I have a customer who has filed bankruptcy. What is the best way to handle this?

Answer

Set up a Type B Escrow Record per court instructions. To bring the account current, compute the interest owed, then enter this amount in the balance (Field E-09) as a negative number. Set the constant of the B Escrow Record to correspond with the amount agreed upon in the court instructions to be collected monthly. If the loan is a biweekly or a repayment schedule other than monthly, adjust the constant accordingly. Add the amount of the B record to the Interest Balance (Field 22) for IRS 1098 reporting. Then modify the dates in Fields 24 and 25 of the Master Record to show the account as current. When Field 24 is modified, Field 25 will adjust to be 30 days later if the Repayment Code (Field 19) is a 0. Store the date of the court order in Action Start Date (Field 97) and the appropriate Action Code (Field 98) of one of the following:

59 - Chapter 12 Bankruptcy
65 - Chapter 7 Bankruptcy
66 - Chapter 11 Bankruptcy
67 - Chapter 13 Bankruptcy
69 - Bankruptcy Plan Confirmed

The Transaction Register shows the total amount of all B record transactions below the GL listing. It is shown with the label TYPE-B RECOVERY and gives the total debit or credit amount. As the amount is collected, it will show in the credit column. This amount will need to be transferred out of the escrow custodial account and booked to the interest receivable account.

The escrow balance shown on the trial balances does not include the B record balances. To retrieve a listing or total of the B records, use ESCROWS BY DEALER (03.12.22). Select Escrow Type B, <NL> through STATE to select all states and <NL> through DEALER to select all dealers or BANKRUPTCY LISTING (03.13.24.05). The loans will print on the Bankruptcy Listing Report whether they are current or delinquent as long as Action Start Date (Field 97) has a date filled in and Action Code (Field 98) has a code of 59, 65, 66 ,67, or 69. The report will indicate the Action Start Date (Field 97), Principal Balance (Field 21), Last Payment Date (Field 41), and Next Payment Date (Field 25). The Escrow Balance (E-09) and Constant (E-04C) to be collected in Escrow Record Type B are totaled.

More documentation is in the LS Report Manual LS040.0. If the loan is paid off prior to collecting the total due, the negative balance in the B Escrow Record will be added to the payoff.