Federal Bankruptcy Rules Committee Proposes Changes to Federal Rules of Bankruptcy Procedure

By David Yunghans, Esq.

The Federal Bankruptcy Rules Committee is currently in the process of drafting a model national plan and proposed rules amendments. Before you begin to panic and think, “Not another change to the Federal Bankruptcy Rules and Procedure!”, these changes have not yet occurred and if adopted will not go into effect until 2014. Most recently an updated version of the proposed rules changes was published for comment.   The comment period closes on February 15, 2014.

There are several changes which primarily revolve around rules of procedure under chapter 13 bankruptcy. I will focus on three proposed changes: the adoption of a national chapter 13 form plan, the requirement that each secured creditor file a secured proof of claim before the confirmation hearing, and changes affecting confirmation of the chapter 13 plan.

Under current bankruptcy rules the majority of chapter 13 trustees have their own form plan. With over 194 chapter 13 trustees in the United States there is a great deal of variation in plan terms within each bankruptcy jurisdiction.   Proposed rule 3015(c) would change this as it would require that an official form be used for all chapter 13 plans. Any non-standard provision contained in the plan would be ineffective unless they are set out in the specific designated provision of the national plan and identified in accordance with the requirements of the official form. The purpose of utilizing a standard form is to improve uniformity of practice and procedure of chapter 13 bankruptcy.

Another important proposed change affects the filing of a secured proof of claim. Currently the deadline for filing a proof of claim is 90 days after the first date set for the meeting of creditors. There also is no rule requiring a secured creditor to file a proof of claim. The rules committee would change Rule 3002(a) to require secured creditors to file a proof of claim within 60 days of the petition date. A creditor that has a mortgage claim on a principal residence would also have an additional 60 days to supplement the initial claim filed in case certain documents were missing or unavailable at the time the initial claim was filed. The stated purpose of this rule change is to ensure each secured creditor files a claim before the confirmation hearing.

Several significant rules would be changed which address the effect of confirmation on filing a proof of claim, objecting to proofs of claim, and stripping liens.

In general with regard to confirmation the rules committee proposes to change the deadline to object to confirmation. The 28-day period for notice of a chapter 13 confirmation hearing will be retained. However, Rule 2002 will be amended in light of the 7-day pre-hearing deadline for objections to confirmation. Rule 2002 would require 21 days’ notice of the time to file objections to confirmation.

Initially the rules committee proposed new rule 3015(g) which would have added that the confirmation of a chapter 13 plan controls over any contrary proof of claim. The proposed rule would have followed the ruling in the case of United Student Aid Funds, Inc. v. Espinosa, 130 S.Ct. 1367 (2010). The most recent rules published for comment no longer contain the broad language used initially. Now the plan controls only in the case of a nongovernmental secured claim when the collateral securing the claim is worth less than the claim amount. In this circumstance the plan would control, otherwise the proof of claim will control the amount and treatment of the claim.

The rules committee proposes to change Rule 3012 and 7001(2). Currently Rule 3012 provides for the valuation of secured claims by motion only and 7001(2) includes among the list of adversary proceedings a proceeding, “to determine the validity, priory, or extend of lien or other interest in property”. Under the proposed rule the amount of a claim subject to priority would be specified in a proposed plan and subject to objection and resolution at the confirmation hearing. Following the change in Rule 3012 the rules committee would also change rule 7001(2) to clarify that confirmation of a chapter 13 plan rather than an adversary proceeding would determine secured and status of claims under Rule 3012. To remove a second mortgage unsupported by equity in the debtor’s home a debtor would not have to file a separate adversary proceeding. The second mortgage would be stripped upon confirmation of the plan.

In conclusion, the proposed rule changes are significant and would substantially change bankruptcy practice and procedure throughout the country. At this time there is no need for creditors to panic, as stated earlier, the proposed changes are still in their infancy with public comment set to end February 15, 2014.

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