Numerous changes to the Federal Rules of Bankruptcy Procedure (the “Rules”) take effect on December 1, 2017. The changes significantly impact the administration of consumer bankruptcy cases, and Chapter 13 cases in particular.
Some of the most significant changes to affect creditors, explained in more detail below, include:
- A requirement that secured creditors file proofs of claim (however, failure to do so will not void the creditor's lien);
- A new, shortened, bar date for filing proofs of claim that is now established by the bankruptcy filing date;
- The establishment of plan confirmation deadlines and rules for service and notice of claim objections;
- A means for determining the amount of secured claims; and
- Updated rules related to the avoidance and satisfaction of liens.
Changes Related to Proofs of Claim. Under amended Rule 3002(a), a secured creditor is now also required to file a proof of claim for its claim to be allowed. However, a secured creditor’s failure to file a proof of claim does not void the creditor's lien.
Amended Rule 3002(c) provides that a proof of claim (for both secured and unsecured creditors, but other than governmental units) in a voluntary Chapter 7, 12 or 13 case must be filed no later than 70 days after a case is filed or the date of the order of conversion to a Chapter 13. A proof of claim in an involuntary Chapter 7 case must be filed no later than 90 days after the case is filed.
Previously the deadline was 90 days after the 341 meeting of creditors. The new deadline imposed by Rule 3002(c) significantly shortens the time to file a proof of claim. Where it used to be the “clock” did not start ticking until the 341 meeting of creditors took place, it now starts from the moment the bankruptcy case is filed. Further, the previous 90 day deadline has been shortened to 70 days.
Notably, in a Chapter 7 case that it is a “no asset” case and the notice states that proofs of claim should not be filed, a proof of claim will not be required until a Notice of Possible Dividends or “Notice of Assets” is issued. The deadline to file a proof of claim in those instances will start from the date the Notice of Assets is issued, as it has previously.
Pursuant to amended Rule 3002(c)(7), a creditor with a security interest in the debtor's principal residence must file its claim within 70 days, but has additional time (120 days from the date the case was filed) to file the attachments to proofs of claim required by Rule 3001(c)(1) and (d).
Plan Objection and Confirmation Hearing Deadlines and Notice Requirements. Under amended Rule 2002(a), creditors must file objections to confirmation of a Chapter 13 plan within seven (7) days of the confirmation hearing, unless the court orders otherwise. Creditors are entitled to 21 days’ notice by mail of the deadline to object to confirmation of a Chapter 13 plan, and at least 28 days’ notice of the date of the confirmation hearing of a Chapter 13 plan.
Determine the Amounts of Secured and Priority Claims. Pursuant to amended Rule 3012, requests to determine the amount of a secured claim may now be made by motion, in a claim objection, or in a Chapter 12 or 13 plan (for nongovernmental units). For governmental units, a request to determine the amount of a secured claim can only be made by motion, or in a claim objection after a claim is filed or the time for filing a claim passes (not in a Chapter 12 or 13 plan).
A request to determine the amount of a claim’s priority can only be made by motion after the claim is filed or in a claim objection.
Notably under amended Rule 3015(g), any determination made in the Chapter 12 or 13 plan regarding the amount of a secured claim, upon confirmation, will be binding on the secured creditor.
Lien Avoidance and Satisfaction. Under amended Rule 4003, a request under Bankruptcy Code section 522(f) to avoid a lien or other transfer may now be made in a Chapter 12 or 13 plan.
After the debtor determines the value of the secured claim as discussed above in a plan, this provision now allows the debtor to avoid or “strip” the lien if the value is determined to be zero in a Chapter 12 or 13 plan, without any other proceeding. Simply, this means that an adversary proceeding will no longer be required to avoid a creditor’s lien. Rather, the debtor can simply include the lien avoidance in the Chapter 12 or 13 plan, and if the secured creditor does not object to the plan, upon confirmation and plan completion, the lien will be avoided. Accordingly, it will be imperative to review all Chapter 12 or 13 plans for a “lien strip” or reduction in your claim that will result in an avoidance of your lien. This may especially affect junior mortgage/lien holders.
Pursuant to amended Rule 5009(d), in a Chapter 12 or 13 case the debtor may request an order declaring that a secured claim has been satisfied and that the lien has been released under the terms of the confirmed plan. This allows the debtor to obtain a court order to record a discharge a secured creditor’s lien.