Consolidating Creditor Data in Chapter 13 Cases A Project for Tomorrow Realized Today

Consolidating Creditor Data in Chapter 13 Cases A Project for Tomorrow Realized Today

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The number of claims administered by chapter 13 trustees has increased, leading to more disbursements to more creditors from debtors who are capable of paying more money pursuant to their confirmed plans. This puts a burden on creditors as well as debtors. As a result, large creditors search for new tools that can assist them in administering consumer claims. The chapter 13 trustees (acting through the National Association of Chapter 13 Trustees (NACTT)) have developed a new tool that can provide significant assistance to a creditor with a large portfolio of claims. The trustees developed this tool in response to creditor demands, and a few active creditors have started to use it. Dubbed the National Data Center (NDC), the trustees have created a single database with up-to-date information from chapter 13 trustees across the country.

The need for the NDC is clear. As the number of chapter 13 filings has grown, a debtor's use of chapter 13 has become more sophisticated, and repayment plans have become more complex. Distributions to creditors in chapter 13 cases have grown substantially.2 Additionally, creditors are consolidating as they nationalize their chapter 13 claims or transfer their claims to a single creditor pool.3

The routine functioning of consumer cases puts enormous pressure on the creditors' infrastructure. Creditors must promptly respond to a filing to honor the automatic stay. Creditors push for the prompt administration of cases seeking to encourage prompt distributions. Creditors are also under an obligation to respond to the effects of a chapter 13 plan.4 The terms of a confirmed plan can be binding upon a creditor, even where the creditor has a valid objection to its treatment.5 Prompt response is critical.

Cloaked with the protection of the automatic stay and the binding effect of a confirmed chapter 13 plan, debtors rely on the payments made into their plans to keep their creditors at bay. Creditors must honor the terms of the plan and account for the receipts from the trustee and be fully ready to collect their debt in the event the plan fails. The sad truth is that most chapter 13 cases do not reach discharge.

Creditors and their agents can access a gateway to 83 percent of chapter 13 claims.

In the event a chapter 13 plan fails, a creditor is free from the binding provisions of the chapter 13 plan and the limits of the automatic stay and may pursue the debtor for the amounts remaining unpaid, including interest, costs, penalties and late charges that may not have been collectable in the chapter 13 case. To do so, a creditor must retain records consistent with the terms of the confirmed plan6 and keep track of the debt balance pursuant to the underlying agreement. Thus, creditors must retain two sets of records. They must record payments consistent with terms of the chapter 13 plan and also maintain an internal, non-disclosed set of records that may be resurrected if the chapter 13 debtor does not obtain a discharge.

A creditor is challenged to obtain and retain information on the amounts paid on its claim by a chapter 13 trustee, and how much of those payments are allocated between principal and interest. Creditors may obtain such information directly from the chapter 13 trustees. Chapter 13 trustees are statutorily responsible for providing information relative to their administration of a case to parties in interest.7 The method by which a chapter 13 trustee provides this information, however, is not defined. Most chapter 13 trustees administer a web site that provides a party in interest access to review the administration of that trustee's cases, viewed on a case-by-case basis.8 For a national creditor obtaining information from the trustees' web sites requires individual access, on a case-by-case basis, to approximately 200 different trustees' offices, and not all trustees provide a web site.

Responding to its creditor members, the NACTT has initiated a project to establish a non-profit, data-hosting entity to consolidate the records and information on all chapter 13 cases and provide access to that database to creditors who establish that they are parties in interest.

The efforts undertaken by the NACTT and the NDC to fulfill this need has been long, painful, expensive and time-consuming. In order to preserve the privacy interests of debtors, the NDC had to make certain that access to this database was protected and limited only to legitimate parties in interest. Debtors had to be provided access to this database so they could verify the accuracy of the information. A mechanism had to be established whereby debtors could raise concerns over the accuracy of the data provided and, where appropriate, feedback could be provided to the individual trustee.

The NDC is still in its formative stages. Now hosting approximately 84 percent of the case information across the country, the NDC database holds records of 2.1 million chapter 13 cases, both open and closed. It holds information relative to 34.7 million claims, with information relative to 182.5 million separate payments made in chapter 13 cases.

The NDC data is updated daily by participating chapter 13 trustees. As the capabilities of the NDC expand, more trustees are able to forward their case information to the NDC's secure site.

Creditor participation is also growing. Creditors and their agents can access a gateway to 83 percent of chapter 13 claims. The NDC can provide accurate exception reporting, assisting creditors in identifying nonperforming claims, cases that lack proofs of claim or cases in which claim transfers have not yet been recognized by the trustee. The NDC database is used to electronically identify the cases and accounts for which payments are made by trustees. Creditors can verify the principal and interest components of each payment and can be certain that, upon the discharge of the case, payments have been properly applied and the debtor has been given credit for all payments consistent with the terms of the plan.

In an era where the accurate recording of information is of paramount importance, creditors must utilize every tool available to improve efficiency and reduce costs but at the same time honor their obligations to the debtor and to the bankruptcy system. Where a chapter 13 debtor successfully obtains a discharge, creditors must accurately reflect that information in their own records.

For the mortgage service industry, the NDC can provide an inexpensive and direct mechanism to avoid end-of-plan disputes concerning post-petition defaults, late fees and other post-petition charges.9 Claims treated under §1322(b)(5) are excepted from discharge under §1328(a). Thus, it appears that §524 is not applicable to actions by those creditors.10 The plan, however, can be binding on the creditor post-petition, leading to the anomalous situation where the arrearage is fixed by the terms of the plan but the debt is not discharged.11 The NDC database could synchronize the records of the creditor and the trustee, avoiding costly disputes at the end of cases. The service, which can provide help to debtors seeking to emerge from chapter 13 without the threat of imminent foreclosure, gives trustees a way to pass information to creditors in a manner that is efficient and cost effective, and provides creditors, for the first time, up-to-date case information in a manner that can best serve their needs, is crucial for all participants.

The NDC, then, is a new, 21st Century answer to a growing problem. For it to succeed, the NDC must be supported by all of the trustees and the creditor community as a whole. If creditors want to encourage the development of tools like the NDC, they must get behind it and support it—not sometime down the road, but now.


1 Board Certified in Consumer Bankruptcy Law by the American Board of Certification. Return to article

2 In 1980, non-business bankruptcy filings under chapter 13 totaled 208,660. In 2003, this total grew to 467,990. In 1980, total filings were 782,900, and in 2003 total filings grew to 1,660,245. In 1980, chapter 13 filings constituted 29.41 percent of the non-business bankruptcy filings, and in 2003, chapter 13 filings constituted 28.85 percent of the non-business bankruptcy filings. (Statistics from According to the NACTT, distributions to creditors in chapter 13 cases are now approaching $5 billion per year. Return to article

3 For a general discussion of this practice, see Greer v. O'Dell, 305 F.3d 1297 (11th Cir. 2002) (Maxflow Corp., the purchaser of accounts of credit card holders who filed chapter 13 bankruptcy from credit card issuers, possesses the authority to assert a claim either in its own account or in anticipation of its obligation to buy forward flow accounts pursuant to a purchase agreement with the original creditor.). Return to article

4 See, e.g., Andersen v. UNIPAC-Nebhelp (In re Andersen), 179 F.3d 1253 (10th Cir. 1999) (The inclusion of an "undue hardship" discharge provision in a plan would be binding upon the creditor, resulting in the discharge of a non-dischargeable student loan.). Return to article

5 See In re Riser, 289 B.R. 201 (Bankr. M.D. Fla. 2003) (Confirmation order stating exact amount of a mortgage claim and arrearage is binding, and the debtor is current when the debtor completes payments; the mortgagee and its assignees were forever barred from attempting to claim or collect recoverable corporate advances not provided in the plan.). Return to article

6 See Mann v. Chase Manhattan Mortgage Corp., 316 F.3d 1 (1st Cir. 2003) (Post-petition attorney's fees that accrue in a chapter 13 case and noted on the books and records of the mortgage service provider do not violate the automatic stay, provided that such information is not communicated to the debtor, nor are such fees subject to collection.); see, also, Smith v. Fairbanks Capital Corp. (In re Smith), 299 B.R. 687 (Bankr. S.D. Ga. 2003) (A creditor's notation of accruing attorney's fees on its own books does not itself violate the automatic stay.). Return to article

7 Duties of a chapter 13 trustee, found in 11 U.S.C. §1302, refer back to the obligations of a trustee under 11 U.S.C. §704. Section 704(7) requires the trustee to "furnish such information concerning the estate and the estate's administration as is requested by a party in interest..." Return to article

8 Access to records of a chapter 13 trustee are restricted to parties in interest. Accordingly, creditors usually are required to obtain a password to gain access to the web site, which prevents that creditor from obtaining information concerning cases in which that creditor does not hold a claim. Return to article

9 Where a creditor can identify mistakes by a trustee, costs are reduced on both sides. In the case of In re Stovall, 256 B.R. 490 (Bankr. N.D. Ill. 1999), the chapter 13 trustee erroneously did not pay all of the claim asserted by the creditor. This stemmed from the trustee misreading the claim filed by the creditor. Had this discrepancy been forwarded to the trustee, the matter could have been corrected before the commencement of costly litigation. Return to article

10 See In re Harvey, 88 B.R. 860 (Bankr. N.D. Ill. 1988); Smith v. Key Corp. Mortgage, 151 B.R. 870 (N.D. Ill. 1993). Return to article

11 See In re Bateman, 331 F.3d 821 (11th Cir. 2003) (The chapter 13 plan provided for the arrearage on a mortgage that would be binding on the mortgagee, although the true larger arrearage would not be eliminated by the debtor's discharge and consummation of the plan.). Return to article

Journal Date: 
Wednesday, September 1, 2004