[Federal Register Volume 63, Number 103 (Friday, May 29, 1998)]
[Rules and Regulations]
[Pages 29339-29342]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-14007]
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Rules and Regulations
Federal Register
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This section of the FEDERAL REGISTER contains regulatory documents
having general applicability and legal effect, most of which are keyed
to and codified in the Code of Federal Regulations, which is published
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Federal Register / Vol. 63, No. 103 / Friday, May 29, 1998 / Rules
and Regulations
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DEPARTMENT OF AGRICULTURE
Rural Housing Service
Rural Business-Cooperative Service
Rural Utilities Service
Farm Service Agency
7 CFR Part 1962
RIN 0560-AE62
Post Bankruptcy Loan Servicing Notices
AGENCIES: Rural Housing Service, Rural Business-Cooperative Service,
Rural Utilities Service, and Farm Service Agency, USDA.
ACTION: Final rule.
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SUMMARY: The Farm Service Agency (FSA) is amending its regulations
regarding servicing accounts when a bankruptcy filing is dismissed.
This change will clarify when a Notice of the Availability of Loan
Service and Debt Settlement Programs for Delinquent Farm Borrowers will
be sent to a borrower who is in or has been dismissed from bankruptcy.
The intended effect of this rule is to improve the efficiency of the
Agency's servicing of delinquent borrowers who have filed bankruptcy
petitions.
EFFECTIVE DATE: May 29, 1998.
FOR FURTHER INFORMATION CONTACT: Kimberly R. Laris, Senior Loan
Officer, Farm Service Agency, U.S. Department of Agriculture, Room
5441-S, 1400 Independence Age., SW, Washington, D.C. 20250-0523;
Telephone: 202-720-1659, e-mail: klaris@wdc.fsa.usda.gov.
SUPPLEMENTARY INFORMATION:
Executive Order 12866
This rule has been determined to be not significant for purposes of
Executive Order 12866 and, therefore, has not been reviewed by the
Office of Management and Budget.
Regulatory Flexibility Act
New provisions included in this rule will not have a significant
economic impact on a substantial number of small entities. It will not
impact small entities to a greater extent than large entities, except
to the extent that large entities may not be eligible for loan
assistance to begin with, since they would be considered larger than a
family-sized farm. Thus large entities may not be borrowers who have
filed bankruptcy petitions, and therefore, subject to these rules. To
the extent that large entities qualify for Farm Loan Program loan
assistance and file bankruptcy petitions, large entities are subject to
these rules to the same extent as small entities. Therefore, this rule
is determined to be exempt from the requirements of the Regulatory
Flexibility Act (5 U.S.C. 601).
Environmental Impact Statement
This document has been reviewed in accordance with 7 CFR part 1940,
subpart G, ``Environmental Program.'' The issuing agencies have
determined that this action does not significantly affect the quality
of human environment, and in accordance with the National Environmental
Policy Act of 1969, Pub. L. 91-190, an Environmental Impact Statement
is not required.
Executive Order 12988
This final rule has been reviewed under Executive Order 12988,
Civil Justice Reform. All State and local laws and regulations that are
in conflict with this rule will be preempted. No retroactive effect
will be given to this rule. Administrative proceedings in accordance
with 7 CFR parts 11 and 780 must be exhausted before bringing suit in
court challenging action taken under this rule unless those regulations
specifically allow bringing suit at an earlier time.
Federal Assistance Programs Affected
10.404--Emergency Loans
10.406--Farm Operating Loans
10.407--Farm Ownership Loans
Executive Order 12372
For reasons set forth in the notice to 7 CFR part 3015, subpart V
(48 FR 29115, June 24, 1983), Farm Operating Loans and Emergency Loans
are excluded from the scope of Executive Order 12372, which requires
intergovernmental consultation with State and local officials. However,
the Soil and Water Loan and Farm Ownership Loan Programs are subject to
the provisions of Executive Order 12372. The Agency has conducted the
intergovernmental consultation requirements in accordance with RD
Instruction 1940-J. (See the Notice related to 7 CFR 3015, subpart V,
at 48 FR 29112, June 24, 1983; 49 FR 22675, May 31, 1984; 50 FR 14088,
April 10, 1985.)
The Unfunded Mandates Reform Act of 1995
Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Pub.
L. 104-4, establishes requirements for Federal agencies to assess the
effects of their regulatory actions on State, local and tribal
governments and the private sector of $100 million or more in any 1
year. Under section 202 of the UMRA, FSA generally must prepare a
written statement, including a cost-benefit analysis, for proposed and
final rules with ``Federal mandates'' that may result in expenditures
to State, local, or tribal governments, in the aggregate, or to the
private sector of $100 million or more in any 1 year. When such a
statement is needed for a rule, section 202 of the UMRA generally
requires FSA to identify and consider a reasonable number of regulatory
alternatives and adopt the least costly, more cost-effective or least
burdensome alternative that achieves the objectives of the rule.
This rule contains no Federal mandates (under regulatory provisions
of title II of the UMRA) for State, local, and tribal governments or
the private sector. Thus, this rule is not subject to the requirements
of sections 202 and 205 of the UMRA.
Discussion
These changes involve the Farm Loan Programs (FLP) loans of FSA
formerly administered by the Farmers Home Administration (FmHA). The
Farmer Programs loans reassignment of this program to FSA was
authorized by the Department of Agriculture Reorganization Act of 1994
(Pub. L. 103-354, 108 Stat.3178).
Current FSA direct FLP loan servicing regulations require that a
``Notice of the Availability of Loan Service Programs and Debt
Settlement Programs for Delinquent Farm Borrowers,'' be sent to
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borrowers if their bankruptcy is dismissed. A delinquent account
servicing notice, pursuant to 7 CFR part 1951, subpart S, may be sent
in such cases, even if the borrower had already exhausted all servicing
rights and the account had been accelerated prior to the bankruptcy
filing. Repeating the notice may cause extensive delays in the
collection of accounts and substantially wastes the money and time of
the Agency by requiring a procedure which has already been completed.
To ensure that borrowers who had filed bankruptcy but whose bankruptcy
was dismissed would receive the initial notification of loan servicing
options required by Sec. 331D of the Consolidated Farm and Rural
Development Act, the regulations at 7 CFR 1962.47(d)(2) were rigidly
written and construed. However, they were not intended to require
renotification if the borrower's servicing rights had been exhausted
prior to the bankruptcy filing.
In certain situations, the Agency is limiting the issuance of a new
loan servicing summary notice authorized under Sec. 331D of the
Consolidated Farm and Rural Development Act (Act). Provided the account
has not been accelerated, the attorney for the borrower and the
borrower will be notified only of the loan servicing options that
remain when the bankruptcy is filed. That notification will also occur
upon dismissal of a bankruptcy action without confirmation of a
bankruptcy plan, and upon default in a confirmed bankruptcy plan if the
bankruptcy has been dismissed or closed and the borrower has not
substantially completed the confirmed plan. No additional primary loan
servicing action will be given upon discharge under chapter 7 of the
Bankruptcy Code.
The Agency's present loan servicing program has been in effect
since October 14, 1988, and borrowers have had many opportunities to
apply for loan servicing. Section 1816 of the Food, Agriculture,
Conservation, and Trade Act of 1990 limited the amount of debt the
Agency could forgive to $300,000 per borrower, and limited writedowns
and buyouts under Sec. 353 of the Consolidated Farm and Rural
Development Act (Con Act) to one per borrower on loans made after
January 6, 1988.
Section 648(b) of the Federal Agriculture Improvement and Reform
Act of 1996 (1996 Act) added Sec. 373 to the Con Act in which Congress
imposed the further limitation that the Agency may not provide debt
forgiveness on a direct loan if the borrower has already received debt
forgiveness on another direct loan. Section 640(2) of the 1996 Act
added a definition of debt forgiveness as Sec. 343(a)(12) of the Con
Act that includes discharging of debt as a result of bankruptcy. Based
on these limitations, it is no longer appropriate for the Agency to
renotify all borrowers who have previously exhausted loan servicing
options and have been unable to correct their delinquency or service
their debt. Many of these borrowers will no longer be eligible for
additional loan servicing.
A proposed rule was published on July 18, 1996, (61 FR 37405-07)
with a comment period ending August 2, 1996. Comments were received
from only one party, an organization representing family farmers. Their
comments were divided into four parts. First, it was recommended that
the rule be clarified by requiring that notices be sent also to the
borrower at his or her address to ensure proper notification when a
bankrupt borrower is not represented by an attorney. Since this
recommendation may help to ensure proper notification, it was adopted.
Second, the commenter felt that the requirement in the proposed
rule that to be considered for servicing, a bankrupt borrower and his
or her attorney must both request loan servicing in writing was overly
burdensome. The Agency agrees with the commenter and has amended the
rule accordingly by requiring either the bankrupt borrower or his or
her attorney to submit a request for servicing.
Third, the commenter noted that the rule could be interpreted to
preclude sending loan servicing notices to a bankrupt borrower who
becomes delinquent on an approved plan of reorganization, even if the
borrower has performed under the plan, if the borrower has received
notices in the past. In response, the paragraph noted by the commenter
was amended to require the following: (1) if the borrower has not
exhausted servicing rights, the notice explaining FSA's Farm Loan
Programs will be sent to a borrower whose bankruptcy is dismissed
before one full payment is made under the plan, unless the borrower's
account is under the jurisdiction of the bankruptcy court or has been
referred to the Department of Justice; and (2) a new loan servicing
summary notice will be sent to a borrower who has a plan confirmed by
the court if the borrower substantially complies with the bankruptcy
plan, but later defaults on the plan, and the bankruptcy is dismissed,
provided the lack of compliance is for reasons beyond the borrower's
control and the account has not been accelerated.
As was the case under the predecessor rule, in the situation
described in item (2) of the preceding paragraph, no new loan servicing
summary notices will be sent if the Agency is advised that sending the
notices is inconsistent with the provisions of the confirmed bankruptcy
plan or the Bankruptcy Code. Also, no notices will be sent if the case
is within the jurisdiction of the bankruptcy court or has been referred
to the Department of Justice. This exception is provided to correct
situations where there are jurisdictional conflicts between those
delegated to finally decide the matter. The Agency wished to conform to
jurisdictional principles that establish the superior authority of a
bankruptcy court and the Department of Justice. Of course, any borrower
who has satisfactorily completed the confirmed plan will be treated the
same as any other rehabilitated borrower for the purpose of loan
servicing.
The Agency believes that these changes to the proposed rule conform
to the spirit of the commenter's objections because they provide that
most delinquent borrowers, except as explained above, who have
substantially complied with their bankruptcy plans will receive an
additional opportunity to apply for loan servicing within the
parameters provided by Congress. This policy is justified because the
obligations of these borrowers to the Agency have been modified by a
confirmed bankruptcy plan (for borrowers filing under chapter 11 of the
Bankruptcy Code) or by a completed bankruptcy plan (for borrowers
filing under chapters 12 and 13 of the Bankruptcy Code), and they have
substantially complied with this obligation.
While Lee v. Yuetter, 917 F.2d 1104 (8th Cir.1990), upheld the
Agency's regulation providing that discharged chapter 7 borrowers did
not have outstanding obligations to the Agency and were not borrowers
for primary loan servicing purposes, this holding is limited to
borrowers discharged under chapter 7 of the Bankruptcy Code. See Lee v.
Yeutter, 106 B.R. 588, 592 (D. Minn., 1989), which contrasted borrowers
discharged under chapter 7 of the Bankruptcy Code who have no debt to
the Agency that could be further restructured with those borrowers who
filed under the reorganization chapters of the Bankruptcy Code who have
obligations to the Agency under their confirmed bankruptcy plans which
are capable of being restructured. Accordingly, the Agency has always
considered borrowers discharged under confirmed reorganization
bankruptcy
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plans to still be ``borrowers.'' While discharged reorganization
borrowers who have completed a confirmed plan, like other borrowers who
have received previous debt forgiveness from the Agency on another
loan, cannot receive additional debt forgiveness, as defined by
Sec. 343(a)(12) of the Con Act, they may be eligible for other
servicing options provided by FSA regulations.
The commenter also was disturbed by the Agency's removal of
internal agency processes from its published regulations and placing
these items in a handbook which would be available to the public upon
request at no cost. The commenter expressed concerns that the Agency's
streamlining efforts may undercut the rulemaking process and
substantive requirements upon which public comment should be solicited
will be left out of the Federal Register. The commenter offered the
example of the former Agricultural Stabilization and Conservation
Service allegedly maintaining handbook provisions that conflicted with
published regulations, and using the handbook instead of regulations to
implement substantive provisions. As an alternative, the commenter
suggests that the Agency narrowly define the content of the handbook so
that it would include only those items which are clearly internal
operating procedures.
The commenter's concerns are understandable. However, Agency
regulations, as they are currently written, contain an excessive amount
of specific internal policy. In accordance with a Governmentwide
mandate of the National Performance Review, the Agency must remove
internal administrative processes from the regulations. In addition, 5
U.S.C. 551 does not require the publication of internal administrative
processes not affecting the general public. Reform of FSA regulations
will ultimately obsolete the regulations of the defunct FmHA, reduce
the burden associated with making policy changes, improve the
readability of regulations and reduce the volume of extraneous
published material.
For example, in this rule, the Agency is removing the specific
references to Exhibit D (Notice to Borrower's Attorney Regarding Loan
Servicing Options) of this subpart, that is sent with the loan
servicing notices to explain the interrelationship of the loan
servicing programs to the bankruptcy petitions filed under chapters 7,
11, 12, and 13 of the Bankruptcy Code. While the Agency will continue
to use this type of specialized notice, there is no statutory
requirement that this type of notice be sent. Since these matters
involve internal operating procedures, the requirement will be
contained in the Agency's handbook only, with the regulations
referencing only that a notice will be sent. Similarly, the Agency has
removed Exhibit D from this subpart. Since this document is an
informational cover letter sent with the notices, the Agency is not
required to publish it.
The commenter suggested that the FSA handbooks be available to the
general public through the FSA Web Page. Currently, the FSA Web Page is
limited to general information on the Agency's programs; however, the
Agency does plan to provide FSA handbooks through a Web Page as soon as
resources are available. The procedures used by the USDA, Rural
Development agencies, which include many procedures of the former FmHA,
are available on the World Wide Web at http://www.rdinit.usda.gov/
regs/. This includes procedures that are shared by FSA Farm Loan
Programs and the Rural Development agencies, including the one affected
by this final rule, RD Instruction 1962-A.
Good cause is shown to make this rule immediately effective upon
publication in the Federal Register and without the 30-day period
required by 5 U.S.C. 551. This rule substantially improves the
efficiency of the Agency's servicing of delinquent borrowers who have
filed bankruptcy petitions by revising the requirement that additional
loan servicing notices be sent whenever a bankruptcy is dismissed.
Also, the Agency will notify borrowers within the jurisdiction of the
bankruptcy court of remaining servicing rights rather than beginning
the lengthy servicing process anew whenever a bankruptcy is filed,
regardless of whether the account has been previously accelerated or
the Agency has previously sent servicing notices. Expediting
liquidation when servicing rights have been exhausted serves the public
interest. Therefore, good cause is shown to make this final rule
effective immediately.
List of Subjects in 7 CFR Part 1962
Crops, Government property, Livestock, Loan programs--agriculture,
Rural areas.
Accordingly, chapter XVIII, title 7, Code of Federal Regulations,
is amended as follows:
PART 1962--PERSONAL PROPERTY
1. The authority citation for part 1962 continues to read as
follows:
Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 42 U.S.C. 1480.
Subpart A--Servicing and Liquidation of Chattel Security
2. Section 1962.47 is revised to read as follows:
Sec. 1962.47 Bankruptcy and insolvency.
(a) Borrower files bankruptcy. When the Agency becomes aware that a
Farm Loan Programs borrower has filed for protection under Title 11 of
the United States Code (bankruptcy), the borrower and the borrower's
attorney, if any, will be notified in writing of the borrower's
remaining servicing options.
(1) If the borrower wishes to apply for servicing options
remaining, the borrower, or the borrower's attorney on behalf of the
borrower, must sign and return the appropriate response form, or
similar written request for servicing, and any forms or information as
requested by the Agency, within 60 days from the date the borrower or
the borrower's attorney received the notification, or the time
remaining from a previous notification that was suspended when the
borrower filed bankruptcy, whichever is greater.
(2) The Agency will consider a request for servicing options to be
an acknowledgment that the Agency will not be interfering with any
rights or protections under the Bankruptcy Code and its automatic stay
provisions.
(3) The Agency's processing of any request for servicing may
include consideration of primary and preservation loan servicing
options, notification of the Agency's decision on the request or
application for servicing, mediation, and holding of any meetings or
appeals requested by the borrower.
(4) If court approval is required for the borrower to exercise
these servicing rights, it will be the borrower or the borrower's
attorney's responsibility to obtain that approval.
(5) If a plan is confirmed before servicing and any appeal is
completed under 7 CFR part 11, the Agency will complete the servicing
or appeals process and may consent to a post-confirmation modification
of the plan if it is consistent with the Bankruptcy Code and 7 CFR part
1951, subpart S, as appropriate.
(6) In chapter 7 cases, the Agency will not provide primary loan
servicing to a borrower discharged in bankruptcy unless the borrower
reaffirms the entire Agency debt. If the chapter 7 debtor obtains the
permission of the court and reaffirms the debt, the loan servicing
application will be processed in accordance with 7 CFR part 1951,
subpart S. If the borrower reaffirms the Agency debt in order to be
considered for restructuring but is later denied
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restructuring, the borrower may revoke the reaffirmation subject to the
provisions of the Bankruptcy Code. No reaffirmation is necessary for
any discharged chapter 7 borrower to be eligible for preservation loan
servicing in accordance with 7 CFR part 1951, subpart S.
(b) Borrower defaults on plan or bankruptcy is dismissed--(1) 90
days past due on a reorganization plan while still under court
jurisdiction.
(i) If allowed by the Bankruptcy Code or court, the borrower and
the borrower's attorney, if any, will be notified of any remaining
servicing options under 7 CFR part 1951, subpart S, that were not
exhausted prior to filing bankruptcy or during the bankruptcy
proceedings according to paragraph (a) of this section.
(ii) No notices will be sent if the account was previously
accelerated, such action is inconsistent with the provisions of the
confirmed bankruptcy plan or the Bankruptcy Code, or the case has been
referred to the Department of Justice.
(iii) If a borrower operating under a confirmed bankruptcy plan
desires to apply for loan servicing and qualifies for servicing under 7
CFR part 1951, subpart S, the borrower must also comply with Bankruptcy
Code rules and requirements concerning modification of the plan.
(2) Bankruptcy is dismissed without a confirmed plan. If the
borrower's bankruptcy is dismissed without a confirmed plan, and the
borrower is in default on Farm Loan Programs loans, the borrower's
account will be liquidated after all remaining servicing options under
7 CFR part 1951, subpart S are exhausted. The borrower will be notified
of any servicing options remaining according to 7 CFR part 1951,
subpart S. Notwithstanding the previous sentence, no notices will be
sent if the account was previously accelerated, the Agency is advised
that such an act is inconsistent with the confirmed bankruptcy plan or
the Bankruptcy Code, or the account has been referred to the Department
of Justice.
(3) Bankruptcy is dismissed after a confirmed reorganization plan.
If a bankruptcy is dismissed after a reorganization plan was confirmed,
the account will be serviced as follows:
(i) If the borrower has substantially complied with the plan, but
later defaults for reasons beyond the borrower's control, (see 7 CFR
1951.909(c)), the borrower will be notified of loan servicing in
accordance with 7 CFR 1951.907. No notices will be sent if the account
was previously accelerated; such action is inconsistent with the
provisions of the confirmed bankruptcy plan or the Bankruptcy Code; or
the case has been referred to the Department of Justice.
(ii) If the borrower failed to make one full payment under the
plan, or did not comply with the plan for reasons not beyond the
borrower's control, the borrower will be serviced according to
paragraph (b)(2) of this section.
(c) Servicing of bankruptcy loans after the case is closed. In
chapter 11, 12, or 13 cases after the case is closed and the discharge
order is issued by the court, if the borrower becomes delinquent after
performing as agreed under the plan, the borrower will be sent a notice
explaining the loan servicing options available under 7 CFR part 1951,
subpart S. The borrower's attorney of record will be sent a courtesy
copy if the bankruptcy has not been closed for at least 2 years. No
notices will be sent if the account has been accelerated, such act is
inconsistent with the provisions of a confirmed bankruptcy plan or
other provisions of the Bankruptcy Code, or the account has been
referred to the Department of Justice.
(d) Liquidation. The account will be liquidated after obtaining any
necessary relief, if required, from the automatic stay. In chapter 7
cases after discharge, the account can be liquidated if the debt has
not been reaffirmed and the property is no longer part of the estate.
Liquidation can proceed prior to discharge if allowed by the court.
(1) If the borrower or borrower's attorney was not previously
notified of any remaining servicing options available under 7 CFR part
1951, subpart S before or during the course of the bankruptcy
proceedings, the borrower and the borrower's attorney will be sent the
notices referenced in paragraph (c) of this section prior to
liquidating any security property.
(2) If the borrower or the borrower's attorney had been previously
notified of loan servicing options remaining, the account will be
liquidated.
3. Exhibit D of subpart A is removed and reserved.
Signed in Washington, D.C., on March 21, 1998.
August Schumacher, Jr.,
Under Secretary for Farm and Foreign Agricultural Services.
Signed in Washington, D.C., on April 6, 1998.
Jill Long Thompson,
Under Secretary for Rural Development.
[FR Doc. 98-14007 Filed 5-28-98; 8:45 am]
BILLING CODE 3410-05-P
