No, in this case, you most likely cannot charge the customer for the forced placement of insurance coverage without court approval.

Regulation X requires that you send certain notices before you may charge the borrower for force placing insurance, and there is no exception made for borrowers in bankruptcy. At the same time, the federal Bankruptcy Code prohibits a creditor from engaging in any act that is an attempt to collect on a debt that was in existence before the filing of the bankruptcy case, once the creditor has received notice of an automatic stay.

Several bankruptcy courts have held that a notice of force-placed insurance is an attempt to collect on a debt, albeit in the context of collecting on a discharged debt. For example, a bankruptcy court in Massachusetts found that even though a force-placed insurance notice contained a bankruptcy disclaimer (stating that no payment is due if the debt was discharged), the tone of the notice implied that the debtors were responsible for a payment on a discharged debt. In that case, the force-placed insurance notice contained many of the provisions required by Regulation X in force-placed insurance notices, leading the court to hold that the letter violated the Bankruptcy Code's prohibition against attempting to collect on discharged debts.

We believe it is likely that a court might similarly view a force-placed insurance notice on a non-discharged debt as a violation of the Bankruptcy Code's automatic stay of attempted debt collections. While we cannot say with certainty that sending the force-place insurance notices would be found to violate the automatic stay in all cases, we recommend against sending the notices in this situation. Meanwhile, if you cannot send the notices, you cannot charge the borrower for the force-placed insurance, since you have not provided the notices required by Regulation X.

Notably, the Bankruptcy Code does permit a creditor to seek a court order to protect the creditor's interest in its collateral when the creditor is threatened with a decline in the value of its collateral. “Adequate protection” of the creditor's collateral may take various forms, including cash payments or periodic cash payments. An Illinois bankruptcy court has held that a debtor “who does not have secured real estate adequately insured against fire and other potential loss” is not entitled to the protection of the automatic stay. In that case, the court noted that it could order the secured creditor to obtain such insurance and add the cost to the amount of its secured claim. You may wish to consider pursuing a similar course of action in the bankruptcy court.

As you can see, this is a highly complex area of law, and we advise that you seek the advice of your bank's counsel before communicating with a borrower who has filed for bankruptcy.

For resources related to our guidance, please see:

• Regulation X, 12 CFR 1024.37(c)(1) (“Before a servicer assesses on a borrower any premium charge or fee related to force-placed insurance, the servicer must: (i) Deliver to a borrower or place in the mail a written notice containing the information required by paragraph (c)(2) of this section at least 45 days before a servicer assesses on a borrower such charge or fee . . . .”)

• Bankruptcy Code, 11 USC 362(a)(6) (“[A] petition filed under section 301, 302, or 303 of this title . . . operates as a stay, applicable to all entities, of . . . any act to collect, assess, or recover a claim against the debtor that arose before the commencement of the case under this title . . . .”)

• In re Lemieux, 520 B.R. 361, 368 (Bankr. D. Mass. 2014) (“I find that the Lemieuxs have stated a plausible claim that the insurance mailing constitutes an act to collect a debt . . . .”)

• Regulation X, Appendix MS-3 to Part 1024 Model Force-Placed Insurance Notice Forms

• Bankruptcy Code, 11 USC 361(1) (“When adequate protection is required . . . of an interest of an entity in property, such adequate protection may be provided by . . . (1) requiring the trustee to make a cash payment or periodic cash payments to such entity, to the extent that the stay under section 362 of this title, use, sale, or lease under section 363 of this title, or any grant of a lien under section 364 of this title results in a decrease in the value of such entity’s interest in such property;”); 11 USC 362(d)(1) (“On request of a party in interest and after notice and a hearing, the court shall grant relief from the stay provided under subsection (a) of this section, such as by terminating, annulling, modifying, or conditioning such stay — (1) for cause, including the lack of adequate protection of an interest in property of such party in interest . . .”)

• In re Ausherman, 34 B.R. 393, 394 (N.D. Ill. 1983) (“Also, a debtor who does not have secured real estate adequately insured against fire and other potential loss is not entitled to continued use of the property and the protection of the automatic stay. I view this as an element of adequate protection. But even if it is not, it falls within the ‘for cause’ grounds for vacating the stay, as set forth in Section 362(d)(1).”)