There are 18 steps that the Bank should undertake when faced with a consumer bankruptcy filing. Some of the steps involve internal actions that are handled by the in-house bankruptcy expert, loan officers, or other members of the Bank’s staff. Other steps, especially those involving legal maneuvering in a complicated case, are handled by the Bank’s attorney.
1. Determine whether a bankruptcy petition has been filed, by (i) receiving official notice from bankruptcy court clerk; (ii) receiving notice from newspaper listings, a credit bureau, or the debtor’s attorney and (iii) investigating rumors of a bankruptcy filing; obtain verification from bankruptcy court clerk.
2. Determine the number and extent of the Bank’s relationships with debtor by (i) obtaining a list all deposit, credit, and loan accounts with debtor and (ii) collecting pertinent data about accounts such as balances, payments, collateral, cash advances, withdrawals, maturity, and so forth.
3. Stop all collection activity. Cease efforts to repossess collateral; to create, perfect, or enforce a lien; or to collect or set off against a debt. Observe automatic stay protecting co-debtors in Chapter 13 consumer bankruptcy cases. Notify Bank personnel, collection attorneys or agencies, and the Bank’s computer system.
4. Decide whether to take action on the debtor’s bank account (i.e., place hold on (or freeze) debtor’s account pending further action) and (ii) notify debtor if action is taken.
5. Retrieve the debtor’s credit cards. Recover credit cards through the debtor’s attorney or approach debtor being careful to avoid words that might be construed as collection activity.
6. Review the all loan documentation. Make certain that debtor’s loans were properly documented, disclosures were properly made, and liens were correctly recorded
7. Obtain information about the collateral. Determine whether collateral is insured, where it is, its condition and use, its value, and whether payments are current. Determine whether loan is adequately secured (collateral value should exceed loan balance)
8. Determine Bank’s course of action regarding collateral in a Chapter 7 case. Weigh the Bank’s options with regard to the debtor’s property that is neither returned to Bank, redeemed, or retained as exempt or through avoidance of a nonpossessory, nonpurchase-money lien (i) seek abandonment of property from bankruptcy estate; (ii) seek relief from automatic stay on Adequate Protection; (iii) file motion to prohibit collateral use; (iv) enter into reaffirmation agreement; (v) accept voluntary repayments without reaffirmation; (vi) consider objecting to the exemptions claimed and (vii) do nothing until automatic stay terminates, then proceed to enforce lien rights negotiate with trustee to sell property free of liens.
9. Determine course of action regarding collateral in a Chapter 13 case. Weigh the Bank’s options with regard to debtor’s plan for modifying security interests and making repayments (i) do not accept plan that fails to continue creditor’s lien; (ii) in a cram-down, consider objecting to specific aspects like valuation of collateral; (iii) file motion for relief from stay; (iv) object to plan confirmation; (v) challenge plan for curing defaults in real property that is debtor’s principal residence and (vi) seek protection against delinquency of payments made outside plan.
10. Collect internal information. Collect records and documents (other than loan information compiled in Step 2) to support Bank’s position in the case; for example, evidence of loading up or false financial statements.
11. Collect bankruptcy case papers. Request duplicates of court papers such as debtor’s statement of current income and current expenses and statement of intent to retain or give up collateral.
12. Analyze both internal records on debtor and records arising from case. Answer questions about debtor’s status to help determine Bank’s course of action regarding overall case; for example, whether to object to discharge of a debt or to confirmation of a plan.
13. Decide whether to attend first meeting of creditors. Unsecured creditors who do not contemplate action in a no-asset case may not wish to attend. Other secured and unsecured creditors, especially those noticing abuses or discrepancies in case or those contemplating action, should attend to gather information and question debtor under oath. In Chapter 13 cases, it is important to attend to learn how claim will be treated in the repayment plan. If contemplating litigation, Bank’s counsel should attend.
14. File a proof of claim. File proof of unsecured claims in Chapter 7 and Chapter 13 cases (required to participate in distribution of assets). File a proof of secured claims in Chapter 7 (recommended) and chapter 13 (required) cases. For secured claims, determine value of collateral to be declared, if necessary be accurate and complete in filing out form, and attach required loan documents.
15. Decide whether to object to discharge of prepetition debts in a Chapter 7 case. If circumstances seem to warrant, file objection to general discharge of debts prior to hearing date set by bankruptcy court.
16. Decide whether to object to discharge of a particular debt in a Chapter 7 case. Determine whether debtor made false written statements to obtain loan or otherwise engaged in false pretenses, false representation, or fraud. Determine whether loading up occurred. Weigh possibility that court will find the objection not substantially justified and may order Bank to pay debtor’s attorney’s fees and costs.
17. Decide whether to object to confirmation of a Chapter 13 plan. Find out how confirmation procedures in local jurisdiction are handled. Determine whether grounds exist for objecting to confirmation. Determine whether debtor proposed plan in good faith.
18. Proceed against guarantors and collateral owned by third parties. In a Chapter 7 case, pursue guarantors, endorsers, sureties, and collateral owned by third parties if no restraining order has been issued. In a Chapter 13 case, observe automatic stay protecting co-debtors and decide whether to request court to lift co-debtor stay.