We have a borrower who filed a Chapter 13 bankruptcy petition. The borrower is current on their mortgage loan, and the notice we received indicates that they will maintain the current contractual installment payments due under the loan. As a large servicer, are we still required to send the modified periodic statement for borrowers in bankruptcy, even though our debt is unaffected by the filing? There is no delinquency information to be reported, but the modified statement would contain the important bankruptcy message.

Yes, we believe your bank must send the modified periodic statements for residential mortgage loans required under Regulation Z for borrowers in bankruptcy, unless certain exemptions apply.

Generally, mortgage loan servicers (including creditors and assignees) subject to the large servicer rules are required to send modified periodic statements to debtors in bankruptcy for closed-end consumer credit transactions secured by a dwelling. However, servicers are not required to send periodic notices to borrowers in bankruptcy in certain situations, such as in cases where the consumer’s bankruptcy plan provides that the dwelling securing the mortgage loan will be surrendered or the bankruptcy court enters an order avoiding the lien securing the mortgage loan, lifting the automatic stay with respect to the subject dwelling, or requiring the servicer to cease providing periodic statements.

Here, it does not appear that any of those exceptions would apply. Consequently, we believe that your bank is required to send the modified periodic statement, even though the borrower is current on the loan.

For resources related to our guidance, please see:

Regulation Z, 12 CFR 1026.41(f) (“While any consumer on a mortgage loan is a debtor in bankruptcy under title 11 of the United States Code, or if such consumer has discharged personal liability for the mortgage loan pursuant to 11 U.S.C. 727, 1141, 1228, or 1328, the requirements of this section are subject to the following modifications with regard to that mortgage loan. . . .”)

Regulation Z, 12 CFR 1026.41(a)(1) (“This section applies to a closed-end consumer credit transaction secured by a dwelling, unless an exemption in paragraph (e) of this section applies. A closed-end consumer credit transaction secured by a dwelling is referred to as a mortgage loan for purposes of this section.”)

Regulation Z, 12 CFR 1026.41(e)(5)(i) (“Except as provided in paragraph (e)(5)(ii) of this section, a servicer is exempt from the requirements of this section with regard to a mortgage loan if (A) Any consumer on the mortgage loan is a debtor in bankruptcy under title 11 of the United States Code or has discharged personal liability for the mortgage loan pursuant to 11 U.S.C. 727, 1141, 1228, or 1328; and (B) With regard to any consumer on the mortgage loan:

(1) The consumer requests in writing that the servicer cease providing a periodic statement or coupon book;

(2) The consumer’s bankruptcy plan provides that the consumer will surrender the dwelling securing the mortgage loan, provides for the avoidance of the lien securing the mortgage loan, or otherwise does not provide for, as applicable, the payment of pre-bankruptcy arrearage or the maintenance of payments due under the mortgage loan;

(3) A court enters an order in the bankruptcy case providing for the avoidance of the lien securing the mortgage loan, lifting the automatic stay pursuant to 11 U.S.C. 362 with regard to the dwelling securing the mortgage loan, or requiring the servicer to cease providing a periodic statement or coupon book; or

(4) The consumer files with the court overseeing the bankruptcy case a statement of intention pursuant to 11 U.S.C. 521(a) identifying an intent to surrender the dwelling securing the mortgage loan and a consumer has not made any partial or periodic payment on the mortgage loan after the commencement of the consumer's bankruptcy case.”)