[Federal Register Volume 61, Number 139 (Thursday, July 18, 1996)]
[Proposed Rules]
[Pages 37405-37407]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-18251]
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Proposed Rules
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.
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Federal Register / Vol. 61, No. 139 / Thursday, July 18, 1996 /
Proposed Rules
[[Page 37405]]
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
AGENCY: Farm Service Agency, USDA.
ACTION: Proposed rule.
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SUMMARY: The Farm Service Agency (FSA) proposes to revise its
regulations regarding servicing accounts when a bankruptcy filing is
dismissed. This change will clarify that a Notice of the Availability
of Loan Service and Debt Settlement Programs for Delinquent Farm
Borrowers will be sent after a borrower is dismissed from bankruptcy if
the borrower was not previously notified and the account was not
accelerated.
DATES: Comments must be received by August 2, 1996 to be assured
consideration.
ADDRESSES: Send comments to Director, Farm Credit Programs Loan
Servicing and Property Management Division, USDA, FSA, P.O. Box 2415,
Ag Box Code 0523, Washington, D.C. 20013-2415. Comments may be hand
delivered to USDA, FSA at 14th and Independence Ave., SW., Room 5449-S,
Washington DC. Supporting documents for the proposed rule, comments on
the proposed rule and internal Agency use documents may be viewed
during normal working hours at the above address with prior
notification.
FOR FURTHER INFORMATION CONTACT: Phillip Elder, Senior Loan Officer,
USDA, FSA, Farm Credit Programs Loan Servicing Division, P.O. Box 2415,
Ag Box Code 0523, Washington, D.C. 20013-2415, telephone (202) 720-
9053.
SUPPLEMENTARY INFORMATION:
Executive Order 12866
This rule has been determined to be not significant for the
purposes of Executive Order 12866 and has not been reviewed by OMB.
Executive Order 12372
1. For the reasons set forth in the Notice related to 7 CFR part
3015, subpart V (48 FR 29115, June 24, 1983), Farm Ownership Loans,
Farm Operating Loans, and Emergency Loans are excluded from the scope
of E.O. 12372, which requires intergovernmental consultation with State
and local officials.
2. The Soil and Water Loan Program is subject to and has met the
provisions of E.O.12372.
Programs Affected
These changes affect the following FSA programs as listed in the
Catalog of Federal Domestic Assistance:
10.404--Emergency Loans
10.406--Farm Operating Loans
10.407--Farm Ownership Loans
10.416--Soil and Water Loans
Environmental Impact Statement
This document has been reviewed in accordance with 7 CFR part 1940,
subpart G, Environmental Program. It is the determination of the
issuing agencies that this action is not a major Federal action
significantly affecting the 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 12778
This proposed rule has been reviewed in accordance with E.O. 12778,
Civil Justice Reform. In accordance with this rule: (1) All State and
local laws and regulations that are in conflict with this rule will be
preempted; (2) no retroactive effect will be given to this rule, and
(3) 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.
Regulatory Flexibility Act
The Farm Service Agency (FSA) certifies that this rule will not
have a significant impact on a substantial number of small entities as
defined under the Regulatory Flexibility Act, Pub. L. 96-534, as
amended (5 U.S.C. 601).
Paperwork Reduction Act
This final rule does not impose any new information or
recordkeeping requirements on the public.
Unfunded Mandates
Title II of the Unfunded Mandate Reform Act of 1995 (UMRA), Public
Law 104-4, establishes requirements for Federal agencies to assess the
effects of their regulatory actions on State, local, and tribal
governments or the private sector. Under section 202 of the UMRA,
agencies 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, and 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 205 of the UMRA generally requires agencies 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.
The rule contains no Federal mandates (under the regulatory
provisions of Title II of the UMRA) for State, local, and tribal
governments or the private sector. Thus, today's rule is not subject to
the requirements of sections 202 and 205 of the UMRA.
Discussion of Proposed Rule
These changes involve the farm credit programs (FCP) loans of FSA
formerly administered by the Farmers Home Administration (FmHA) as
Farmer Programs loans. This reorganization was authorized by the
Department of Agriculture Reorganization Act of 1994 (Pub. L. 103-354,
108 Stat. 3178). Current FSA direct FCP loan servicing regulations
require a delinquent account servicing notice pursuant to 7 CFR part
1951, subpart S to be sent to borrowers if their bankruptcy is
dismissed. Currently, in such cases, the Notice of the Availability of
Loan Service Programs and Debt Settlement Programs for Delinquent Farm
Borrowers, is sent depending on the advice of the Office of General
Counsel, even if the borrower
[[Page 37406]]
had already exhausted all servicing rights and the account had been
accelerated prior to the bankruptcy filing. Resending the notice causes
extensive delays in the collection of accounts. The regulations at 7
CFR part 1962, Sec. 1962.47 (d)(2) were promulgated to ensure that all
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. It was never the intent of the regulation to allow renotification
if the borrower's servicing rights had been exhausted and the account
accelerated prior to the bankruptcy filing.
Moreover, the Agency is also revising the regulation to limit the
scope and issuance of the loan servicing notice. When borrowers file
for bankruptcy their attorney will only be notified of the loan
servicing rights that remain. Upon dismissal of a bankruptcy action or
a default in a confirmed bankruptcy reorganization plan, no new
servicing notices will be sent if the borrower or borrower's attorney
has been previously notified of the loan servicing options. Since the
Agency's loan servicing program has been in effect since October 14,
1988, borrowers have had many opportunities to apply for loan
servicing. Congress has limited the amount of debt forgiveness to
$300,000 per borrower, as well as limiting writedowns and buyouts under
Sec. 353 of the Consolidated Farm and Rural Development Act to one per
borrower on loans made after January 6, 1988. See Sec. 1816 of the Food
Agriculture and Trade Act of 1990. In section 648(b) of the Federal
Agriculture Improvement Act of 1996 (1996 Act) 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
a direct loan. Section 640 (2) of the 1996 Act expanded the definition
of debt forgiveness to include discharging of debt as a result of
bankruptcy. Based on these limitations, it is no longer appropriate for
the Agency to renotify borrowers who have previously received the
notice of loan servicing options. Many of these borrowers will no
longer be eligible for additional loan servicing. Also, by expanding
the definition of debt forgiveness to include discharges in bankruptcy,
Congress has endorsed the view that the borrower has elected remedy in
the filing of a bankruptcy petition.
Additionally, the agency is proposing to remove administrative
processes from the regulations and has reserved certain paragraphs,
leaving only regulatory actions which impact the public in the Federal
Register. This streamlining makes the regulation more concise and
easier to read and understand. The Agency is developing a separate
handbook to address such matters as what forms must be filed and where
to submit loan requests and the Agency's internal operating procedures.
This handbook will not be published in the Federal Register but will be
available to the public upon request at no cost.
For example, in this rule, the Agency is removing the specific
references to Exhibit D (Notice to Borrower's Attorney Regarding Loan
Servicing Options) and Exhibit D-1 (Notice to Borrower Regarding Loan
Service Options) of this subpart, which are attached to the loan
servicing notices and further 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 these types of specialized notices, there is no statutory
requirement that these types of notices be sent. Since these matters
involve internal operating procedures, the requirement will be
contained in the Agency's Instructions only, with the regulation
referencing only that a form letter will be sent. Similarly, the Agency
has removed Exhibits D and D-1 from this subpart. Since these documents
are informational cover letters sent with the notices, the Agency is
not required to publish them.
Furthermore, this rule makes minor wording changes, redesignates
some numbered paragraphs and revises references to the Farmers Home
Administration (FmHA) to reference FSA.
List of Subjects in 7 CFR Part 1962
Government property, Livestock, Loan programs--Agriculture,
Personal property--crops, Rural areas.
Accordingly, it is proposed that 7 CFR part 1962 be amended as
follows:
PART 1962--PERSONAL PROPERTY
1. The authority citation for 7 CFR part 1962 is revised 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) [Reserved]
(b) Farm Credit Programs borrowers.
(1) When the local Agency loan servicing official becomes aware
that a Farm Credit Program borrower has filed bankruptcy, the attorney
of the borrower will be notified in writing of the borrower's remaining
servicing options. The attorney of a borrower who is 90 days delinquent
on their chapter 11, chapter 12 or chapter 13 reorganization plan will
also be notified in a similar fashion. When borrowers are under the
jurisdiction of the bankruptcy court and wants to be considered for
loan servicing, they must meet the following conditions:
(i) The borrower must complete and return to the Agency an
Acknowledgement of Notice of Program Availability and any application
forms requested by the Agency within 60 days from the borrower's
attorney's receipt of the notice; and
(ii) The borrower's attorney must request, in writing, servicing on
behalf of the borrower within the 60-day time period. The Agency will
consider this request 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. The Agency's processing of the
application may include consideration of primary and preservation loan
servicing options available under the applicable statutes and
regulations, notification of the Agency's decision on the request and
application for servicing, and holding any mediation, meetings or
appeals requested by the borrower.
(2) If a borrower operating under a confirmed bankruptcy plan
desires to apply for loan servicing and qualifies for servicing under
the Agency's regulations, the borrower may be required to obtain
modification of the bankruptcy reorganization plan.
(3) 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 wants to
reaffirm the debt, the Agency will accept the reaffirmation if
permitted by the court. If the Agency debt is reaffirmed, the loan
servicing application will be processed in accordance with subpart S of
part 1951 of this chapter. If the borrower reaffirms the Agency debt in
order to be considered for restructuring but is later denied
restructuring, the borrower may revoke the reaffirmation. No
reaffirmation is necessary for any discharged chapter 7 borrower to be
eligible for Preservation Loan Service Programs in accordance with
subpart S of part 1951 of this chapter.
(c) [Reserved]
[[Page 37407]]
(d) Liquidation.
(1) If a borrower's bankruptcy is dismissed and the account was not
previously accelerated, the borrower will be notified of remaining
Agency servicing options if any. When the bankruptcy is dismissed and
liquidation of an account is necessary, liquidation will be conducted
in accordance with Sec. 1962.40 of this subpart and Sec. 1965.26 of
subpart A of part 1965 of this chapter as appropriate, except that the
Notice of the Availability of Loan Service Programs and Debt Settlement
Programs for Delinquent Farm Borrowers with attachments will only be
sent to the borrower if they were not previously sent to the borrower
or the borrower's attorney.
(2) In chapter 11, 12, or 13 reorganizations, if liquidation is
necessary while the bankruptcy is pending, the borrower's attorney will
be sent a Notice of the Availability of Loan Service and Debt
Settlement Programs for Delinquent Farm Borrowers with attachments if
allowed by the Bankruptcy Code and if not previously sent to the
borrower's attorney.
(3) In chapter 11, 12 or 13 cases, if liquidation is necessary
after the case is closed, the borrower will be sent a Notice of the
Availability of Loan Service and Debt Settlement Programs for
Delinquent Farm Borrowers with attachments if not previously sent to
the borrower's attorney and if not prohibited by the provisions of the
Bankruptcy Code. If an application for servicing is received under this
paragraph, it will be processed in accordance with subpart S of part
1951 of this chapter. If the borrower does not qualify for loan
servicing, the account will be accelerated.
(4) In chapter 7 cases, after discharge loans will be liquidated if
the borrower has not reaffirmed the debt and the property is no longer
part of the estate. Liquidation may proceed prior to discharge if
allowed by the court. Borrowers will be sent a letter and a Notice of
the Availability of Loan Service and Debt Settlement Programs for
Delinquent Farm Borrowers with attachments if the borrower or the
borrower's attorney was not previously so notified. If these notices
were sent previously, the borrower will be sent an acceleration notice.
* * * * *
3. Exhibit D is removed.
4. Exhibit D-1 is removed.
Signed in Washington, DC, on July 8, 1996.
Eugene Moos,
Under Secretary for Farm and Foreign Agricultural Services.
[FR Doc. 96-18251 Filed 7-17-96; 8:45 am]
BILLING CODE 3410-05-P
