Bankruptcies Jump 19% In 2001

February 22, 2002

Servicing The Bankrupt Borrower

By Sam Garcia

DALLAS, TX -- Speaking at a Mortgage Bankers Association of America conference this week, bankruptcy attorney Penni A. Alper said that during 2001 there were 1,492,129 bankruptcy filings, "the biggest banner year yet." While this was nineteen percent more than 2000, filings are expected to increase to 1.6 million during 2002. Ms. Alper, who is responsible for national bankruptcy representation for 300 lenders and investors nationwide, spoke at a session entitled 'Bankruptcy' during this year's national mortgage servicing conference being held in Dallas.

Servicers -- especially those that service 'B' & 'C' loans -- have already begun feeling the increase.

Filings were highest in the Central District of California, the Northern District of Illinois, the Middle District of Florida, New Jersey and the Northern District of Georgia. Surprisingly, the states with the highest increases were Iowa, Ohio, North Carolina and Wisconsin -- states traditionally with a strong work ethic and lower delinquency.

While a Senate bill had been passed favoring creditors prior to September 11, public sentiment shifted in favor of consumers after the attacks. With billions of dollars having been given to the airline industry, it didn't make sense to force consumers -- some who lost jobs as a direct result of the attacks -- to pay back every bit of their debt. While there probably will be no new bankruptcy legislation this year, it is possible that some pieces of the bankruptcy legislation may be included in the economic recovery bill.

Many servicers automatically return any payments from a bankrupt borrower. However, servicers were advised to NOT send the payments back unless there is a specific legal reason to do so.

A major complaint about servcing a bankrupt borrower is the excessive volume of mail that accompanies a bankruptcy. Servicers were advised to look out for the following types of mail:

  • Any mail from the borrower's bankruptcy attorney
  • Any mail from an Advisory Committee (lawsuit within bankruptcy)
  • 'Objections to Claims'
  • 'Cramdowns' (secured claim reduced based on asset value)
  • 'Motions to Sell' (court forced property sale)
  • 'Motions to Reopen'

Penni A. Alper is with the Georga firm of McCalla, Raymer, Padrick, Cobb, Nichols & Clark, LLC.


Contact ALTA at 202-296-3671 or [email protected].