Recent Entries

New Bankruptcy Rules Increase Scrutiny Regarding the Filing of Secured Claims and Mortgage Proof of Claims

Published on November 7, 2011 in Bankruptcy Act 2009. 0 Comments

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Originally, the rule change required filing the last account statement with the proof of claim; however, this rule was withdrawn after public comment.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

Additional Documentation Requirements in Southern Indiana and Southern Ohio

Published on November 27, 2009 in Bankruptcy Act 2009, Chapter 13 and Local Procedures & Rules. 0 Comments

The Southern District of Indiana and the Southern District of Ohio are revising their Local Rules effective December 1, 2009. Both jurisdictions are revising their Rules to require creditors to attach a post-petition payment history to motions for relief from stay in Chapter 13 cases.

Additionally, the Southern District of Ohio will require additional documentation to be supplied with motions for relief from stay on real estate. Creditors will be required to attach a copy of the recorded deed upon which the debtor acquired the property to the motion for relief from stay.

Please include these additional documents when referring motions for relief form stay to our office in order for us to more quickly process the motion.

Changes to the Federal Rules of Bankruptcy Procedure

Published on November 25, 2009 in Bankruptcy Act 2009. 0 Comments

Effective December 1, 2009, the Federal Rules of Bankruptcy Procedure will be updated. The most significant change that affects creditors is the change in various time periods. The Rules set forth a number of deadlines for filing pleadings or responses to pleadings. These deadlines are not consistent and oftentimes fall on weekends or holidays. The updated Rules streamline these deadlines to multiples of seven. For example, a 15-day objection period will be shortened to 14 days, while a 20-day objection period will be extended to 21 days.

Similarly, the 10-day stay under Rule 4001 will be extended to 14 days. Under the current rule, an order granting relief from stay is effective 10 days after the date of the order. Starting December 1, 2009, an order granting relief from stay will not be effective until 14 days after the date of the order. Some judges permit a waiver or modification of this rule. Weltman, Weinberg & Reis will continue to seek these waivers and modifications in the jurisdictions that permit it.
 
The Federal Rules of Bankruptcy Procedure are adopted in all courts, so these changes will affect creditors in every jurisdiction in which they file bankruptcy pleadings. Although they create additional burdens for creditors, the underlying goal is to protect debtors’ sensitive financial information and identities.

Change In Bankruptcy Rule Adds Reaffirmation Cover Sheet

Published on October 23, 2009 in Bankruptcy Act 2009 and Bankruptcy Filings. 0 Comments

The form used for reaffirmation agreements will change as of December 1, 2009. Creditors filing reaffirmation agreements will be required to include a completed reaffirmation cover sheet with the filing of an agreement.  The cover sheet is a two-page questionnaire filled out by debtors and creditors that discloses financial information necessary for the court to determine whether a reaffirmation agreement creates a presumption of undue hardship for the debtor.  Hardship is presumed if a debtor shows negative monthly income and expenses on Part D of the reaffirmation agreement.  If there is a difference between the income and expenses listed on schedules I & J of the petition and income and expenses listed on part D of the reaffirmation agreement cover sheet, the debtor is required to explain the difference.  The debtor must answer two questions explaining the difference and certify through signature that the information is true and accurate. 

The rule change is national and will affect reaffirmation agreements filed in all states. If the reaffirmation does not contain the cover sheet, the bankruptcy courts may reject it after December 1, 2009.

Statehouse Bill Would Require Lenders To Mediate Before Filing A Foreclosure Action

Published on October 22, 2009 in Bankruptcy Act 2009 and Real Estate. 0 Comments

Currently in Ohio before filing a foreclosure action, the lender is not required to participate in a mediation program.  This may soon change as Ohio State Representative Matthew Dolan proposed a bill in the Ohio House, which would make mediation mandatory before filing a foreclosure.  Under House Bill 306, a lender would be required to come to the bargaining table before a foreclosure action is filed.  If the lender refuses to mediate with the property owner, the foreclosure action could be dismissed.  The rule for mandatory mediation would not apply to homes in foreclosure for delinquent property taxes, unoccupied residences, or foreclosure actions where the homeowner does not reply to the summons within 28 days of issuance.  The bill requires that the mediation take place by a court appointed mediator within 60 days of receiving an answer to the foreclosure complaint.  If the filer of the foreclosure action does not attend the mediation hearing, the court may dismiss the foreclosure complaint.