Recent Entries

New Requirements for Proof of Claims

Published on April 16, 2012 in Proof of Claim. 0 Comments

By Jamie M. Nagle, Esq. 

Effective December 1, 2011, Federal Rule of Bankruptcy Procedure (“F.R.B.P.”) 3001(c) was amended in an effort to clarify and streamline the supporting information required to be attached to a Proof of Claim filed with the bankruptcy court.  The required information will vary depending on the type of claim.

Pursuant to F.R.B.P. 3001(c)(1), when a claim is based on a writing, the original or a duplicate of the writing must be filed with the Proof of Claim.  If the original has been lost or destroyed, a statement describing the circumstances of the loss or destruction must be filed with the Proof of Claim. 

The amendment added section 3001(c)(2), which sets forth several additional requirements in cases where the debtor is an individual.  F.R.B.P. 3001(c)(2)(A) requires that a statement itemizing interest, fees, expenses or other pre-bankruptcy charges that are owed in addition to the principal balance be attached to the Proof of Claim.  This requirement applies whether or not the claim is secured or unsecured.

F.R.B.P. 3001(c)(2)(B) provides an additional requirement for claims where a security interest is asserted.  The Proof of Claim must include a statement setting forth the amount necessary to cure any pre-bankruptcy default.

F.R.B.P. 3001(c)(2)(C) addresses the situation where a claimant asserts a security interest against the debtor’s principal residence.  Official Form B10 Attachment A, the Mortgage Proof of Claim Attachment form, must be completed and attached to the Proof of Claim.  This is a new form that can be found on any bankruptcy court website.  It is a very detailed form that itemizes the payoff and pre-petition arrears of the loan.  This section goes on to say that if an escrow account has been established in connection with the claim, the claimant must attach an escrow account statement prepared as of the date the bankruptcy was filed.  This is only a requirement if the real estate is the debtor’s residence and does not apply to rental property.

Should a claimant fail to provide any of the information required under the amended rule, F.R.B.P. 3001(c)(2)(D) states that the bankruptcy court may preclude the claimant from introducing the omitted information as evidence in a later hearing challenging the Proof of Claim, award expenses and attorney fees caused by the omission, or both depending on the egregiousness of the omission.  It is also within the bankruptcy court’s discretion to determine whether the omission was substantially justified or harmless and allow the omitted information into evidence.

Although these requirements may seem somewhat burdensome, the goal is to ensure uniformity and accuracy, which is in the best interest of all parties involved.  Please feel free to contact me if you have any questions or concerns regarding these new requirements.   

Jamie is an associate in the Bankruptcy Group located in the Brooklyn Heights office of Weltman, Weinberg & Reis Co., LPA. She can be reached at 216.739.5121 and .

Judge Sanctions Debtor Attorneys for Bad Faith Claim Objections

Published on November 21, 2011 in Chapter 13 and Proof of Claim. 0 Comments

by Damian A. Valladares, Esq.

There has been a new and important development in bankruptcies in the Southern District of Florida on the subject of objections to creditors’ Proofs of Claims. Responding to what he perceived to be a pervasive practice among debtors’ attorneys, last week Judge John K. Olson of the Fort Lauderdale Division, issued an order in which he imposed sanctions on several attorneys representing individual bankruptcy debtors for filing and prosecuting unwarranted or overzealous claim objections. In summary, the Court found that objections filed to dispute timely filed creditors’ proofs of claims which matched or nearly matched the amount of debts listed on the debtor’s schedules were in violation of Rule 9011(b) of the Federal Rules of Bankruptcy Procedure.

In most of the cases cited by the Court in its decision, the claims were scheduled by the debtors as non-contingent, liquidated and undisputed in amounts either identical or substantially identical to the filed Proofs of Claim. The Court held that the objections to claims of creditors which sought to strike claims in their entirety, most often based on “lack of documentation to support claim,” or “Debtor disputes amount owed,” constituted objective bad faith by the debtors’ attorneys, “in a manner designed to avoid reasonable review of the claims register” as required by Local Rule. Importantly, the Court states unequivocally that objections based on “lack of documentation” or “disputed amount owed” are not grounds to strike and disallow a claim, as the exclusive grounds for doing so are enumerated in section 502(b) of the Bankruptcy Code.
 
Going forward, this ruling will have a great effect on the Chapter 13 bankruptcy practice in the Southern District of Florida. We believe that this ruling highlights the importance of filing Proofs of Claim in individual Chapter 13 cases, including principal balance proofs of claims where the debtor is current in his/her payments, and cases where the property is surrendered in the debtor’s Chapter 13 Plan. There is no basis in section 502(b) to disallow such claims, and the filing of such a claim will help to protect your interests regardless of the treatment of the property in the Chapter 13 Plan. We also believe that this ruling will reduce the number of frivolous claim objections we face on a regular basis. It further provides ample grounds to seek reimbursement of attorneys’ fees when forced to defend a frivolous claim objection, and we therefore recommend including a prayer for attorneys’ fees in each litigated claim objection. In the case where the same debtor’s attorney repeatedly goes forward with claim objections, like those described by the Court which we believe will be rare going forward in light of this ruling, we can seek more serious sanctions.

If you have any questions on this matter, please contact Damian A. Valladares, Esq. Damian is an associate focused on bankruptcy services in the Real Estate Default Group of Weltman, Weinberg & Reis Co., LPA based in the Ft. Lauderdale office. He can be reached at 954.740.5234 or .

Bankruptcy Update: Recent Trends, New Rules and Revised Forms

Published on October 4, 2011 in Bankruptcy Filings, Federal Rules of Bankruptcy Procedure, Local Procedures & Rules and Proof of Claim. 0 Comments

NBKRC: Bankruptcies Down Thru Third Quarter 2011

According to statistics from the National Bankruptcy Research Center (NBKRC), bankruptcy filings have declined through the first three quarters of 2011.  Total consumer bankruptcy filings totaled 144,722, which was down approximately 10% from the first three quarters of 2010.  In addition, bankruptcy filings in September 2011 declined substantially, down 17% over the same period of last year.  Bankruptcy filings for September 2011 totaled 108,517.  Although filings continue to decline, the NBKRC still projects an estimated 1.35 million bankruptcies for 2011.  Many factors have contributed to the 2011 decline in bankruptcy filings, including the lack of available credit to consumers, foreclosure moratoriums and reduced spending by debtors. 

New Bankruptcy Rules and Forms effective December 1st: Is your organization ready?

On December 1, 2011, certain bankruptcy rule changes and new forms will become effective.  These changes primarily deal with the filing of a Proof of Claim and relate to mortgage creditors as well as debt buyers.  However, the change in the Proof of Claim form will affect all entities who file Proof of Claims in bankruptcy proceedings. 

The major change to the form involves attachments that are required to lay out certain fees and costs, and a breakdown of arrearages on the mortgage claims.  It also requires that mortgage creditors provide an escrow statement as of the date of the bankruptcy filing.  The new form provides for payment change notifications to be filed with the Court and the specific form that needs to be used. 

The new rule also changes the procedures that are necessary when a Trustee finishes paying a mortgage through a Chapter 13 Plan.  Weltman, Weinberg & Reis Co., L.P.A. (WWR) will be providing extensive information and training sessions for clients through webinars over the next two months to ensure that you are ready for the changes. 

In addition to the changes to the procedures and forms pertaining to Proof of Claims, there has also been a change in the Reaffirmation Agreement form.  The B240 form has been altered by a technical amendment to clarify some of the language on the form.  This does not affect the procedure and the information needed within the reaffirmation agreement itself.  The additional language is as follows and can be found in the form on the United States Courts website: 

“Even if you do not reaffirm and your personal liability on the debt is discharge because of the lien your Creditor may still have the right to take the property securing the lien if you do not pay the debt or default on it.  If the lien is on an item of personal property that is exempt under your State’s Law or that the Trustee has abandoned, you may redeem the item rather than reaffirm the debt.  To redeem, you must make a single payment to the Creditor equal to the amount of the allowed secured claim, as agreed by the parties or determined by the Court.”

The changes in this language indicate that the redemption, pursuant to 11 U.S.C. § 722, must be made by a single payment.  It also changes the language to say that “the amount of the allowed secured claim which is different from the current value of the property”.  This now becomes consistent with the language contained in § 722 of the Bankruptcy Code.  Although this change does not affect the information that must be included in the Reaffirmation Agreement as to balances, interest rates, monthly payments and arrearages, it is important when preparing a Reaffirmation Agreement after December 1, 2011, that the correct B240A-B alt form is used. 

WWR will continue to keep you advised as to breaking news and trends in bankruptcy proceedings.  Should you require further information please do not hesitate to contact Alan C. Hochheiser, Managing Partner of the Bankruptcy Group. Al can be reached at 216.739.5069 and .

How To Avoid Sanctions When Filing A Proof of Claim Where There is A Lack of Documentation Supporting The Claim

Published on February 19, 2010 in Bankruptcy Filings and Proof of Claim. 0 Comments

A recent case decided in the sixth circuit court of appeals outlines what is considered “reasonable” inquiry under Rule 9011(b) and what documentation is required to support a proof of claim filed which is not listed on the bankruptcy petition.  Rule 9011(b) requires when filing documents with the court, the party filing is, “certifying that to the best of the person’s knowledge, information, and belief”, the documents filed are supported by facts.  Further, under rule 9011 a party filing documents without “reasonably” inquiring into the factual basis is subject to sanctions.  In the context of filing proofs of claims the issue may arise when documentation supporting the proof of claim is difficult to obtain or nonexistent and does not appear on the bankruptcy petition.  A creditor filing a claim may be subject to sanctions if they file an unsupported proof of claim.  To avoid potential sanctions creditors should keep in mind the following guidelines and procedures for filing a proof of claim and claims regarding debt not scheduled on a bankruptcy petition. 

First, a creditor if a debt purchaser should make sure the purchase agreement contains an explicit representation and warranty from the seller that the accounts being purchased are valid obligations of the debtor.  Including these terms in the purchase agreement demonstrate that the purchaser has acted in a reasonable manner to support evidence of the debt.  Second, the creditor should investigate the claim after purchase by researching the origins of the claim.  By contacting the debtor through mail to inform the debtor they have thirty days to dispute the debt owed will validate the claim and be considered sufficient investigation.  Third, before purchasing the debt a creditor should verify account information for flaws such as an invalid address or social security number.  If these steps are followed creditors and debt purchasers can avoid violations of rule 9011(b) and potential monetary damages.

The next question is once a creditor has “reasonably” investigated the claim under the sixth circuit standard what documents should they attach to the proof of claim.  The federal rules of bankruptcy procedure require that a proof of claim based on writing include a copy of the writing.  So if the origination document is available it should be attached to the proof of claim.  If this is unavailable the creditor must follow the “reasonableness” test outlined above to substantiate the claim and avoid sanctions under Rule 9011.  The creditor can also file a document explaining why copies of the originating documents are unavailable. 

The bottom line is that even if you attach nothing to a proof of claim if the above steps are followed a creditor can satisfy the “reasonableness” standard and avoid sanctions for filing unsupported claims.

United States Trustee’s Scrutiny of Mortgage Creditors (N.D. Ohio)

Published on March 20, 2009 in Local Procedures & Rules and Proof of Claim. 0 Comments

Yesterday, representatives from the United States Trustee’s Office (“UST”) conducted a town hall meeting with representatives from the creditor’s bar to provide details on a new initiative they are moving forward with called the “Credit Abuse Program.”  During the meeting, the UST indicated that it will be more closely scrutinizing documentation submitted by mortgage lenders with their proofs of claim, Reaffirmation Agreements and attachments to Motions for Relief from Stay.  This increased scrutiny will not just be limited to the Cleveland Bankruptcy Court, but will extend to all five (5) courts in the Northern District of Ohio.  The UST will be focusing its inquiry on the following issues:

  • Whether the collateral was properly perfected
  • Whether the moving party is entitled to enforce the claim
  • Whether payments were misapplied
  • Whether escrow was miscalculated
  • Whether certification attesting to lost notes is in a blank form
  • Whether certification attesting to missed payments was pre-signed
  • Whether the documents filed with the courts are legally and factually sufficient

If an issue comes to light, the UST will informally contact creditors by phone or letter to correct an issue or provide additional documentation.  Also, the UST may formally make its requests through objections to proof of claims or objections to motions for relief and abandonment.  In extreme situations, the UST indicated that it would file motions for an order to show cause or motions for sanctions to correct an issue or provide additional documentation.

 
Specific Areas of Concern

The UST is paying particular attention to the following issues that come up with mortgage creditors:

  • Failure to attach assignments of mortgage
  • Failure to attach documents showing who owns the claim
  • Failure to itemize statement of amounts (UST is requesting the items be specific)
  • Failure to take out improper fees or fees that are vague, estimated, excessive or unsubstantiated by law or contract
  • Miscalculation of arrearage
  • Failure to attach supporting documents
  • Attaching boilerplate affidavits of lost note
  • Disclosing personal identifiable information in violation of Rule 9037

What does this mean to mortgage creditors? 
With closer scrutiny by the UST, it is imperative to have your documents together before any timelines or deadlines come due.  Also, review the documents you are providing to the court and omit any items that are not appropriate.  If this additional work is not done on the front end, the result may very well be increased cost and time in attempting to respond to and comply with UST inquiries and/or requests.

What does this mean to all creditors? 
Documentation is important to substantiate your claim.  All creditors should make it a practice to attach the appropriate documentation and make sure all personal identifiable information is omitted or risk contact from the UST seeking remedial action.