The OCC has issued OCC Bulletin 2014-4, which provides guidance on supervisory expectations for national banks and federal savings associations regarding secured consumer debt that is discharged in Chapter 7 bankruptcy proceedings. The Uniform Retail Credit Classification and Account Management Policy requires loans in bankruptcy to be charged down to collateral value within 60 days of notification from the bankruptcy court, unless the bank can clearly demonstrate and document that repayment is likely to occur. The Bulletin provides three factors that should be analyzed in determining whether repayment is likely to occur: (1) the existence of orderly repayment terms for structured collection of the debt without the existence of undue payment shock or the need to refinance the balloon amount, (2) a history of payment performance that demonstrates the borrower’s ongoing commitment to satisfy the debt before and through the bankruptcy proceeding, and (3) the consideration of post-discharge capacity that indicates the borrower can make future required payments from recurring, verified income.

The Bulletin also describes when a bank may consider post-discharge payment performance as evidence of collectability. When loans are maintained on a nonaccrual status, the loan may generally be restored to accrual status when none of its principal and interest is due and unpaid and the bank expects a full repayment of the remaining pre-discharged contractual principal and interest. A bank may consider post-discharge payment performance as evidence of collectability, if the performance demonstrates both capacity and willingness to repay the full amounts due — the analysis should include the following three factors: (1) monthly payments, (2) sustained performance, and (3) collateral levels. For more details see OCC Bulletin 2014-4, Secured Consumer Debt Discharged in Chapter 7 (February 14, 2014).