November 9, 2015
by Michael J. McCormick
McCalla Raymer, LLC
USFN Member (Georgia)
Just when all of the issues and ambiguities arising from the 2011 federal bankruptcy rule changes have been resolved (pardon the wishful thinking of this author), a chapter 13 form plan (referred to here as the Official Form Plan or OFP) has completed two rounds of public comment. In addition, effective implementation of the form plan will require conforming amendments to Federal Bankruptcy Rules 2002, 3002, 3007, 3012, 3015, 4003, 5009, 7001, and 9009.
According to U.S. Bankruptcy Judge Eugene Wedoff (N. Dist. Ill.), the lack of a national form makes it difficult for lawyers who practice in several districts, adding transactional costs that are passed on to debtors. Moreover, a recent survey of the bankruptcy bench established that a majority of chief bankruptcy judges support developing a national form plan and simultaneous amendments to the bankruptcy rules to harmonize practice among the courts and to clarify certain procedures.
The Official Form Plan is divided into ten parts. In addition, there are two exhibits: one for lien avoidance, and one for showing feasibility of the plan. Some of the parts relevant to mortgage servicers are:
- Part 1 – Notice to Interested Parties
- Part 2 – Plan Payments and Length of Plan
- Part 3 – Treatment of Secured Claims, along with subsections 3.1: Mortgage Arrears; 3.2: Treatment of Secured Claims (only effective if warning box in Part 1 is checked); 3.3: Hanging Paragraph Claims; 3.4: Lien Avoidance (only effective if warning box in Part 1 is checked); and 3.5: Surrender of Collateral
- Part 7 – Order of Distribution of Trustee Payments, along with subsection a: Trustee’s Fee
- Part 9 – Nonstandard Plan Provisions
- Part 10 – Signatures
Fortunately, the OFP and rule changes in their present form take into consideration input from creditors and their attorneys after meetings, mini-conferences, and conference calls. For instance, the early draft of the plan and rules provided that in the event of a conflict between the plan and the proof of claim, the plan would control. Putting aside for a moment the fact that 11 U.S.C. 502(a) provides that a claim is deemed allowed unless a party in interest objects, and the fact that a bankruptcy rule cannot trump a section of the Bankruptcy Code, consider that a debtor rarely knows the correct amount of the mortgage arrears. Of course, one of the consequences of a provision that the plan controls would be a significant increase in the number of objections to confirmation that would need to be filed. The latest draft of the plan provides that the amounts listed on a proof of claim with respect to the monthly payment and the amount of arrears will control over contrary amounts listed in the plan. Therefore, a debtor will need to object to the claim to contest those amounts, consistent with Section 502(a) of the Bankruptcy Code. On the other hand, the current draft of Rule 3015(g) provides that the plan will control other aspects of the claim’s treatment.
There is a perception that the chapter 13 process would improve if proofs of claim were filed before plan confirmation. But mortgage servicers participating in the rulemaking process expressed concern with the proposal by the Chapter 13 Form Plan Working Group (Working Group) to change the bar date to sixty days after the filing of the petition. Specifically, while servicers felt sixty days may be sufficient time to determine the amount of arrears, it might not be an adequate period within which to produce other supporting documentation required under Rule 3001.
The latest draft of Rule 3001(c) provides that for a claim secured by the debtor’s principal residence, the bar date is bifurcated. So a proof of claim will be considered timely if it is filed within sixty days of the petition date and includes the mortgage proof of claim attachment required by Rule 3001(c)(2)(C). The documentation required by Rule 3001(c)(1) and (d) may be filed as a supplement not later than 120 days after the petition.
Several questions and issues are created by this latest amendment. First, does the provision now cap the amount of time for amending or supplementing the proof of claim? Second, when a creditor supplements its original claim to add documents, is it allowed to add documents only, or can it also amend the amounts listed in the original claim? A reasonable argument can be made based on the current draft of Rule 3002(c) that a creditor can only add documents when supplementing the original claim. Consider further that this bifurcated process means that both the servicer and its law firm will have to touch the file at least twice to complete the proof of claim process.
Many of the comments submitted during the public comment periods have been highly critical of having a bifurcated or dual bar date and have instead suggested that the Rules Committee adopt a bar date of ninety days after the filing of the petition.
With regard to adequate protection, the Working Group is currently discussing a separate form, as opposed to including a provision in the plan for adequate protection payments. The Official Form Plan allows for nonstandard provisions under Part 9. However, any nonstandard provisions will only be effective if the appropriate box on the first page of the OFP (see Part 1) is checked, indicating the presence of nonstandard provisions. Moreover, Part 10 of the OFP, the signature box, includes language so that the debtor’s attorney (or the debtor, if appearing pro se) can certify that the plan is identical to the OFP except for any nonstandard provisions contained in Part 9.
Termination of Stay
Section 3.1 of the proposed OFP, read together with the Committee Notes for Section 3.1, indicates that upon termination of the stay, the provisions of Rule 3002.1 will no longer apply, as the plan doesn’t provide for the treatment of the claims under 11 U.S.C. § 1322(b)(5) (curing arrears and maintaining current payments).
The latest version of the OFP provides that along with surrender of the collateral, the debtor consents to termination of the automatic stay and co-debtor stay at confirmation. This is an improvement over previous versions of the OFP where these provisions appeared in the Committee Notes. Moreover, previous versions of the OFP did not mention the co-debtor stay under Section 1301 of the Bankruptcy Code, which was also a major omission of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. Nevertheless, it is still not clear how the debtor consents to termination of the co-debtor stay, especially when the co-debtor is not participating in the case, or may not be represented by counsel. Further, does consenting to relief mean that the stay is lifted upon confirmation?
The NACTT Mortgage Committee has suggested the following language to the Working Group to help clarify that the stay is indeed lifted: “Upon confirmation of the Plan, any stay created by the filing of the petition pursuant to 11 U.S.C. §§ 362 and 1301 shall be deemed modified to allow in rem disposition of the collateral to effect the surrender without further order of the bankruptcy court.”
Unfortunately, the Advisory Committee was unwilling to alter the language in the OFP regarding the co-debtor stay.
Other Rule Amendments
Rules 2002 & 3015(f) — The Working Group has proposed an amendment to Rule 3015(f) that would require chapter 13 confirmation objections to be filed at least seven days prior to the confirmation hearing. Rule 2002 currently requires twenty-eight days’ notice of the time to file an objection to confirmation. Therefore, Rules 2002 and 3015(f) together would impose a thirty-five-day notice period before the confirmation hearing, which the Working Group considered to be excessive, especially for a pre-confirmation modification. Thus, to keep the notice period at twenty-eight days, in light of the new time period delineated in Rule 3015(f), Rule 2002 is being amended to require twenty-one days’ notice of the time to file objections to confirmation.
Rule 3002 — This rule has been amended to clarify that creditors must file a proof of claim to have a secured claim and receive distributions. As previously discussed, Rule 3002(c)’s proposed sixty-day bar date has been adjusted to provide additional time to file supporting documentation for mortgage claims when the subject property is the debtor’s principal residence. Furthermore, additional language now clarifies that the bar date runs from the time of conversion of a case to chapter 12 or chapter 13. Finally, the language providing for an explicit exception to the bar date when the debtor fails to timely file a list of creditors’ names and addresses under Rule 1007(a)(1) has been refined.
Rules 3012 & 4003(d) — Rule 3012 is amended to provide that the amount of secured claims may be determined in a plan, subject to objection, thus removing the need for a motion as required by the present Rule 3012. However, as previously stated, with respect to the amount of mortgage arrears, a proof of claim will control over a contrary amount in the plan. Further, the plan will not control the amount of a priority claim, or a contrary claim filed by a governmental unit.
At the September 2012 meeting of the Advisory Committee on Bankruptcy Rules (Advisory Committee) in Portland, Oregon, the committee discussed drafts of the OFP and rule amendments prepared by the Working Group. One amendment was a proposed amendment to Rule 4003(d) providing that — consistent with amended Rule 3012 — chapter 12 and chapter 13 plans could seek the avoidance of liens encumbering exempt property pursuant to Section 522(f) of the U.S. Bankruptcy Code, provided the plan was served pursuant to Rule 7004. This is one proposed amendment where the draft version has not changed since the Portland meeting.
Rule 9009 — This rule will be amended to ensure use of the OFP (and other Official documents) without alteration, except as otherwise provided in the rules or in a particular Official Form.
The Next Step
The latest meeting of the Advisory Committee was held on April 20, 2015 in Pasadena, California. Among other things, the committee discussed the adoption of Form 113, the national form chapter 13 plan.
The Advisory Committee took into consideration the number of comments against the adoption of a mandatory plan that were received during the latest round of public comments that ended in February 2015, including a comment submitted by 144 judges (approximately forty percent of the bankruptcy bench), along with a compromise proposal (Compromise) with an opt-out provision endorsed by nine individuals, including several creditor attorneys, judges, and trustees. The Advisory Committee voted almost unanimously in favor of a form of compromise. One feature of the Compromise is that instead of an initial sixty-day deadline to file a proof of claim, and then an additional sixty days to supplement for documents for claims involving the debtor’s principal residence, there would just be one uniform seventy-day deadline. In addition, the Compromise provides for clearer and stronger language that terminates the co-debtor stay at confirmation when the debtor’s plan provides for surrender of the collateral.
The Working Group spent the summer reviewing and refining the Compromise. By the time that this article is published, the Advisory Committee will have met on October 1-2 in Washington, D.C., to consider and vote on a refined compromise, along with a recommendation from the Working Group as to whether there is a need for re-publication. If there is no need for re-publication [i.e., because the Compromise (as refined) represents a lesser-inclusive change and a comment than the original proposal], this will still allow the entire package of the plan and rule changes to go into effect in December 2016.
Additionally, when the rule changes go into effect in 2016, Fed. R. Bankr. P. 3002.1 will be modified to provide that compliance with that rule is not required after termination of the automatic stay.
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