Payment Change Notices and Compliance With Bankruptcy Rule 3002.1 in Florida

November 08, 2012      |      Mark E. Steiner, Esq.

On December 1, 2011, Rule 3002.1 of the Federal Rules of Bankruptcy Procedure went into effect, imposing new notice requirements on secured creditors in Chapter 13 bankruptcy cases.

By its terms, the rule applies to claims that are secured by a security interest in the debtor's principal residence, and which are provided for under 11 U.S.C. §1322(b)(5) of the Bankruptcy Code in the debtor's plan. In these cases, the secured creditor is required to file notices in the bankruptcy case when the regular monthly payment changes. Notice regarding monthly payment changes must be filed at least 21 days before a payment in the new amount comes due.

Compliance with regard to the first provision of this rule relating to a change in the debtor's regular monthly payment is complicated by differing interpretations of §1322(b)(5). Different bankruptcy courts have held that Rule 3002.1 applies and a Chapter 13 Plan "provides for" a loan: (1) if arrears are cured and the regular payment maintained through the plan; (2) if arrears are cured inside the plan but the regular payment is made outside the plan by the debtor; (3) if payments on the loan are made entirely outside the plan; or (4) in rare cases, even if the Plan provides for the surrender of the property subject to the loan.

With these differing interpretations, it is difficult to develop a uniform nationwide policy to comply with the payment change notification requirements of Rule 3002.1. Complicating matters further is the threat of objections and sanctions from attorneys representing debtors in bankruptcy. In fact, in the Middle and Southern Districts of Florida, opportunistic debtors' attorneys have pounced on this uncertainty to obtain sanctions orders of up to $1,000 for what was alleged to be an unnecessary payment change notice filed where the loan was paid outside of the Chapter 13 plan.

Prudence demands that Notices of Payment Change pursuant to Rule 3002.1 be timely filed (at least 21 days in advance of the payment change going into effect) in Florida on all loans secured by a debtor's principle residence, whenever payments for that loan are mentioned in the Chapter 13 plan, whether paid through the Trustee or directly by the debtor. If this is done, then only substantive objections to the change in payment itself will be valid. The Rule's official comments state that the Notice is for the benefit of all parties, including the Trustee, and not solely for the benefit of the debtor and her attorney.

Objections received based on whether the Notice of Payment Change itself need be filed should be dealt with on a case-by-case basis. WWR has already handled a number of these objections. Often, these objections can be resolved by consent, which will relieve the lien holder of the obligation to continue filing such notices going forward in that case. The careful secured creditor will strongly contest any motions for sanctions based on an alleged improperly filed Notice of Payment Change. It is a principled stand, as any objection that such notices should not be filed flies in the face of the fundamental principle of due process, of which fair notice is a vital part. Allowing debtors to strike such Notices and seek sanctions will only create additional uncertainty and expense to the lien holder seeking to comply with the law. WWR will gladly represent you in the preparation and filing of Notices of Payment Change and will vigorously defend any objections received on such Notices.