By David H. Yunghans, Esq.
New bankruptcy rules are set to go into effect on December 1, 2011. Of concern to secured creditors and mortgage lenders are requirements imposed on filing proofs of claims secured by the debtor’s principal residence and claims based on writings. The changes are to the Federal Rules of Bankruptcy Procedure Rule 3001 and 3002.1.
Changes under 3001, which affect secured lenders when a claim or interest in property of the debtor is based on a writing, require the filing of the original document or duplicate with the claim. If the writing is lost or destroyed, a statement of circumstances of loss must be attached to the proof of claim. The claim must itemize interest, fees, expenses, and all charges incurred before the petition was filed. If a default is alleged, the amount to cure the default must also be provided. An escrow statement reflecting the escrow amount as of the date of filing the bankruptcy petition must be attached to the proof of claim as well.
Originally, the rule change required filing the last account statement with the proof of claim; however, this rule was withdrawn after public comment. Instead, rule 3001(c) was added and will go into effect on December 1, 2012. The change affects claims based on open-end or revolving consumer credit agreements. When filing the proof of claim, the creditor must include the name of the entity from whom the creditor purchased the account, the name of the entity to whom the debt was owed at the time of the last transaction, date of the last transaction, date of the last payment, and the date when the account was charged to profit and loss.
Changes under rule 3002.1, which affect mortgage lenders, require mortgagees to notify the debtor, debtor’s attorney, and the trustee of any change in the mortgage payment, interest rate, or escrow adjustment no later than 30 days before the change is set to occur. The holder of the claim must also file a notice itemizing all fees, expenses, or charges incurred in connection with the claim occurring after filing the bankruptcy case which the holder asserts are recoverable against the debtor or the residence. This notice must be filed no later than 180 days after the fees are assessed. Another important change requires the trustee to file a notice of final cure payment no later than 30 days after making the final payment of any cure amount on a claim secured by the debtor’s principal residence. If an amount to cure exists, the holder must respond within 21 days to the notice and file a statement to supplement the claim itemizing any amount still owed.
The consequences of failing to follow the new rules could result in a creditor losing the right to present the omitted evidence at any hearing, contested matter or adversary proceeding. Moreover, the court can also sanction the creditor reasonable expenses and attorney fees for failing to comply.
These new procedures place burdens on creditors that may be difficult to meet. Creditors already must use the official forms and timely file claims no later than 90 days after the first date set for the meeting of creditors. It may be difficult for creditors to file a timely claim with the added documentation and itemization requirements. Jurisdictions vary on whether there is a deadline for filing a secured proof of claim. Secured creditors, absent exceptional circumstances, should file the claim within 90 days or file a motion to extend the time to file the secured proof of claim. Even if the secured creditor files the proof of claim, it must be monitored for objections to the claim.
A bankruptcy court in Oregon has taken the issue of failing to respond to an objection to the proof of claim to an extreme. In that case, the mortgage lender filed a secured proof of claim, however the chapter 13 trustee objected to the claim as the trustee was not satisfied with the documentation attached to the claim. No response was filed to the objection and the claim was disallowed. The debtors subsequently completed their chapter 13 plan and received a discharge. The holder then sought to enforce the debt and foreclose on the property. The debtors reopened their bankruptcy case and argued that the lender was in violation of the discharge order. The court held that the mortgage lien was stripped as the claim was not an allowed secured claim, and thus was discharged in the chapter 13.
Creditors should be proactive in ensuring they have the best procedures for obtaining a correct itemization of the account and the official forms used to file claims. Creditors must also make sure they have a procedure in place to monitor filed claims for objections by the trustee or debtor. At best, creditors will face difficulty in complying with these new requirements.
David H. Yunghans is an associate in the Bankruptcy Group located in the Cincinnati office of Weltman, Weinberg & Reis Co., LPA. He can be reached at 513.723.2211 or
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