[Code of Federal Regulations]
[Title 7, Volume 11]
[Revised as of January 1, 2003]
From the U.S. Government Printing Office via GPO Access
[CITE: 7CFR1779.85]

[Page 1025-1026]
 
                          TITLE 7--AGRICULTURE
 
    CHAPTER XVII--RURAL UTILITIES SERVICE, DEPARTMENT OF AGRICULTURE
 
PART 1779--WATER AND WASTE DISPOSAL PROGRAMS GUARANTEED LOANS--Table of Contents
 
Sec. 1779.85  Bankruptcy.

    (a) Calculating losses.Report of Loss form (available in any Agency 
office) will be used for calculating estimated and final loss 
determinations.
    (b) Lender responsibility.The lender is responsible for protecting 
the guaranteed loan debt and all the collateral securing it in 
bankruptcy proceedings. These responsibilities include, but are not 
limited to, the following:
    (1) Filing a proof of claim, where necessary, and all necessary 
papers and pleadings;
    (2) Attending and, where necessary, participating in meetings of the 
creditors and all court proceedings;
    (3) Immediately seeking adequate protection of the collateral if it 
is subject to being used by the trustee in bankruptcy or the debtor in 
possession;
    (4) Where appropriate, seeking involuntary conversion of a pending 
chapter 11 case to a liquidation proceeding or seeking dismissal of the 
proceedings; and
    (5) Keeping the Agency adequately and regularly informed, in 
writing, of all aspects of the proceedings.
    (c) Appraisals.In a chapter 9 or chapter 11 reorganization, the 
lender must obtain an independent appraisal of the collateral if the 
Agency believes an independent appraisal is necessary. The Agency and 
the lender will share the appraisal fee equally.
    (d) Liquidation expenses.Only expenses authorized by the court of 
chapter 9 plans or chapter 11 reorganizations, or chapters 11 or 7 
liquidation (unless the liquidation is by the lender), may be deducted 
from the collateral proceeds.
    (e) Repurchase from the holder.The Agency or the lender, with the 
approval of the Agency, may initiate the repurchase of the unpaid 
guaranteed portion of the loan from the holder. If the lender is the 
holder, an estimated loss payment may be filed at the initiation of a 
chapter 7 proceeding or after a chapter 9 or chapter 11 proceeding 
becomes a liquidation proceeding. Any loss payment on loans in 
bankruptcy must be approved by the Agency.
    (f) Chapter 11 bankruptcy. If a borrower has filed for protection 
under chapters 9 or 11 of the United States Code for a reorganization 
(but not chapter 13) and all or a portion of the debt has been 
discharged, the lender may request an estimated loss payment of the 
guaranteed portion of the accrued interest and principal discharged by 
the court. If the court approves revisions to the chapter 9 plan or 
chapter 11 reorganization plan, subsequent estimated loss payments may 
be requested in accordance with the court approved changes. Once the 
reorganization plan has been satisfactorily completed, the lender is 
responsible for submitting the documentation necessary for the Agency to 
review and adjust the estimated loss claim to reflect any actual 
discharge of principal and interest and to reimburse the lender for any 
court ordered interest-rate reduction under the terms of the 
reorganization plan.
    (g) Agency approval of estimated liquidation expenses. The Agency 
must approve, in advance and in writing, the lender's estimated 
liquidation expenses of collateral in a liquidation if the liquidation 
is performed by the lender. These expenses must be reasonable and 
customary and not include in-house expenses of the lender.

[[Page 1026]]

    (h) Reconciliation. In the event that the estimated loss payment 
exceeds the actual loss, the lender will reimburse the Agency the amount 
in excess of the actual loss plus interest at the note rate from the 
date of the estimated loss payment.