Now We Know: How Much Proof Do You Need for that Unsecured Claim?

Last year, new Bankruptcy Rules for secured proofs of claims were put into effect. The new rules focused on secured claims and did not address unsecured claims.  As of December 1, 2012, new Rules for unsecured creditors' claims will go into effect.  They will not apply to closed-end unsecured loans.  They will apply to unsecured revolving and open-end accounts, as well as purchased accounts.

Because secured claims now need more detailed documentation, debtors' attorneys are objecting to unsecured claims stating that these must have more detail to "prove" the claim.  This is not so under the rules, but is becoming more and more common.

Many of these objections center around the Rule's long-standing requirement that if a claim is based on a writing, the writing must be attached to the claim.

What writing is required?  Not only is producing an application impossible in the case of internet or in-store applications for credit, it is extremely burdensome and ridiculous to have to attach every monthly statement issued on an account.  Must every creditor who steps into the shoes of another creditor, by purchase or otherwise, be required to prove they own the account and have "standing" to collect on it?  The attorney's fees to defend these objections will often exceed what the creditor will be paid under the Chapter 13 plan.

As of December 1, 2012, the Bankruptcy Rules are amended to eliminate the need to attach a "writing" to these claims.  Rather, certain information must be disclosed in an attachment.    If it is, then the claim is prima facie evidence of its validity.  This means that the debtor must raise an issue independent of that information to object to the claim. Examples are alleging the debt has been paid, or that the debtor is a victim of identity theft. The hope is that new rule will reduce objections to unsecured claims for lack of documentation or "standing."

Here is the information that will endow an unsecured claim with prima facie validity:

(i) the name of the entity from whom the creditor purchased the account;
(ii) the name of the entity to whom the debt was owed at the time of an account holder's last transaction on the account;
(iii) the date of an account holder's last transaction;
(iv) the date of the last payment on the account; and
(v) the date on which the account was charged to profit and loss.
    
Fed. R. Bankr. Pro. 3001(c)(3)(A)
(Effective 12/1/12)

There is no required form for this information. To comply, attach a statement to the claim identifying who owned the loan when you purchased it and who owned it at the time of the last transaction. List the dates of that last transaction, last payment, and any charge-off.  If all of these do not apply to your claim, state which ones don't apply and give the information that does.  That is all that is required.

However, blessings do not come without burdens.  These unsecured creditors have new obligations under the amendments to provide information outside of the claims process.  The rule requires a creditor to provide information within 30 days to "a party in interest" if that party requests the information in writing.  What "information" may be requested is not defined in the rule.  Rule 3001(c)(3)(B),  (Effective 12/1/2012).

The same sanctions that apply to secured creditors who fail to provide required information will apply to unsecured creditors who fail to provide it within the 30 days:  they can be precluded from presenting omitted information as evidence in any hearing or they can be assessed attorney's fees and expenses.

The new Rule appears to discourage knee-jerk objections to these claims by providing a mechanism for investigation before an objection is filed.  Not said, but implied, it strongly suggests that debtors must request information before they file objections. 

Of course, there will be those litigious attorneys who will request boundless information on every single unsecured claim with an eye for getting sanctions awarded.  If so, your attorney can assist in deflecting or defending these requests.

The new Rule recognizes the market realities of unsecured debt based on revolving accounts and open-ended credit agreements and accommodates those who purchase that debt.  It also provides a simple means for these creditors to state their claims and for debtors to recognize them.  It eliminates objections to these claims for failure to attach applications, agreements and monthly statements.