Client Alert: From the Scheer Law Group: Bankruptcy Rule Changes: Don’t Lose Your Rights!

Client Alert:
To: All Scheer Law Group Clients and Affiliates:
Subject:  Don’t Lose Your Rights; Amendments to Bankruptcy Rules/Consumer Cases, Effective 12.1.17.  Deadlines for filing a Proof of Claim have changed.

There are some noteworthy changes to the Federal Bankruptcy Rules, which will be effective on December 1, 2017.  You should review them all with your counsel. Now is the time to prepare. You will absolutely hate it if you miss the claim filing date in a Chapter 13 on a secured claim and have to sit through a bankruptcy with no payments.

One area in particular (Filing of Proofs of Claims and effect of not filing a claim) is of immediate concern).  Many creditors miss the claim filing deadline and/or  sometimes fail to respond to debtor motions to remove a lien or objections to claims, resulting assertions by the borrower that the creditor has lost not only the rights to payment, but the lien rights  as well (See generally In re Blendheim, 803 F.3d 477 (9th Cir. 2015).

The new amendments put a “shorter fuse” on the date required to file a claim and in one instances, clarifies that the failure to file a secured claim does not mean that the lien is void.

The following is a brief recap of the changes to the rules re filing and effect of not filing a secured claim.  SLG suggests that you review and prepare now!

Rule 3002 Amendments:

• Filing  Secured Claims: A secured creditor is now required to file a proof of claim to have an allowed secured claim. However, failing to do so will not alone lead to the lien securing the claim being deemed void.
• Earlier Deadline for filing a proof of claim in Chapter 7, 12, 13: The time to file a claim in a voluntary Chapter 7, Chapter 12, or Chapter 13 case is not later than 70 days after entry of the order for relief (or the date of the order of conversion to a Chapter 12 or Chapter 13 case). In an involuntary Chapter 7 case, the proof of claim deadline is not later than 90 days after the entry of the order for relief.  
  Note: The rule used to be  90 days after the “first date set for the meeting of creditors.”  This mandates that all lender/servicers act promptly to ensure that the claim is timely filed. These amendments leave unchanged how deadlines for filing proofs of claim in Chapter 11 cases under Rule 3003(c)(3) are established.
• Extension of Claim Filing Date in Certain Cases: Per Rule 3002, the court, on motion filed before or after the deadline expires, may extend the time for filing a proof of claim for not more than 60 days following the date a motion seeking additional time is granted in certain circumstances. Those cover situations where (1) a debtor fails timely to file the required Rule 1007(a) list of creditor names and addresses or (2) the notice was insufficient to provide the creditor with a reasonable time to file a proof of claim but only if the notice was mailed to a foreign address.
• Service of Claim Objections: Rule 3007 has been revised to clarify that Rule 7004’s specific service requirements do not apply to most claim objections. Instead, service of the claim objection by first-class mail on the person most recently designated to receive notices on the original or amended proof of claim will suffice. Exceptions apply to certain claims by the United States, its officers or agencies, or an insured depository institution (See e.g. BK Rule 7004(h), which allows service by certified mail on an officer of the depository institution, unless an attorney has made an appearance, or the court orders otherwise).
  Note: You must have procedures in effect to ensure that staff (including officers of a depository institution) are made aware that objections need to be routed immediately for review and action, when received.
• One last reminder, unrelated to the Amendments: New more stringent rules for the contents of proofs of claims (and in particular mortgage claims) have already gone into effect. With the pending changes to the periodic statement requirements for bankruptcy claims that will be going into effect in April 2018 (for larger servicers), every lender/servicer (even smaller servicers) must prepare (and in many instances “retool”) in order to train staff and to develop policies and procedures that will result in compliance so you do not face lawsuits and lose rights

Please call or email if you would like to discuss. Now is the time to prepare!

Spencer Scheer