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Winter Is Coming

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Editor's note: This story was originally featured in the November edition of DS News, out now

Finally, after several years of debate, major changes have been approved that will have a profound impact on consumer bankruptcy cases. On April 27, 2017, the Supreme Court of the United States, through Chief Justice John Roberts, submitted to Congress amendments to the Federal Rules of Bankruptcy Procedure that set forth extensive changes dealing with forms and filing of claims. The proposed changes will take effect December 1, 2017, and will significantly change how creditors should approach consumer bankruptcy cases (Chapters 7, 12, and 13). The new rules will require crucial adjustments to conform to the shortened timelines for creditors to take action, particularly in Chapter 13 cases.

Notice to Creditors

The amendments to Rule 2008 on notice to creditors now require that Creditors are to be provided at least 21 daysnotice of the time fixed for filing an objection to confirmation of a Chapter 13 plan and be provided at least 28 daysnotice of the confirmation hearing in a Chapter 13 case. Neither of these notice provisions existed prior to the proposed rule change and each provides creditors with advance notice for the date of the scheduled confirmation hearing and the deadline for filing an objection.

Filing of Proof of Claim

The amendments to Rule 3002 which outline filing a proof of claim may have the biggest impact on creditors largely due to the shortened deadlines for filing claims and the requirement that all creditorsincluding secured creditorsmust file proofs of claim within 70 days of the filing date of a Chapter 7, 12, or 13 case or within 70 days of the date of conversion to a Chapter 12 or 13 for the claim to be deemed allowed. The new rule does add a provision that allows a creditor the opportunity for an extension of time of up to 60 days to file a proof of claim upon motion and order, if the creditor can establish that it did not have a reasonable time to file a proof of claim because the debtor failed to timely file the list of creditors and addresses or because the notice was mailed to the creditor at a foreign address. The rule does clarify that a lien that secured a claim is not void should the creditor fail to file a proof of claim.

Moreover, the new rule adds a two-stage deadline for filing proofs of claim secured by a security interest in the debtors principal residence. These claims must be filed with the Official Form 410, the Attachment (Official Form 410A), and an escrow account statement no later than 70 days of the filing date (or conversion date).  Also, in order to be timely, all other loan documents evidencing the claime.g. the note (allonge), mortgage, assignment of mortgagemust be filed as supplements to the proof of claim within 120 days of the filing date (or conversion date). For such a claim to be timely, both of these deadlines must be met.

The new 70/120-day time period is significantly shortened compared to the current rules which permit a claim to be timely if it is filed within 90 days after the Section 341 Meeting of Creditors date, which, in practice, permits claims to be filed within an approximately 120- to 140- day time period from the filing date or conversion date.

Objection to Claims

Rule 3007 requires at least 30 daysnotice to creditors of an objection to claim. The objection may be filed on negative noticeand provides for service via first class mail to the name and address most recently designated on the creditorsoriginal or amended proof of claim or in accordance with Rule 7004 for federally insured depository institutions. This is significant because it clarifies that Rule 7004 no longer applies to the service of most claim objections with the exception of insured depository institutions.  Instead, service can be accomplished by first class mail, meaning creditors must be cognizant of the name and address listed on their proof of claim and may no longer rely on raising Rule 7004 as a defense to a claim objection.

 Determining the Amount of Secured Claims 

Rule 3012 sets forth numerous ways for the court to determine the amount of secured claims, to and including by motion, claim objection, or by Chapter 12 or 13 plan. Most importantly, the new rule, in combination with amended Rule 3015 (see below), provides that any determination made in a plan formed under Rule 3012 regarding the amount of a secured claim is binding on the holder of the claim even if the holder files a contrary proof of claim, and regardless of whether an objection to the claim has been filed. This is a significant change to the prior rules, particularly for creditors in Florida and similarly situated districts, which will now require creditors to file objections to confirmation of Chapter 12 and Chapter 13 Plans or be bound by the plan terms upon confirmation.

Rule 3015:  Filing of Plan, effect of Confirmation of PlanThe Model Chapter 13 Plan

This rule requires the use of an Official Form Model Chapter 13 Plan, unless a Local Form is adopted and is in compliance with Rule 3015.1. For example, the Southern District of Florida has recently announced it will opt outand adopt a Local Form and has solicited public comment prior to its implementation in December. It would not be a surprise to see many districts across the country announce similar opt-outplans, enabling them to marry the content and notice provisions required under the Model Plan with the local customs and language incorporated into the Local Form. The Model Chapter 13 Plan is intended to streamline the plan-review process for creditors. The new rule also requires an objection to confirmation to be filed at least seven days before the confirmation hearing. As noted above, the proposed changes also provide that a determination of value or valuationof a secured claim done through the plan will become effective and binding upon confirmation, despite the absence of a claim objection or contrary proof of claim.

When the new rules become effective December 1, 2017, they will apply to all cases filed after that date and all pending cases insofar as just and practicable,meaning they will likely apply to almost all consumer bankruptcy cases, so it is important that creditors take immediate measures to ensure compliance under these rules. Although the shortened deadlines and increased attention to plan treatment may be burdensome in some respects, the above rule changes may provide some assistance to creditors by establishing predictable proof-of-claim deadlines, consistent plan content, and clear notice and objection deadlines across all districts, which should enable creditors to more efficiently process consumer bankruptcy cases.

About Author: Jason Weber

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Managing Attorney of Sirote & Permutt's Fort Lauderdale office, represents national mortgage lenders in the areas of bankruptcy, mortgage banking law, and creditors' rights.

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