IMPORTANT BANKRUPTCY RULE AMENDMENTS GO INTO EFFECT ON DECEMBER 1, 2017
December 7, 2017 | Categories: Publications | Topics:
The Amendments Will Have a Significant Impact on Creditors, including Secured Creditors
In this bulletin, we provide a brief summary of the many amendments to the Federal Rules of Bankruptcy Procedure (“FRBP”) that will take effect on December 1, 2017 (unless Congress passes legislation to the contrary, which is unlikely). These amended rules will have a significant impact on the rights of creditors and should be examined carefully.
Rule 2002 – Amendment Shortens Notice of Time to Object to Confirmation of a Chapter 13 Plan
FRBP 2002 currently requires that creditors be provided with at least twenty-eight (28) days notice of the deadline to file an objection to confirmation of a Chapter 13 plan. The amendment will reduce the amount of notice by seven (7) days to twenty-one (21) days. This amendment ties in with the amendment to FRBP 3015 discussed below. The advance notice of the hearing on confirmation of a plan remains unchanged at not less than twenty-eight (28) days prior to the confirmation hearing.
Rule 3002 – Amendment Shortens Deadline to File a Proof of Claim and Addresses Secured Creditors’ Claims
The amendment makes clear that secured creditors must file a proof of claim in order to receive distributions from the bankruptcy case. The amendment also eliminates ambiguity regarding the effect on a secured creditor’s lien for failing to file a proof of claim, i.e. whether or not the lien is void due to a failure to file a secured proof of claim. Amended Rule 3002(a) clears up this ambiguity by reassuring creditors that a failure to file a secured proof of claim does not void the creditor’s lien.
Time to File a Proof of Claim Shortened to Seventy (70) Days from Bankruptcy Petition Date
Under the current version of Rule 3002, a proof of claim in a Chapter 7, 12, or 13 case must be filed no later than ninety (90) days after the first Section 341 Creditors’ Meeting. The Section 341 Creditors’ Meeting is usually held approximately thirty (30) days after the petition date, but timing varies on a case-by-case basis. Accordingly, under the current rules, creditors have approximately one hundred twenty (120) days after the petition date to file their proof of claim.
Amended Rule 3002(c) contains an important change. Proofs of claim for voluntary Chapter 7, 12, and 13 cases must be filed within seventy (70) days of the bankruptcy petition date in order to be timely filed (except in an involuntary Chapter 7 case, the proof of claim filing deadline will be ninety (90) days from the order for relief). This amendment will reduce the amount of time a creditor has to file a proof of claim by nearly half, from approximately one hundred twenty (120) days to only seventy (70) days.
In instances of conversion to a Chapter 12 or 13 case, the 70-day deadline will begin to run from the date of the order of conversion.
Extensions of Time to File a Claim
Amended Rule 3002(c)(6) will allow creditors to ask the Court for extensions to the proof of claim bar date in limited circumstances. Rule 1007(a) requires that a debtor file a list of creditors’ names and addresses so that the Court can send bankruptcy case notices to creditors. A creditor may obtain an extension of up to sixty (60) days from the date of the order granting the extension to file a proof of claim, if the creditor demonstrates to the Court that (i) the notice was insufficient to give the creditor a reasonable time to file its proof of claim because the debtor did not timely file the Rule 1007(a) list of creditors or (ii) the notice was insufficient to give the creditor a reasonable time to file its proof of claim and the notice was sent to the creditor at a foreign address.
Claims Secured by a Security Interest in a Principal Residence.
Amended Rule 3002(c)(7) provides that a proof of claim for a claim secured by a security interest in a debtor’s principal residence, must be filed with all attachments required under Rule 3001(c)(2)(C) (e.g., the mortgage proof of claim attachment and escrow information) within seventy (70) days after the order for relief is entered. All other attachments required under Rules 3001(c)(1) and 3001(d) (e.g., the note and mortgage documents) must be filed as supplements to the lien holder’s claim within one hundred twenty (120) days of the order for relief. (In a voluntary bankruptcy case, the date of the order for relief is the bankruptcy petition date.)
Rule 3007 – Procedure for Serving an Objection to Creditor’s Claim
Amended Rule 3007 requires that an objection to a claim must be served on the claimant via first-class mail to the party most recently designated on the claimant’s original or amended proof of claim as the person to receive notices at the address so indicated. This amendment provides creditors with the opportunity to control (via the address in the creditor’s proof of claim or claim amendment) where claim objection notices must be sent to the creditor.
Under the Amended Rule, claim objections must be filed and served no later than thirty (30) days before any scheduled hearing on the objection or any deadline for the claimant to request a hearing on the objection. Courts will no longer be required to hold a hearing on claim objections. Local rules will dictate the procedure for scheduling a hearing on an objection to a claim. In Wisconsin, the Eastern District Bankruptcy Court requires that the claimant file a timely response to an objection to claim before scheduling a hearing. Currently, there is not a local rule regarding claim objection hearings in the Bankruptcy Court for the Western District of Wisconsin. Under the Amended Rule, in the absence of an objection, the Court may sustain the objection or the Court may hold a hearing to examine the legal basis of the objection to claim and to determine if the presumption of the claims validity has been sufficiently rebutted.
Rule 3012 – Amendment Changes Procedures for Determining the Amount of Secured Claims and is Extended to Priority Claims
Under the current version of Rule 3012, a party seeking to establish the amount of a secured claim can do so only by way of a motion. Amended Rule 3012 will allow for the determination of the amount of a secured claim in one of three ways: via motion, in an objection to the creditor’s claim, or in a Chapter 12 or Chapter 13 plan. If the determination of the secured claim amount is to be made via a Chapter 12 or 13 plan, the plan must be served on the holder of the claim (and other parties the Court may designate) in the manner required under Rule 7004. (See discussion below on amendments to Rule 3015 on the effect of confirmation of plan.)
If a claim is held by a governmental unit, then the request to determine the amount may only be made by a motion or in a claim objection. Further, the request must be made either after the governmental unit has filed a proof of claim or after the expiration of the bar date, whichever is first.
A request to determine the amount of a claim entitled to priority may be made only by a motion after the claim is filed or in a claim objection.
Rule 3015 – Chapter 12 and 13 Plans: Many Important Changes to Procedures
Official Form Plan
Amended Rule 3015(c) requires the use of the Official Form Chapter 13 Plan unless the Bankruptcy Court has adopted a local Chapter 13 Plan Form in accordance with Rule 3015.1. (The national form Chapter 13 Plan is designated in the amendments as Official Form 113.) A local Chapter 13 Plan Form has been proposed for adoption in both the Eastern and Western Districts of Wisconsin.
Under the Amended Rule, any specialized provisions added by debtor’s counsel or any provision that deviates from the standard provisions listed on the applicable Official Form Plan will only be effective if the provision is included in the section designated for special provisions.
Delivery of Plan to Creditors
Current Rule 3015(d) states that either the plan, or a summary of the plan, must be included with each notice of the confirmation of plan hearing. Consequently, in some instances, it is possible for creditors to receive notice of a hearing on confirmation of a plan without receiving the entire plan.
Amended Rule 3015(d) will help ensure that interested parties receive a copy of the plan while simultaneously putting a greater responsibility on debtors. If a copy of the plan is not included with the notice of the hearing on confirmation, it will be the debtor’s responsibility to serve the plan on the trustee and all interested creditors once the plan has been filed with the Court.
Objection to Plan
Once a plan has been filed, current Rule 3015(f) allows interested parties to object to confirmation of a plan at any time prior to confirmation of the plan. The Court is granted the authority to determine whether or not an objection has been timely filed, but the open-ended nature of the objection period can be a benefit to creditors. Amended Rule 3015(f) will require interested parties to object to a reorganization plan in a more defined manner. An objection to a plan will have to be filed and served at least seven (7) days prior to the plan confirmation hearing, unless the Court orders otherwise.
Modification of Plan
Current Rule 3015(g), titled “Modification of Plan After Confirmation,” will be moved to a new subsection, Amended Rule 3015(h). Similar to the current version of Rule 3015(d), debtors may serve all interested parties with either the proposed modification or a summary of the proposed modification of the plan.
Confirmation of the Chapter 12 and Chapter 13 Plans – Plan Terms May Control Secured Claim Amount
Amended Rule 3015(g) contains an entirely new subsection, entitled, “Effect of Confirmation.” Section 1 of Amended Rule 3015(g) states that a confirmed plan will control the amount of a secured claim under Amended Rule 3012 and is binding on the holder of the secured claim. Filing a proof of claim with a contradictory secured claim amount is insufficient to challenge the amount of the secured claim as determined in a Chapter 12 or Chapter 13 plan. Likewise, the amount of the secured claim as determined by the plan will override the amount of the secured claim set out in the debtor’s schedules. Even if there is a pending objection to a creditor’s secured claim, if the plan lists a contradictory secured claim amount, the creditor must object to the plan if the creditor wishes to defend the amount of its secured claim.
Plan Terms Can Terminate the Automatic Stay.
Under the Amended Rule, a Chapter 12 or Chapter 13 plan may provide for the termination of the automatic stay and co-debtor stay, thus eliminating the need for a motion for relief from the automatic stay for the affected creditor. Amended Rule 3015(g)(2) provides that any request within the plan to terminate the automatic stay imposed by 11 U.S.C. §362(a), 11 U.S.C. §1201(a), or 11 U.S.C. § 1301(a) will be granted upon plan confirmation.
New Rule 3015.1 – Set-up Procedure for the Use of a Local Form Plan in Chapter 13 Cases
Rule 3015.1 is a new rule created to clarify the Chapter 13 plan requirements mentioned in Amended Rule 3015(c). If a district decides it will have a local form for Chapter 13 plans, the form must be created in accordance with the specifications listed in Rule 3015.1. Further, there may only be one local form and that form may only be adopted after notice and an opportunity for comment has been given to the public.
Rule 4003 – Amendment Expands and Provides Alternative Ways for Debtors to Avoid a Lien or Transfer Exempt Property
The current version of Rule 4003 provides that the only way a debtor can avoid a lien or transfer of exempt property is by a motion filed with the Court. Amended Rule 4003 expands upon the current rule and provides a Chapter 12 or Chapter 13 debtor with additional method to seek to avoid a lien on or transfer of exempt property. A Chapter 12 or Chapter 13 debtor may still file a motion with the Court to avoid the lien. However, a Chapter 12 or Chapter 13 debtor also may provide for the avoidance of the lien or a transfer of the exempt property within the Chapter 12 or Chapter 13 plan by serving a copy of the plan on the affected creditor in the manner required under Rule 7004, in which case the affected creditor will need to timely object to the plan to protect its lien.
Rule 5009 – Procedure for Declaring a Lien Satisfied in Chapter 12 and 13 Cases
In an interesting development, under Amended Rule 5009, a debtor in a Chapter 12 or 13 case may request via motion that the Court enter an order declaring that a secured claim has been satisfied and that the lien has been released under the terms of a confirmed plan. The motion may be made at any time during the bankruptcy case, as long as the appropriate conditions have been met.
The above amendments will be effective as of December 1, 2017, absent a further act of Congress. Many facets of the Bankruptcy Rules will be altered in fundamental ways. Deadlines will be shortened and procedures modified such that unwary creditors may find their claims and interests impaired or lost. Creditors can be proactive to protect their claims by consulting with experienced bankruptcy counsel to review the creditor’s practices and integrate the amendments into the creditor’s procedures.
If you have any questions on the topic of this bulletin or other bankruptcy matters, feel free to contact Matthew Gerdisch (firstname.lastname@example.org) or Samuel Wisotzkey (email@example.com) of our office. Phone: 414.962.5110
Kohner, Mann & Kailas, S.C. (KMK) is a leading business transactions, commercial finance and litigation law firm that provides clients with cost-effective legal support for their business operations, including representing creditors in bankruptcy, insolvency and work-out matters on a nationwide basis. Formed in 1937, KMK blends demonstrable business know-how with the legal issues that arise from doing business in the United States and elsewhere. KMK offers an experienced and sophisticated legal team able to adapt its services to the particular business issues and needs of its clients. Based in Milwaukee, WI, KMK has a reputation for achieving results in local, national and transnational business disputes and transactions. For more information, please visit: http://www.kmksc.com.
This memorandum is provided by Kohner, Mann and Kailas, S.C. for educational and informational purposes only and is not intended and should not be construed as legal advice. October 20, 2017.