[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]


 ========================================================================
 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.
 
 ========================================================================
 

  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