Upcoming Changes to National Bankruptcy Plan and Bankruptcy RulesNovember 30, 2017 | Scott D. Fink, Esq.
Historically, each Bankruptcy Court in the United States has been free to utilize its own version of a Chapter 13 Plan, which has led to a confusing patchwork of different plan forms all around the country. Effective December 1, 2017, however, the use of a new Model Chapter 13 Plan will be required across the U.S.; although each individual district will have the ability to “opt out” and use its own form, so long as it substantially conforms to the Model Plan’s format.
Also taking effect on December 1st are certain amendments to the Bankruptcy Rules, which will impact the Chapter 7, 12, and 13 practice and procedures for both consumers and creditors. The following is a summary of the upcoming changes.
Chapter 13 Plan
The key changes to the new Plan form are as follows:
- Amended Plan Box (Page 1, upper right-hand corner): Review this section to determine if this is an amended Plan, and to determine which sections of the Plan have been changed.
- Part 1:
- Note the requirement that any Plan objection must be filed at least seven days before the date set for the confirmation hearing.
- Sections 1.1-1.3: Review these check-box sections to determine if the Plan seeks to value or “cram-down” a secured claim (1.1), to avoid a lien (1.2), or to determine if the Plan contains any “non-standard” provisions (1.3).
- Part 2:
- Section 2.1: Review to determine the monthly Plan payment amount and for how many months the Plan will run.
- Section 2.2: Review to determine if Plan payments will be made via a payroll deduction from a consumer’s employer, via direct payments by the consumer to the trustee, or by some other means.
- Part 3:
- Section 3.1: Review for the treatment of all secured claims, including ongoing installment payments and cure of arrears. Confirm that the collateral, arrears, and the installment payment amounts are correct, and whether the installment payments will be made by the consumer or the trustee.
- Section 3.2: Review this section for any attempt by the consumer to value or cram-down a secured claim.
- Section 3.3: Review for secured claims NOT subject to cram-down, either due to the 910-day rule for motor vehicle loans, or the one-year rule for loans secured by other personal property.
- Section 3.4: Review this section for attempts by a consumer to strip or avoid a lien.
- Section 3.5: Review this section for surrender of collateral by the consumer. Note that the new Model Plan includes language that lifts both the automatic stay and co-debtor stay at time of plan confirmation.
- Part 4:
- Section 4.4: Review this section for treatment of priority claims (taxes and support obligations).
- Part 5:
- Section 5.1: Review this section to determine the amount being paid to unsecured creditors in the case. The new form gives the consumer an option to set out the amount either as a percentage paid on each claim, a total amount of money (the “pot”) to be shared by all unsecured creditors, or to state the amount as, “all funds remaining after disbursements have been made to all other creditors.”
- Section 5.2: Review this section for treatment of any “long-term” non-priority unsecured claims, including ongoing payments and cure of arrears. A long-term debt is one whose last payment will come due after the completion of the plan.
- Section 5.3: Review for any special treatment of unsecured claims, e.g., an unsecured claim where a non-filing party is also liable on the debt and the consumer seeks to pay 100% on that unsecured claim to protect the non-filer.
- Part 6:
- Section 6.1: Review for any leases or executory contracts to be assumed or rejected. Note the last column – estimated total payments by trustee – which is only to be filled out if the consumer is seeking to have the trustee make the lease payments. If left blank, the consumer will make the lease payments directly.
- Part 8:
- Section 8.1: Review for any special provisions in the plan. The special provisions will only be effective if the consumer also checks the “included” box in Part 1, Section 1.3.
The key amendments to the Bankruptcy Rules are as follows:
- Rule 2002 has been amended to provide for at least 21 days’ notice to creditors of the time for filing an objection to confirmation of a Chapter 13 Plan, as well as at least 28 days’ notice of the Plan confirmation hearing date.
- Rule 3002 has been amended significantly and now provides:
- A shortened bar date for filing proofs of claim in Chapter 7, 12, and Chapter 13 cases to 70 days from the date of filing. The prior version gave a creditor 120 days to file its proof of claim. There is now a significantly shorter time period within which creditors can file a proof of claim.
- For a real estate proof of claim (which is secured by a mortgage on the consumer’s principal residence), the requirement is slightly different. A creditor must still get the claim form itself filed within 70 days (as well as the 410A form), but is given an additional 50 days to attach additional documents, such as the Note, Mortgage, and Assignments.
- All creditors must timely file proofs of claim to have their claims considered “allowed.” The prior version of the Rule left open the possibility that a secured creditor could file its claim at any time during the case. Effective December 1, 2017, however, both secured and unsecured creditors’ claims are subject to the 70 day bar date from the date of filing.
- There are narrow exceptions for getting a late claim allowed beyond the 70 day bar date, including the consumer: failing to schedule the creditor, serving at an incorrect address, misspelling the creditor’s name, or sending the notice to the payment address instead of the designated mailing address.
- Rule 3007 has been amended as follows:
- To provide that a claim objection must be served via first-class mail at the address the creditor designated on its proof of claim to receive notices.
- In addition, for an Insured Depository Institution (banks whose customer deposits are insured by the FDIC, of which there are almost 6,000), then the claim objection must also be served pursuant to Bankruptcy Rule 7004 (via certified mail addressed to an officer of the bank).
- Rule 3012 has been amended to clarify that a consumer may seek to determine the amount of a secured claim (valuing the collateral), not only by a motion or claim objection, but also through the Plan. Previously, certain jurisdictions only allowed a consumer to value collateral through a motion or claim objection, but not simply by putting it in the plan. Creditors should be extra vigilant in reviewing Chapter 13 plans to determine if any attempt is being made to value the collateral, cram down or bifurcate the claim into secured and unsecured portions. Plan objections will need to be filed for these situations.
- Rule 3015 is amended to require the use of the Official Form for Chapter 13 Plans, as set forth above. A new Rule 3015.1 has also been added, which gives districts the ability to “opt out” and use a local form, but only if the local form substantially matches the Form Plan.
- Rule 4003 has been amended to provide that a consumer’s request to avoid a judgment lien that impairs a consumer’s exemptions may be made by Motion or through a Chapter 12 or 13 Plan. Previously, certain jurisdictions did not allow lien avoidance through the Plan.
- A Plan that proposes lien avoidance or stripdown must be served pursuant to Bankruptcy Rule 7004.
These changes to the Bankruptcy Rules and Chapter 13 Plan will present challenges for creditors, especially with regard to meeting the new shorter time period within which to file proofs of claim. Creditors are strongly encouraged to educate themselves more fully on these changes and to seek counsel on advisable changes in their internal practices and procedures to ensure that these changes are accounted for as of December 1, 2017. For additional information on the Bankruptcy Rules and Code, contact your Weltman, Weinberg & Reis Co, LPA attorney.
Scott D. Fink is the Managing Shareholder of the Bankruptcy Practice Group at Weltman, Weinberg & Reis Co., LPA. His practice includes commercial and consumer bankruptcy matters, and he is AV Preeminent Rated by Martindale-Hubbell, its highest available rating for legal ability and professional ethics.
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