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Posted by: Lynn Pointer on Dec 9, 2013

by Michael J. McCormick

Just when all of the issues and ambiguities arising out the 2011 federal bankruptcy rule changes have been resolved (note: detect sarcasm), a Chapter 13 form plan (hereinafter, referred to as the “Official Form Plan” or “OFP”) and accompanying rule changes are going to be published for public comment starting August 15, 2013 (and ending on February 15, 2014).  In fact, effective implementation of the form plan will require conforming amendments to Federal Bankruptcy Rules 2002, 3002, 3007, 3012, 3015, 4003, 5009, 7001, and 9009.

According to Bankruptcy Judge Eugene Wedoff, the lack of a national form makes it difficult for lawyers who practice in several districts, adding transactional costs that are passed on to debtors.  Moreover, a recent survey of the bankruptcy bench established that a majority of chief bankruptcy judges support developing a national form plan and simultaneous amendments to the bankruptcy rules to harmonize practice among the courts and to clarify certain procedures.

The Official Form Plan is divided into ten (10) parts.  In addition, there are two (2) exhibits: one for lien avoidance, and one for showing feasibility of the plan.  Some of the parts which are relevant to mortgage servicers are:

Part 1     Notice to Interested Parties

Part 2     Plan payments and length of Plan

Part 3     Treatment of Secured Claims

3.1     Mortgage Arrears

3.2     Treatment of Secured Claims (only effective if warning box in Part 1 is checked)

3.3     Hanging paragraph claims

3.4     Lien avoidance (only effective if warning box in Part 1 is checked)

3.5     Surrender of collateral

Part 7     Order of Distribution of Trustee Payments (first 2 are specified)

a.     Trustee’s fee

b.     Monthly payments on secured claims

Part 9      Nonstandard Plan Provisions

Part 10    Signatures

Fortunately, the OFP and rule changes in their present form take into consideration input from creditors and their attorneys after meetings, mini-conferences and conference calls.  For instance, the early draft of the plan and rules provided that in the event of a conflict between the plan and the proof of claim, the plan would control.  Putting aside for a moment the fact that 11 USC 502(a) provides that a claim is deemed allowed unless a party in interest objects, and the fact a bankruptcy rule cannot trump a section of the Bankruptcy Code, consider that a debtor rarely knows the correct amount of the mortgage arrears.  Of course, one of the consequences of a providing the plan controls would be a significant increase in the number of objections to confirmation that would need to be filed.  The latest draft of the plan provides that the amounts listed on a proof of claim with respect to the monthly payment and the amount of arrears will control over contrary amounts listed in the plan.  Therefore, the debtor will need to object to the claim to contest those amounts, consistent with Section 502(a) of the Bankruptcy Code.  On the other hand, the current draft of Rule 3015(g) provides that the plan will control other aspects of the claim’s treatment.

There is a perception that the Chapter 13 process would improve if proofs of claim were filed before plan confirmation.  But mortgage servicers participating in the rulemaking process expressed concern with the proposal by the Chapter 13 Form Plan Working Group (“Working Group”) to change the bar date to sixty (60) days after the filing of the petition.  Specifically, while servicers felt 60 days might be sufficient to determine the amount of arrears, it might not be sufficient to produce other supporting documentation required under Rule 3001. 

The latest draft of Rule 3001(c) provides that for a claim secured by the debtor’s principal residence, the bar date is bifurcated.  So a proof of claim will be considered timely if it is filed within 60 days of the petition date and includes the mortgage proof of claim attachment required by Rule 3001(c)(2)(C).  The documentation required by Rule 3001(c)(1) and (d) may be filed as a supplement not later than 120 days after the petition. 

Several questions and issues are created by this latest amendment.  First, does the provision now cap the amount of time that a claim may be amended or supplemented?  Second, when a creditor supplements its original claim to add documents, is it allowed to add documents only, or can it also amend the amounts listed in the original claim? A reasonable argument can be made based on the current draft of Rule 3002(c) that a creditor can only add documents when supplementing the original claim.  Consider further that this bifurcated process means that both the servicer and its law firm will have to touch the file at least twice to complete the proof of claim process.

With regard to adequate protection, the Working Group is currently discussing a separate form as opposed to including a provision in the plan for adequate protection payments.

The Official Form Plan allows for nonstandard provisions under Part 9.  However, any nonstandard provisions will only be effective if the appropriate box on the first page of the OFP (see Part 1) is checked indicating the presence of nonstandard provisions.  Moreover, Part 10 of the OFP, the signature box, includes language so that the debtor’s attorney (or the debtor, if appearing pro se) can certify that the plan is identical to the OFP except for any nonstandard provisions contained in Part 9.

Section 3.1 of the proposed OFP, read together with the Committee Notes for Section 3.1, indicates that upon termination of the stay, the provisions of Rule 3002.1 will no longer apply, as the plan no longer provides for the treatment of the claims under 11 U.S.C. § 1322(b)(5) (curing arrears and maintaining current payments).  If the Working Group wanted to give this provision its intended effect, then the language really should have appeared in the plan and rules.  If this language remains in the Committee Notes, then some judges will treat the language as persuasive only. 

The latest version of the OFP provides that along with surrender of the collateral, the debtor(s) consent to termination of the automatic stay and co-debtor stay at confirmation.  This is an improvement over previous versions of the OFP where these provisions appeared in the Committee Notes.  Moreover, previous versions of the OFP did not mention of the co-debtor stay under Section 1301 of the Bankruptcy Code, which was also a major omission under BAPCPA in 2005.  Nevertheless, it is still not clear how the debtor consents to termination of the co-debtor stay, especially when the co-debtor is not participating in the case, or may not be represented by counsel.

Other Rule Amendments

Rules 2002 & 3015(f)

The Working Group has proposed an amendment to Rule 3015(f) that would require objections to confirmation in Chapter 13 be filed at least seven (7) days prior to the confirmation hearing.  Rule 2002 currently requires twenty-eight (28) days’ notice of the time to file an objection to confirmation.   Therefore, Rules 2002 and 3015(f) together would impose a 35-day notice period before the confirmation hearing, which the Working Group considered to be excessive, especially for a pre-confirmation modification.  Thus, to keep the notice period at 28 days, in light of the new time period delineated in Rule 3015(f), Rule 2002 is being amended to require 21 days’ notice of the time to file objections to confirmation.

Rule 3002

Rule 3002 has been amended to clarify that creditors must file a proof of claim to have a secured claim and receive distributions. 

As previously discussed, Rule 3002(c)’s proposed 60-day bar date has been adjusted to provide additional time to file supporting documentation for mortgage claims when the subject property is the debtor’s principal residence.  Furthermore, additional language now clarifies that the bar date runs from the time of conversion of a case to Chapter 12 or Chapter 13.  Finally, the language providing for an explicit exception to the bar date when the debtor fails to timely file a list of creditors’ names and addresses under Rule 1007(a)(1) has been refined.

Rules 3012 & 4003(d)

Rule 3012 is amended to provide that the amount of secured claims may be determined in a plan, subject to objection, thus removing the need for a motion, as required by the present Rule 3012.  However, as previously stated, with respect to the amount of mortgage arrears, a proof of claim will control over a contrary amount in the plan.  Further, the plan will not control the amount of a priority claim, or a contrary claim filed by a governmental unit.

At the September, 2012 meeting of the Advisory Committee on Bankruptcy Rules (“Advisory Committee”) in Portland, Oregon, the Advisory Committee discussed drafts of the OFP and rule amendments prepared by the Working Group.  One amendment was a proposed amendment to Rule 4003(d) providing (consistent with amended Rule 3012) that Chapter 12 Chapter 13 plans could seek the avoidance of liens encumbering exempt property pursuant to Section 522(f) of the U.S. Bankruptcy Code provided the plan was served pursuant to Rule 7004.  This is one proposed amendment where the draft version has not changed since the Portland meeting.

Rule 7001

The Working Group has proposed an amendment to Rule 7001, which lists a number of disputes that are required to be litigated with the initiation of an adversary proceeding.  Specifically, the Working Group proposes Rule 7001(s) be amended to exclude proceedings under Rule 3012, such as the determination of the amount of a secured claim.  This is another proposed amendment where the draft version has not changed since the Portland meeting.

Rule 9009

Rule 9009 will be amended to ensure use of the OFP (and other Official documents) without alteration, except as otherwise provided in the rules or in a particular Official Form. 

Public Comment

If you have questions or comments regarding the OFP and the accompany rule changes, please feel free to e-mail Mike McCormick at mjm@mccallaraymer.com.  You are also encouraged to submit questions and comments during the Public Comment period to Rules_Comments@ao.uscourts.gov.

 

Michael McCormick is a managing partner with the firm of McCalla Raymer, LLC.  He also serves as a member of the TBA Bankruptcy Section Executive Council.