Tackling Soaring Bankruptcy Filings

Cocheo, Steve, ABA Banking Journal

Congress never passed them. You won't read about them in any law book. And you won't see them explicitly in the figures released each year by the Administrative Office of the U.S. Courts.

But they exist-the new bankruptcy sections called "chapter 26" and "chapter 20. "

The new "chapters" are actually two new gambits in bankruptcy lawyers' playbook, according to L.V. "Gus" Patterson, a Michigan banker who has carved out a specialty in fighting bankruptcy filings and teaching other lenders how to do the same.

A "chapter 26" is actually the filing of two chapter 13 cases, according to Patterson.

Typically in this game plan, a consumer debtor is in trouble and files a chapter 13 as holding action to stop a lender from foreclosing on his house or seizing some other valued collateral. The emergency avoided, the debtor lets the first filing lapse, according to Patterson. (Alternatively, a hardnosed trustee objects to the quickie plan as unreasonable and the debtor responds by dropping the case.) Soon afterward-with time to get his act together-the same debtor files another chapter 13 in earnest to obtain relief from creditors. Two 13s make 26.

The chapter 20 case arises in a similar manner, says Patterson, assistant vice-president in the installment loan department of Second National Bank, Saginaw, Mich. The cause in this case, he maintains, is debtor attorneys' hunger for fees.

In Patterson's area, chapter 7 filings generally cost around $500. Typically, chapter 7s are bread and butter work for a debtor attorney; the consumer's debts and assets are listed to demonstrate that he is insolvent, and unless a creditor objects, the judicial crank turns and, presto, the debtor emerges with a clean slate. This excepts certain debts, such as federal student loans and alimony, that are not dischargeable in such straight liquidation bankruptcies.)

For many debtor lawyers, chapter 13 plans involve too much sweat. A three-to-five year plan for full or partial payment must be drawn up and then approved by the court. If the debtor falls behind or fails to make payments at …

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Publication information: Article title: Tackling Soaring Bankruptcy Filings. Contributors: Cocheo, Steve - Author. Journal title: ABA Banking Journal. Volume: 83. Issue: 3 Publication date: March 1991. Page number: 43+. © 2009 Simmons-Boardman Publishing Corporation. COPYRIGHT 1991 Gale Group.

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