Delaware. Blitz obtained confirmation of a Plan which contained injunction protecting a non-debtor retailer, Wal-Mart, which funded a Blitz Personal Injury Trust and certain insurance companies which also funded the Trust. Fred's did not contribute to the Trust. The Court held the plan third party injunction did not protect Fred's stating "We find the bankruptcy court did not intend to define Protected Party so broadly as to prohibit claims like Hazel's claim against a seller like Fred's who did not participate in the bankruptcy proceedings and who made no contribution to the bankruptcy estate." The Court also distinguished A.H. Robins Co. V. Picinnin, 788 F.2d 994 (4th Cir. 1986) which permitted a third party to be protected if that party was entitled to absolute indemnity by the debtor holding that the suits sought recovery from Fred's for its own negligence and not the actions of Blitz, so Blitz had no  obligation to indemnify Fred's for its own negligence and the automatic stay did not protect Fred's.); Selective Ins. Co. v. Hester Drywall, LLC (In re Hester), C.A. No. 4:18-cv-00431-RBH, 2019 WL 367899(D.S.C. 1/30/19)(RBH)(In order to obtain the required surety bonds for construction contracts, Debtors in their individual capacity, signed indemnification agreements for LLCs in which the Debtors had interests. The indemnification agreements created joint and several liability for the Debtors and the LLCs upon default. After one LLC was unable to perform its subcontracting duties, the Surety (Selective) issued payment and performance bonds. Plaintiff then sued the LLCs and the individual guarantors and filed a Motion for Summary Judgment on the liability issue. The individuals filed a Suggestion of Bankruptcy, and the District Court entered an Order staying the action as to the individual Debtors only. The Court granted summary judgment against the non-debtor Defendants); Compare, Oberg v. Atena Casualty & Surety Co., 828 F.2d 1023 (4th Cir. 1987). (Officers of debtor corporation protected where participation in lawsuits would detract from reorganization process.);  A.H. Robins Co. v. Picinnin, 788 F.2d 994 (4th Cir. 1986)(Third party may be protected in unusual circumstances such as where the third party was entitled to absolute indemnity by the debtor.); Chicora Life Center, LC v. UCF 1 Trust 1 (In re Chicora Life Center, LC), 16-02447-W, Adv. No. 16-80083-W, 2016 WL 3625568 (Bankr. D.S.C. 6/15/16)(JW)(Courta a Preliminary Injunction pursuant to 11 U.S.C. §105(a) to prevent the Creditor from pursuing the collection of the guaranteed debt from the Manager of the Chapter 11 Debtor, because collection of the guaranty would affect the Manager's ability to renew a credit line and jeopardize the Debtor's ability to fund its operations and Plan of Reorganization.). 

Exception: Co-debtor stay in Chapter 13 case prohibits any act to collect a “consumer debt” from an individual liable with the chapter 13 debtor, or from an individual who has secured the debt.

However, if the debtor's plan does not propose to pay the full amount of creditor's claim including contractual interest, costs, and attorney's fees, the codebtor stay of 11 U.S.C. §1301(a) should be modified pursuant to 11 U.S.C. §1301(c)(2).  See, In re Washington, 20-03482-D, 2021 WL 4342888 (Bankr. D. S.C. 9/23/21)(DD)("[T]o the extent Washington's obligation is not extinguished upon the conclusion of Debtor's plan, TitleMax must postpone pursuing that obligation until the completion of the bankruptcy case or if relief from the co-debtor stay is granted."); In re Tumminia, 17-03973-W (Bankr. D.S.C. 12/18/17)(JW)("[T]he Plan cannot shield the Co-Debtor from her liability for sums not paid by the Debtor through the Plan. Nor can the Plan expand the protections of the Debtor's future Chapter 13 discharge to the Co-Debtor, or impair Creditor's rights by requiring Creditor to prematurely satisfy its Note and Mortgage. In short, the Debtor cannot simultaneously avoid paying Creditor in full and force Creditor to forego its bargained for rights against the Co-Debtor. Therefore, the Debtor is prohibited from including language in the amended plan that requires Creditor to satisfy its Note and Mortgage upon the completion of payments under the Plan."); In re Williams, 02-07183-W (Bankr. D.S.C. 10/9/02)(JW)(Court granted secured creditor's motion for relief from codebtor stay pursuant to §1301(c)(2). "[T]o the extent Debtor's Chapter 13 Plan does not pay Wells Fargo's claim including the postpetition interest at the contract rate, Wells Fargo should receive relief from the codebtor stay. Clearly, Debtor is not paying Wells Fargo in full under the Plan as, instead of receiving the payoff amount of the note plus 21% interest, Wells Fargo receives the payoff amount plus 8.5% interest."). 

INCLUDE A WAIVER OF AUTOMATIC STAY IN FORBEARANCE AGREEMENTS

A waiver of a debtor's right to file a bankruptcy case is not enforceable. See, In re Huang,   275 F.3d 1173, 1177 (9th Cir. 2002)("It is against public policy for a debtor to waive the prepetition protection of the Bankruptcy Code.... This prohibition of prepetition waiver has to be the law; otherwise, astute creditors would routinely require their debtors to waive."); In re Francis, 226 B.R. 385, 390 (Bankr. 6th Cir. 1998)("[C]ase law provides that a provision in a prepetition settlement agreement which waives a party's right to file bankruptcy is unenforceable as against public policy ."); Giaimo v. Detrano ( In re Detrano ), 222 B.R. 685, 687 (Bkrtcy.E.D.N.Y.1998).

An agreement of a debtor to waive the application of the automatic stay in a subsequent case may be enforceable depending on the specific circumstances of the case. See, In re Cheeks, 94-70224, 167 B.R. 817 (Bankr. D.S.C. 4/25/94) (WTB)(Chapter 13 debtor was barred from objecting to mortgage creditor's motion for relief from stay by prepetition forbearance agreement which stated "in the event a proceeding under Title 11... is commenced by... mortgagor, mortgagor will not oppose or object to mortgagee's motion for Relief from the... stay." Since only the debtor objected to the motion, the stay was lifted.). Compare, In re Darrell Creek Associates, L.P., 95-71263, 187 B.R. 908 (Bankr. D.S.C. 6/20/95)(JW)(Court held mortgage holder was entitled to relief from stay under §362(d)(1), for cause, in chapter 11 case. Among the primary factors considered by the court was a waiver of the automatic stay signed by a representative of the debtor in a pre-bankruptcy workout agreement. The court held that the waiver did not automatically entitle the mortgage creditor to relief from the stay, but once the existence of a waiver was established, the burden was on the opposing parties to show the waiver should not be enforced. In determining whether to enforce the waiver, several factors were considered. including: whether the debtor understood the waiver, whether the creditor surrendered rights in the agreement, the effect of stay relief on other creditors, the amount of equity in the property, and the ability of the debtor to reorganize. After considering these factors, the court held that the mortgage creditor was entitled to relief from the stay for cause.); In re Riley, 95-72891 (Bankr. D.S.C. 9/15/95)(JW)(Court denied mortgage creditor's motion for relief from the stay for cause holding that forbearance agreement was not effective as a waiver of the automatic stay, because unsophisticated chapter 13 debtor did not understand agreement, the default which gave rise to the agreement had been cured prior to the filing of bankruptcy, and the mortgagee had received the income benefit for which it bargained.).

Example of waiver language:

Waiver of Automatic Stay; Supplemental Stay.  Obligor acknowledges and agrees that in the event of the filing of any petition for bankruptcy relief filed by or against Obligor or in any way affecting the Property:

Stay Relief.  Obligor consents to the entry of an order granting Lender relief from the automatic stay of §362 of the Bankruptcy Code and shall not assert or request any other party to assert that the automatic stay provided by §362 of the Bankruptcy Code shall operate or be interpreted to stay, interdict, condition, reduce or inhibit the ability of Lender to enforce any rights it has under the Loan Documents or any other rights Lender has against Obligor or against any property owned by Obligor; and,

No Actions.  Obligor shall not seek or request any other party to seek a supplemental stay or any other relief, whether injunctive or otherwise, to stay, interdict, condition, reduce or inhibit the ability of Lender to enforce any rights it has under the Loan Documents or any other rights Lender has against Obligor or against any property which it owns.

DO NOT REFINANCE PURCHASE MONEY DEBTS ON MOTOR VEHICLE LOANS LESS THAN 910 DAYS OLD OR OTHER PERSONAL PROPERTY LOANS OF LESS THAN 365 DAYS OLD

The "hanging paragraph of §1325(a) protects a claim that is:

Not just an allowed claim but an allowed secured claim i.e. one which has been properly perfected. 

Secured by a vehicle which is for the personal use of the Debtor. 

Secured by either a purchase money security interest in a motor vehicle or any other thing of value

Secured by a purchase money security interest less than 910 days old in a motor vehicle or a purchase money security interest less than 365 days old in any other thing of value

Wells Fargo Financial Acceptance v. Price (In re Price),  562 F.3d 618 (4th Cir.  2009)(Neither the financing of negative equity nor GAP insurance destroys the purchase-money nature of the debt, so hanging paragraph still protected purchase money debt.); In re Dennis, 19-02151-B, 2019 WL 4263785 (Bankr. D.S.C. 8/5/19)(HB)(In October 2014, prior to the filing of her case, Chapter 13 Debtor signed 4 year car lease with an option to purchase the vehicle. On November 6, 2018, Debtor exercised her option to purchase and financed the purchase price of $9,031. Upon filing her case, the Debtor  proposed a Plan which provided for valuation of the secured claim. The Court held the agreement to purchase was a purchase money security interest in the Debtor's vehicle and could not be valued.); In re Hickey, 370 B.R. 219 (Bankr. D. Neb. 2007)(Hanging paragraph of §1325(a) did not require 1 year purchase money lien be secured by collateral acquired for personal use of Debtor (unlike 910 vehicle lien). Tractor purchased by Debtor for business use within 1 year of filing of Chapter 13 case was within scope of purchase money protection of hanging paragraph.).  Compare,  In re Ross, 11-04792-B, 2015 WL 3781074 (Bankr. D.S.C. 6/16/15)(HB)(Unaware that a Claim secured by a used motorcycle was actually a purchase-money 910 day secured claim, the Debtors obtained confirmation of a Chapter 13 Plan which valued the Claim without objection from the Creditor. The Court held the Creditor's failure to object constituted acceptance of the plan.);  In re Lewis, 363 B.R. 477,  06-05105-D (Bankr. D.S.C. 3/21/07)(DD)(Creditor secured by automobile recorded lien on certificate of title after filing of Chapter 13 case and 41 days after the security agreement was signed. Chapter 13 Trustee objected to proof of claim alleging the lien was subject to avoidance pursuant to §544(a)(1) since the lien was not properly perfected. Since the lien was not perfected within the 10 day grace period of S.C. Code §56-19-630, the unperfected lien was subject to the Trustee's avoiding powers as a judicial lien creditor pursuant to §544(a)(1) and S.C. Code 36-9-317(a)(2)(A) and was not protected by the hanging paragraph.);  In re Brown, 09-03486-W  (Bankr. D.S.C. 10/27/09)(JW)(More than 365 days, but less than 910 days, prior to filing a joint Chapter 13 case, Mr. Brown purchased a vehicle for the use of his wife to go to the doctor, to go on shopping trips, and to pay bills. Mr. Brown was the sole purchaser of the vehicle; Mrs. Brown did not sign any of the documents. Upon filing their case, the Debtors filed a Chapter 13 Plan which proposed to value the claim secured by the purchase-money security interest. The Court held the hanging paragraph did not apply, because Mr. Brown used another car, the car was for Mrs. Brown's use, and even though she was a joint debtor, she did not sign the security agreement.); In re Williams, 09-05120- D (Bankr. D.S.C. 11/5/09)(DD)(Automobile financier held 910 day claim in Debtors' first Chapter 13 case; that case was dismissed for non-payment. Debtors filed another Chapter 13 case and moved to value the claim secured by the vehicle since it was more than 910 days old. The Court held the Debtors did not appear to be manipulating the system and permitted the lien to be valued.).

IF YOU ARE INVOLVED IN A FORECLOSURE DO ALL YOU CAN TO FIRST GET THE JUDGMENT OF FORECLOSURE AND THEN HAVE THE SALE COMPLETED BY THE TIME THE DEBTOR FILES BANKRUPTCY

The entry of the foreclosure judgment triggers the Rooker-Feldman Doctrine which prohibits the debtor (not the trustee ) from asking the federal court to and set aside a state court judgment. This means the debtor cannot challenge the service, the publication , the validity or the amount of the claim, the reasonableness of the attorney's fees. See, Wilson v. GMAC Mortgage, LLC, C.A 2:14-cv-01615-SB, 2015 WL 5244967 (D.S.C. Sept. 8, 2015)(Pro Se party filed Complaint seeking to set aside Foreclosure Sale in state court and to enjoin eviction from his residence alleging the foreclosing Mortgage Creditor did not attach a copy of the Note and Mortgage to the Complaint and misrepresented itself as the owner and holder of the Note."Here, the Plaintiff is attacking the validity of the state court foreclosure proceedings and, to provide the Plaintiff the relief he requests, this Court would have to wade into and invalidate findings made in the foreclosure action. Despite the Plaintiffs conclusory objection to the contrary, to do so would violate the Rooker-Feldman doctrine. Therefore, the Court finds the Plaintiff's objection to be without merit and agrees with the Magistrate Judge that the Court lacks jurisdiction pursuant to the Rooker-Feldman doctrine."); In re Epps, 99-00026-W (Bankr. D. S.C. 7/9/99) (JW)(Chapter 13 debtor was barred by Rooker-Feldman doctrine from objecting to reasonableness of attorney's fees awarded by state court in pre-petition foreclosure judgment. The Court stated: "It is the finding of this Court that a review of the State Court's ... Judgment of Foreclosure and Sale by this Court pursuant to the Debtor's objection to claim would be tantamount to appellate review of the State Court findings and is therefore barred by the Rooker-Feldman doctrine." The Court, however, held that the chapter 13 trustee was not a party to the state court litigation, and as such, he  was not bound by the Rooker-Feldman doctrine and had standing to object to the claim if he so desired.).

11 U.S.C. §§ 1322(c)(1)  allows a cure of  residential mortgage in a chapter 13 case "until such residence is sold at a foreclosure sale that is conducted in accordance with applicable nonbankruptcy law. However, if the foreclosure sale has been held, the real estate is no longer property of the estate, and the debtor may not use bankruptcy to reinstate the mortgage debt and cure the past due amount. 

Possible exception: A deficiency judgment is entered.

See, In re Morgan, 20-04434-B (Bankr. D.S.C. 4/24/21)(HB)("A debtor's right to cure his default ends when the "gavel falls" on the last bid by the party conducting the foreclosure sale .... Here not only did the gavel fall, but the foreclosure deed was executed and recorded long before this bankruptcy case was filed."); In re Madison,10-05755- D (Bankr. D.S.C. 11/4/10)(DD)("There is a long line of cases in this district stating that after the hammer falls at a judicial sale. the debtor has only bare legal title. This is so even if the deed is not filed before a bankruptcy petition is filed by a debtor. As a result. if the sale was properly completed prior to Debtor's bankruptcy filing, Creditor should be entitled to relief to finish any administrative tasks necessary to complete the sale. The Court then lifted the automatic stay for cause stating: "Where debtor has been divested of all but bare legal title through a foreclosure sale, cause exists to grant relief from the automatic stay to permit Creditor to conclude any act remaining in the sale process and take possession of the property."). Compare, In re Riverfront Properties, LLC, 09-02436- D (Bankr. D.S.C. 5/22/09)(DD)(Secured Creditor foreclosed on Debtor's real estate and agreed to defer foreclosure on Guarantor's residence until after sale of Debtor's real estate. Foreclosure sale was held, and Secured Creditor requested a deficiency judgment. One day prior to reopening the bidding, Debtor filed a Chapter 11 case. Secured Creditor filed a motion for relief from the stay alleging the property was no longer property of the estate. The Court denied the motion for relief from the stay holding the foreclosure sale did not divest the Debtor of all but bare legal title stating: "Because the bidding is reopened, the hammer does not fall on a foreclosure sale when deficiency judgment is not waived until the sales officer closes the sale on the thirtieth day. The high bidder on the first day of sale has no right that cannot be extinguished by a subsequent bidder and thus no rights or obligations arise in the first day bidder that diminish the title of the mortgagor. Riverfront thus held more than bare legal title on the date it filed bankruptcy.").

IF YOU ARE IN A FORECLOSURE AND HAVE A CONTRACTUAL DEFAULT INTEREST RATE, DO NOT FORGET TO PLEAD THAT INTEREST RATE IN THE COMPLAINT AND OBTAIN THE JUDGMENT OF FORECLOSURE USING THAT RATE.

In re Cooper, 21-00914-D, 2021 WL 3671105 (Bankr. D.S.C. 8/18/21)(DD)(Prior to the filing of his Chapter 13 case, a Judgment of Foreclosure was entered against the Debtor on his residential mortgage for $52,364 based on the contract rate and continuing at 3.25% per annum "through the date to which such interest is computed."  The Creditor filed a Proof of Claim for $73,874 with a payoff reflecting the default interest rate of 18% effective October 15, 2018. The Debtor objected to the Claim arguing judicial estoppel precluded the Creditor from claiming the default interest rate. "In the foreclosure action, TD chose to assert the original interest rate under the mortgage. It did not assert the default rate provided in the documents. The state court entered the Foreclosure Order based on those pleadings and determined the total debt to TD based on the contract rate and continuing at 3.25% per annum ‘through the date to which such interest is computed.' Bankruptcy courts do not have jurisdiction to set aside a state court's foreclosure order. While TD had the right to assert an interest rate of 18% after Debtor's default on the mortgage, it did not do so. For the purpose of computing the arrearage to be treated pursuant to § 1322(b)(5) in the plan, TD's claim is allowed as a secured claim in the amount of $52,364.93 with an arrearage to be computed at 3.25% per annum according to the usual practice in this district. In the Foreclosure Order, the state court determined the amount of the debt to TD based on its pleadings and an interest rate of 3.25%. Neither TD nor this Court located applicable state law affording TD the right to recalculate its claim post-judgment utilizing a default rate of interest it previously failed to use. The plan does not modify any future rights or obligations of the parties under the loan documents, nevertheless, for cure purposes, TD is limited to the relief it sought and obtained." Citation omitted.).

WHILE YOU ARE AT IT, IF IT DOES NOT VIOLATE ANY OTHER LAW, AND IF YOU CAN ALTER YOUR MORTGAGE NOTES, ADD LANGUAGE WHICH PROVIDES: “TO THE EXTENT PERMITTED BY APPLICABLE NON-BANKRUPTCY LAW, INTEREST WILL ACCRUE AT THE APPLICABLE CONTRACTUAL RATE ON ALL PAST DUE AMOUNTS INCLUDING, BUT NOT LIMITED TO: PAST DUE PAYMENTS; PRINCIPAL; INTEREST, INCLUDING INTEREST ON INTEREST; ATTORNEY’S FEES AND COSTS; LATE CHARGES; ALL CHARGES AND COSTS ADDED TO THE LOAN, INCLUDING, BUT NOT LIMITED TO TAXES, INSURANCE, APPRAISAL FEES, INSPECTION FEES AND ALL SUCH SIMILAR CHARGES.”  

In re Smith, 20-04621-D (Bankr. D. S.C. 5/3/21) (DD)(Chapter 13 Debtors proposed plan which paid residential mortgage arrearage without interest and resumed payments via a conduit provision with the Trustee. The mortgage creditor objected arguing it was entitled to interest on the arrearage debt consisting of principal, interest, foreclosure fees and costs, bankruptcy fees and costs, and late charges. The Court then examined in detail the provisions of the note, mortgage and related documents and held: "The Citizens Bank is entitled to interest at the contract rate of 4.50% on the principal and foreclosure fees and costs portions of its claim, totaling $6,092.69, but is not entitled to interest on the late charges or accrued pre-petition interest portions of its claim. First, with respect to the principal portion of the claim, the Loan Documents provide that interest ‘will be charged on unpaid principal until the full amount of Principal has been paid.' They also provide that the 4.50% interest rate is the rate that the debtors will pay ‘both before and after any default.' This permits interest to be charged on any unpaid principal until the full amount is paid, and that the interest rate remains the same even in the event of a default. Thus, the debtors must pay interest on the principal portion of the arrearage, in the amount of $1,690.03. Next, the debtors concede that The Citizens Bank is entitled to interest on its pre-petition foreclosure fees and costs.  Paragraph 9 of the mortgage provides that upon default, The Citizens Bank may ‘do and pay for whatever is reasonable or appropriate to protect Lender's interest in the Property and rights under the Security Instrument.' This paragraph further provides that any amounts The Citizens Bank pays under that section become additional debt of the debtors and ‘shall bear interest at the Note rate from the date of disbursement and shall be payable, with such interest, upon notice from Lender to Borrower requesting payment.' This section of the mortgage entitles The Citizens Bank to interest on its pre-petition foreclosure fees and costs in the amount of $4,402.66, as well as interest on its post-petition attorney fees incurred in connection with the debtors' bankruptcy case .... Nowhere in the Loan Documents is there a provision for interest on accrued interest or late charges in the event of default. The note provides that interest will be charged on unpaid principal at the same rate both before and after default, but mentions only principal, not accrued interest or late charges. Similarly, the mortgage and the construction loan addendum do not contain any reference to interest on interest or late charges. The note provisions that the debtors are obligated to make payments until the full amount of principal, interest, and other charges have been paid does not support an entitlement to interest on interest or late charges, nor does it put the debtors on notice that they would be responsible for interest on interest or late charges in the event of a default. Nor does the provision in the construction loan addendum that interest shall continue to accrue on advances until the full amount of principal is paid support The Citizens Bank's contention. It merely provides that the debtors must pay interest on the unpaid principal amount of the loan after default. The Court finds nothing in the Loan Documents entitling The Citizens Bank to interest on accrued interest or late charges." The Court denied confirmation of the plan stating: "Because the debtors' plan as proposed does not provide for interest on principal and foreclosure costs and fees, confirmation of the plan is denied. The debtors have fourteen (14) days from the date of entry of this order to file a plan in conformance with this order.").

DEVELOP BANKRUPTCY EXPERTISE; IF YOU NEED BANKRUPTCY HELP - USE BANKRUPTCY EXPERTS

Have one person in your organization handle bankruptcy matters and develop expertise. Many matters can be handled without an attorney. 

But be careful about filing proofs of claims. A cottage industry for debtors’ attorneys is to object to claim that have not been filed properly and asking for sanctions. See, In re Mungo, 16-00301-W (Bankr. D.S.C. 12/18/17)(JW)(Residential mortgage claim in Chapter 13 case did not include itemized statement of interest, fees, expenses and charges or escrow statement. Court awarded Debtor's $4,104.13 which was set off from the claim.);  Jowers v.  Midland Funding, LLC (In re Jowers), 16-01667-B, Adv. No. 16-80101-D (Bankr. D.S.C. 5/24/17)(DD) (Purchaser of Credit Card Claims filed Proofs of Claims which improperly included pre-petition interest, fees, and other charges without disclosing those charges. Court awarded Debtor's Attorney $3,000 in fees and costs.).  

Don’t forget to redact personal information on claims and attachments.   

SCLBR 9011-2( c) requires corporations, partnerships and other entities to be represented by a lawyer. In re Coats, 19-04310-W, 2020 WL 257315 (Bankr. D.S.C. 1/8/20)(JW)(Representative of the Creditor/Corporation was not an attorney, therefore he could not represent the Creditor.);  Wazney v. Chase (In re 2040 Hideaway Drive), 17-900009-D (Bankr. D.S.C. 10/4/17)(DD) appeal dismissed C.A. No. 3:17-cv-3216-HMH, 2018 WL 1515287 (D.S.C. 3/27/18) aff'd 18-1476 (4th cir. 8/23/18)(Per Curiam)(Inmate filed what purported to be a petition for relief as Attorney for the corporate Debtor. The Court Bankruptcy Court held Mr. Wazney was not an attorney and could not file a pleading on behalf of the corporation.); In re BTR Properties, LLC, 2012 WL 1565239 (Bankr. D.S.C. 5/2/12)(HB)(Chapter 11 case on behalf of Single Member LLC was filed by its sole member without the assistance of an Attorney. The Clerk's Office sent a letter to the Member stating under SCLBR 9011-2, the case would be dismissed an attorney filed a Notice of Appearance and Representation. The Member, who had filed his own Chapter 11 case pro se, objected arguing under state and federal tax law, an LLC is an unincorporated business so he could represent the unincorporated business. The Court overruled the Objection and Ordered the Debtor to obtain the assistance of an attorney stating: "While individuals in bankruptcy or other court proceedings may represent themselves, the same prerogative is not afforded to corporations and other certain business entities. It is well-established law that those entities must be represented by a licensed attorney because they are fictional legal persons; therefore, they cannot appear for themselves personally....  Consistent with the long-established rule ..., the South Carolina Local Bankruptcy Rules require that ‘[a]ll partnerships, corporations and other business entities must be represented by an attorney duly admitted to practice ... except with respect to the filing of proofs of claim or interests and reaffirmation agreements....' This rule is also recognized under South Carolina state law.... An LLC, such as BTR, is a type of business entity that is ‘a legal entity distinct from its members....' Therefore, like other business entities, BTR can appear in court only through a licensed attorney."); In re Wile, 09-04657-W (Bankr. D.S.C. 9/9/10)(JW)(Without assistance of counsel, Chase Home Finance, LLC directly filed on the general case docket via CM/ECF Notices of Payment Changes using the "correspondence" category. After previously ordering Chase to discontinue such filings, the Court entered a Rule to Show Cause. The Court held such filings were improper pro se filings on behalf of a corporation prohibited under SCLBR 9011-2.).

If you run into a  problem requiring an attorney, get an attorney who is well versed in bankruptcy law and knows the ropes, as it is a very specialized area of the law. One way to determine whether an attorney is an experienced bankruptcy attorney is to verify whether the attorney is certified by the South Carolina Supreme Court as a bankruptcy specialist. Just because your attorney does foreclosure does not mean he knows bankruptcy.