New Bankruptcy Rules in Effect on December 1

Joshua A. Gildea      Dec. 1, 2017

Beginning December 1, 2017, several important changes to the Federal Rules of Bankruptcy Procedure go into effect. There are significant modifications to the organization and wording of a number of Rules, but the most salient issues for creditors in the Eastern District of Pennsylvania are the new deadlines for filing proofs of claim and the new Rules relating to Plan objections and confirmation.

Under the Rule 3002 as amended, a creditor has 70 days from the order for relief, which is to say the day the bankruptcy petition is filed, to file their Proof of Claim. The Proof of Claim form is the document filed with the Bankruptcy Court to establish the amount and priority of a claim against the bankruptcy estate. Timely filing of this document is an essential part of recovering any payment in the bankruptcy. The change made by the new Rule in moving this deadline to 70 days shortens the time provided to creditors, but also makes the deadline more consistent and predictable. Creditors are able to file proofs of claim themselves. If they wish to have assistance from an attorney they should promptly seek attorney help to allow time to gather supporting documents and prepare the required form before the newer, compressed deadline.

The amended Rule 3002 also now expressly requires the holder of a secured claim to file a Proof of Claim form to preserve their rights in a bankruptcy. This change also requires more diligence from creditors, though the Rule does provide that a lien does not become void “due only to the failure … to file a proof of claim.” Filing a Proof of Claim may also be necessary to preserve a deficiency claim.

This shorter 70-day deadline does not apply in the case of a no asset Chapter 7 bankruptcy, where the notice instructs creditors not to file a Proof of Claim because there does not appear to be any property available to pay creditors. Instead, under Rule 3002(c)(5), the court will give notice of a the deadline to file the Proof of Claim in the notice indicating the presence of assets to distribute, similar to prior practice.

The updated Rules also bring new structure to the Plan in a Chapter 12 or 13 Bankruptcy. First, Rule 3012 expressly provides that a debtor can request a bankruptcy court to determine the amount of a claim that is secured through several different means, including a motion, a claim objection, or in the Plan itself. So if a lender holds a second lien on a debtor’s home which is “out of the money”—the first lien eats up all the equity—the debtor can seek to strip that lien by including such a request in their Plan without the need for a separate motion or hearing. A request to determine the amount of a claim that is entitled to priority can only be brought, however, through motion or claim objection.

This change interacts with the new model plan promulgated by the courts. Amended Rule 3015 sets forth an official form of Chapter 13 Plan, and the Eastern District of Pennsylvania has proposed a local form for use under the Rule. Part 1 of this model Plan features a check-the-box section in which debtors must disclose when the Plan is limiting the amount of a secured claim based on the value of collateral or avoiding a security interest or lien. The model Plan also has a section to set forth any nonstandard provisions, which should help make Plans more uniform and easier to understand.

Amended Rule 2002 requires 28 days’ notice of a hearing on Plan confirmation and 21 days’ notice of a deadline by which a creditor must object to a Plan. Concordantly, under Rule 3015, a creditor’s objection to a Plan must be filed at least seven days before the hearing on confirmation.

These changes do put more burdens on creditors and tighten up important deadlines. It is imperative that creditors give their counsel timely notice of bankruptcy filings and gather up important documents to allow for decisions to be made regarding objections to Plans and filing of Proofs of Claim. The bankruptcy attorneys at Fitzpatrick Lentz & Bubba, PC are ready and available to  guide you through these new changes to the Rules.

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