On December 1, 2009, numerous changes to the time periods applicable in bankruptcy cases took effect. These changes, which will impact creditors and debtors alike, are relatively straightforward but must be carefully reviewed and thoroughly understood. Time plays a critical role in the administration of bankruptcy cases, affecting the degree of notice a party is required to give before certain actions can be taken or approved by the bankruptcy court as well as deadlines for filing various documents, asserting various rights and satisfying certain statutory obligations. The importance of understanding applicable time periods cannot be overstated, as parties may forfeit valuable rights or suffer other ill consequences by failing to comply with these requirements.
The importance of understanding applicable time periods cannot be overstated, as parties may forfeit valuable rights or suffer other ill consequences by failing to comply with these requirements.
This article categorizes the changes to the time periods imposed by the US Bankruptcy Code and the Federal Rules of Bankruptcy Procedure, with a special emphasis on changes to Bankruptcy Rule 9006 and other notable changes and how they impact various parties in interest.
A. Changes to the Bankruptcy Code
On May 7, 2009, Congress enacted Public Law No. 111-16, known as “The Statutory Time-Periods Technical Amendments Act of 2009.” The statute provides for changes to time periods in nine different sections of the Bankruptcy Code and various other provisions of the US Code that are unrelated to bankruptcy cases. Generally speaking, however, each of the changes to the Bankruptcy Code simply increases the existing time period from five to seven days. Seven is the new five.
Generally, the changes to the Bankruptcy Code are limited to chapter 7 liquidation and chapter 13 reorganization cases filed by individuals, as well as stockbroker and commodity broker liquidation cases, and do not materially impact chapter 11 cases. The exceptions to this are certain changes relating to the prerequisites for a person to serve as a trustee under chapter 11 (among other chapters) and the appointment of a “consumer privacy ombudsman” in connection with the sale or use of property of the bankruptcy estate outside of the ordinary course of business under section 363 of the Bankruptcy Code.
- Specifically, the following statutes were affected by having a five-day time period increased to seven days:
- Section 109(h)(3)(A)(ii) – Relates to the time period for an individual to obtain credit counseling.
- Section 322(a) – Relates to the time period for a trustee to post a bond with the court to ensure the faithful performance of official duties.
- Section 332(a) – Relates to the time period for appointing a consumer privacy ombudsman.
- Section 342(e)(2) – Relates to the time period for the effectiveness of a creditor’s request to receive notices at a specific address in an individual’s chapter 7 or 13 case.
- Section 521(e)(3)(B) – Relates to the time period for a court to provide a copy of a chapter 13 debtor’s plan of reorganization to a requesting creditor.
- Section 521(i)(2) – Relates to the time period for a court to dismiss an individual’s chapter 7 or 13 case at the request of a party in interest
- Section 704(b)(1)(B) – Relates to the time period for the United States Trustee to send a statement to all creditors that an individual’s chapter 7 case is an “abuse” under section 707(b) of the Bankruptcy Code.
- Section 749(b) – Relates to the prohibition against the avoidance of certain transfers in a chapter 7 stockbroker liquidation case in which the transfers occurred during a particular time period.
- Section 764(b) – Relates to the prohibition against the avoidance of certain transfers in a chapter 7 commodity broker liquidation case in which the transfers occurred during a particular time period.
B. Changes to the Federal Rules of Bankruptcy Procedure
On March 26, 2009, the United States Supreme Court approved a number of amendments to the Bankruptcy Rules. The amended Bankruptcy Rules govern all proceedings in bankruptcy cases commenced on or after December 1, 2009 and, “insofar as just and practicable” (to use the words of the Supreme Court), all existing proceedings pending as of that date. These changes fall into three categories: (1) changes relating to time computation, (2) substantive changes to existing Bankruptcy Rules and (3) the enactment of new Bankruptcy Rules.
Time Computation Changes
The changes relating to time computation were intended to simplify and clarify the method in which time periods under the Bankruptcy Rules are computed. These changes are principally reflected in Bankruptcy Rule 9006 and mirror similar changes being made to parallel provisions in other federal procedural rules (i.e., the Federal Rules of Civil, Criminal and Appellate Procedure).
The principal change was the adoption of a so-called “days-are-days” approach to computing time. Instead of omitting intermediate weekends and holidays when computing certain shorter time periods (as was the case under existing Bankruptcy Rule 9006), these days will now be included in time computation. Other changes clarify how to account for deadlines that fall on a weekend or holiday, provide for computing hourly time periods (when deadlines are expressed in hours) and address special timing considerations that accompany electronic filing.
Including weekends and holidays in time computation, however, will have the practical effect of shortening numerous shorter time periods provided for in the Bankruptcy Rules. To remedy this, and to further simplify matters by changing most periods of less than 30 days to multiples of seven days (so that deadlines will usually fall on weekdays), time periods in 38 other Bankruptcy Rules were either increased or, in a few instances, decreased.
Specifically, the following time adjustments have been made:
- 5 days → 7 days: Bankruptcy Rules 2006, 2007, 2008, 2015.3, 6004, 9006 and 9027.
- 10 days → 14 days: Bankruptcy Rules 1007, 2003, 2015.1, 2015.2, 2016, 3020, 4001, 6004, 6006, 7004, 7012, 8001, 8002, 8003, 8006, 8009, 9015, 8017, 9027 and 9033.
- 15 days → 14 days: Bankruptcy Rules 1007, 1019, 1020, 2015, 2015.1, 2016, 3015, 4001, 4002, 6004, 6007 and 8009.
- 20 days → 21 days: Bankruptcy Rules 1011, 2002, 2003, 2007.2, 2015, 2015.3, 3001, 3015, 3019, 6003, 7012, 8002, 9027 and 9033.
- 25 days → 28 days: Bankruptcy Rules 2002, 3017 and 4004.
Notably, the provisions in the Bankruptcy Rules regarding the enlargement and reduction of time periods (i.e., Rules 9006(b) and (c)) remain unchanged. Under these Bankruptcy Rules, bankruptcy courts continue to have the authority, subject to certain exceptions, to either enlarge or reduce time periods provided for elsewhere in the Bankruptcy Rules or through a court order.
Substantive Changes to Existing Rules
In addition to the foregoing time computation changes, substantive changes were made to certain existing Bankruptcy Rules. These changes are minor (and, in most cases, technical) in nature and do not materially impact chapter 11 cases or the rights of creditors. Specifically, the following changes were made to existing Bankruptcy Rules:
- Rule 2016(c) – This rule relates to disclosures a bankruptcy petition preparer needs to make regarding its compensation. It was amended to reflect an updated Bankruptcy Code section number that is cross-referenced in the rule.
- Rule 4008(a) – This rule relates to the filing of reaffirmation agreements. It was amended to require reaffirmation agreements to be accompanied by a cover sheet.
- Rules 7052 and 9021 – These rules relate to findings and entries of judgment made by a bankruptcy court in adversary proceedings and/or contested matters. The amendments to these rules are related to each other as well as to new Bankruptcy Rule 7058 (as explained below). These rules were amended to conform the Bankruptcy Rules to the so-called “separate judgment rule” of Rule 58 of the Federal Rules of Civil Procedure. Specifically, under Civil Rule 58, all judgments must be set out in separate documents, subject to certain exceptions. Under the amended and new Bankruptcy Rules, only judgments in adversary proceedings will be subject to this requirement, but not judgments or orders in other actions (including contested matters).
- Rule 9006 – As discussed above, this rule relates to various aspects of time in bankruptcy cases (e.g., computation, enlargement and reduction). In addition to the time computation changes described above, the rule was also amended to update a reference in the rule to a renumbered Civil Rule.
- Rules 9015 and 9023 – These rules relate to jury trial matters and new trial matters. Together, they were amended to impose a 14-day deadline (instead of the 28-day deadline under the Civil Rules) to file certain post-judgment motions.
New Bankruptcy Rules
The only new Bankruptcy Rule to be enacted was Bankruptcy Rule 7058. As described above, this new rule – titled “Entering Judgment in Adversary Proceeding” – was enacted together with amendments to existing Bankruptcy Rules 7052 and 9021 in order to limit the requirement that judgments must be set out in separate documents to adversary proceedings, and not to any other bankruptcy matter (including contested matters).
C. Chapter 11 Creditors and Debtors Take Note
As is evident from the foregoing description of the amendments to the Bankruptcy Code and Bankruptcy Rules, a large number of the changes have no material impact on the rights and obligations of creditors and debtors in chapter 11 cases. The only changes that merit particular attention are the time computation changes that increase or decrease time periods that are extremely relevant to chapter 11 cases by multiples of seven. A large number of the changes have no material impact on the rights and obligations of creditors and debtors in chapter 11 cases. The following are some of the more noteworthy changes in this regard:
Disclosure Statements and Plans of Reorganization
- No less than 28-days’ notice must now be given of the time fixed (a) for filing objections to and for the hearing to consider approval of a disclosure statement, (b) to make a final determination whether a proposed plan provides adequate information so that a separate disclosure statement is not necessary and (c) for filing objections to and for the hearing to consider confirmation of, among others, a chapter 11 plan of reorganization (three-day increase).
- No less than 21-days’ notice must now be given of the time fixed to accept or reject a proposed modification of a plan (one-day increase).
- Orders confirming plans of reorganization are now automatically stayed for 14 days, unless the court orders otherwise (four-day increase).
Statements of Financial Affairs and Schedules of Assets and Liabilities
- Debtors are now required to file their Statements of Financial Affairs and Schedules of Assets and Liabilities within 14 days of the petition (one-day decrease). In large chapter 11 cases, however, it is typical for courts to grant extensions of this time period. As such, the impact of this amendment in this sort of case will be limited.
Deadlines to File Proofs of Claim
- Creditors must now receive at least 21-days’ notice of a deadline to file proofs of claim (one-day increase).
- If an ad-hoc committee of unsecured creditors formed prior to a bankruptcy becomes the official creditors committee during the bankruptcy, the bankruptcy court has the ability, under Bankruptcy Rule 2007(b), to determine whether the members of such committee were fairly chosen. In making such a determination, the court must determine, among other things, that the meeting at which the prepetition committee was formed was held on no less than seven-days’ notice to certain creditors (two-day increase).
Interim “First Day” Relief
- In large chapter 11 cases, it is typical for debtors to request that the court authorize and approve various forms of relief the debtor deems to be critical. A court cannot, however, authorize relief during the first 21 days of the case regarding the following, unless the relief is necessary to avoid immediate and irreparable harm: (a) requests to retain and employ professionals, (b) requests to use, sell, lease or otherwise incur an obligation regarding property of the estate (including motions to pay prepetition claims, but excluding cash collateral and DIP financing motions), and (c) requests to assume or ass ign executory contracts or unexpired leases (one-day increase).
DIP Financing and Cash Collateral Matters
- Final hearings regarding DIP financing and the use of cash collateral can now only be held no sooner than 14 days from the date the motion was filed (one-day decrease). Preliminary hearings are permitted, however, prior to the expiration of the 14-day period if requested in the motion.
Use of Property Outside of the Ordinary Course of Business
- No less than 21-days’ notice must given of a proposed use of property of the estate outside of the ordinary course of business (one-day increase).
- Objections to a debtor’s use of property of the estate, other than cash collateral, outside of the ordinary course of business must now be filed and served no less than seven days before the date set for the proposed action, or within the time fixed by the court (two-day increase). In large chapter 11 cases, however, courts will typically fix an objection period. As such, the impact of this amendment may be limited.
- Orders authorizing the use of such property outside of the ordinary course of business are now automatically stayed for a 14-day period, unless the court orders otherwise (four-day increase).
Relief From the Automatic Stay
- Orders granting relief from the automatic stay are now automatically stayed for a period of 14 days, unless the court orders otherwise (four-day increase).
Assignment of Executory Contracts and Unexpired Leases
- Orders authorizing the assignment of executory contracts and unexpired leases are now automatically stayed for a period of 14 days, unless the court orders otherwise (four-day increase).
Time Periods for Filing Motions
- Unless a specific time period is fixed by the Bankruptcy Rules or order of the court, all motions and related notices of hearing must now be filed at least seven days before the hearing date (two-day increase).
While the effects of the foregoing amendments to the Bankruptcy Rules may seem relatively minor in many respects and, in many large chapter 11 cases, either will be superseded by court order or will not materially harm or benefit the interests of creditors and debtors, they are nonetheless important to know and understand. Indeed, it is perhaps the more minor modifications (i.e., the one- or two-day increases or decreases in time) that pose the most danger to those who are not familiar with them. As with many things, timing is everything, and time waits for no one. In bankruptcy cases, the passing of a single day is often sufficient to result in the loss of valuable rights forever.