This may be more of a legal than Compliance question, but I'm curious if not filing a reaffirmation agreement on the borrower's property equates to a property surrender? My question stems from 1026.41(e)(5), the exemption for providing periodic statements to certain borrowers in bankruptcy: can we utilize the exemption if the borrower does not reaffirm the mortgage loan debt or do we need to wait for one of the items listed in 1026.41(e)(5)(B) to occur before taking advantage of the exemption?

Thanks for the help. I'm trying to understand exactly how and when we can utilize the statement exemption.

Under the current regulation, you can claim the exemption if the consumer is in bankruptcy, period.

Beginning in April, paragraph 1026.41(e)(5)(i)(A) and any one of the events in 1026.41(e)(5)(i)(B) need to apply before you can be exempted, but the exemption ends if the consumer reaffirms liability or requests a periodic statement or coupon book.

Reaffirmation takes place when a consumer in bankruptcy executes a reaffirmation agreement, which is an agreement by the consumer to waive discharge of a debt that would otherwise be discharged in the proceeding. In other words, the consumer doesn't want to lose his home and believes he is able to manage the debt if other obligations are discharged in the bankruptcy, so he agrees to resume paying the loan, and the debt will not be discharged in the bankruptcy. In some cases, a reaffirmation must be approved by the bankruptcy court. According to my source, though, court approval is not needed for reaffirmation of a consumer debt secured by real estate or for a reaffirmation agreement between a debtor and a credit union.

A creditor should understand that a reaffirmation can be rescinded before entry of the consumer's discharge in bankruptcy or within 60 days after the reaffirmation agreement is filed with the court whichever occurs later.

Thank you for your response, John. Very good information as always.

In your opinion, from an operational standpoint does it make the most sense to continue sending a periodic statement until we prove that a 1026.41(e)(5)(i)(B) event occurs before utilizing the exemption? I'm trying to figure out if we can use the exemption until a borrower executes a reaffirmation agreement or if we first need to prove that a 1026.41(e)(5)(i)(B) event occurs.

You need one of those events to in (B) to occur, if you're dealing with the question after that revision to the regulation becomes effective April 19, 2018. Under the current rule, there is no list of triggering events other than the fact the consumer is in a bankruptcy proceeding.