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November 16, 2011

Insolvency Law Committee eBulletin

November 16, 2011

Dear Insolvency Law Committee Constituency List members: 

The purpose of this eBulletin is to provide analysis concerning substantial amendments to the Federal Rules of Bankruptcy Procedure (“FRBP”).  In February 2010, the Insolvency Law Committee (“ILC”) submitted comments to the Committee on Rules of Practice and Procedure of the Judicial Conference of the United States regarding proposed revisions to the FRBP.  Based on comments by the ILC and others, further revisions were made and proposed rules were submitted to the U.S. Supreme Court.  In April 2011, the Supreme Court approved the following revisions to the FRBP which, absent Congressional action to the contrary, will go into effect on December 1, 2011:

New Rules:
FRBP 1004.2
FRBP 1004.2 will require an entity filing a Chapter 15 petition for recognition of a foreign proceeding to state the country where the debtor has its center of main interests, and list each country where a foreign proceeding by, regarding, or against the debtor is pending.  The new rule also establishes a deadline for the filing of a motion challenging the debtor’s statement regarding its center of main interests, and identifies the entities upon which such a motion must be served.
FRBP 3002.1

Section 1322(b)(5) of the Code provides that a Chapter 13 debtor may, under a plan, cure a default and maintain payments of a home mortgage over the course of the plan.  To provide the debtor information necessary to determine the exact amount needed to do so, new FRBP 3002.1 requires the creditor to give notice of changes in the amount of the debtor’s payments, with such notice to be given at least 21 days before the new payment amount is due.  The rule also requires the creditor to give an itemized notice of fees, expenses or charges incurred by the debtor postpetition, with such notice to be given within 180 days after incurrence of such fees, expenses or charges.  The notices must conform to a new official form and be filed as a supplement to the creditor’s proof of claim.  A procedure is established pursuant to which, among other things, the debtor or Chapter 13 trustee may challenge the alleged fees, expenses and charges.

After all plan payments have been made, the Chapter 13 trustee must file and serve a notice stating that the debtor has paid in full the amount required to cure any default.  Within 21 days after service of the notice, the creditor must file and serve a response as a supplement to its proof of claim stating (a) whether it agrees that the default has been cured, and (b) whether the debtor is otherwise current on all payments.  If the creditor alleges that cure or postpetition amounts are unpaid, such amounts must be itemized in the statement.  A procedure is established pursuant to which the debtor or Chapter 13 trustee may obtain a determination as to whether the debtor has cured defaults and is current on mortgage payments.

Amended Rules:
FRBP 2003
FRBP 2003(e) currently provides that a § 341(a) meeting of creditors may be adjourned by announcement at the meeting of the adjourned date and time “without further written notice.”  The amended rule will require the official presiding at the § 341(a) meeting to file a statement specifying the date and time to which the meeting is adjourned.  The “presiding official” is the United States trustee or the United States trustee’s designee.  See FRBP 2003(b)(1).  The Committee Note reflects that a § 341(a) meeting that has been adjourned to a specific date is “held open” for purposes of § 1308(b) of the Bankruptcy Code (extending  the date by which a Chapter 13 debtor must file prepetition tax returns).

FRBP 2019
FRBP 2019 relates to disclosures that must be made when informal creditor groups or groups of equity interest holders represent more than one creditor or equity interest holder in a Chapter 9 or 11 case.  With certain exceptions, the restructured Rule 2019 will require a verified statement to be filed “by every group or committee that consists of or represents, and every entity that represents, multiple creditors or equity security holders that are (A) acting in concert to advance their common interests, and (B) not composed entirely of affiliates or insiders of one another.”  Whereas FRBP 2019 as currently written expressly excludes official committees from its reach, official committees generally are subject to amended FRBP 2019, though official committees are not required to disclose much of the information otherwise required by the rule.

Groups, committees and entities covered by the rule must identify, among other things, their “disclosable economic interests” relating to the debtor, which not only includes claims and interests but all economic rights and interests that are affected by the value, acquisition or disposition of a claim or interest, and therefore could affect the legal and strategic positions that a stakeholder takes in the case.  In the case of a committee or group, the information about the nature and amount of a disclosable economic interest must be provided on a member-by-member basis.  To exclude application of the rule to those who are only passively involved in a case, the term “represent” is defined to limit application of the rule to groups, committees and entities that take a position before the court or solicit votes regarding the confirmation of a plan on behalf of another.

If facts contained in a verified statement change materially during the case, a supplemental statement must be filed when the group, committee or entity takes a position before the court or solicits votes on the confirmation of a plan.

Substantively, new FRBP 2019(e) is similar to current FRBP 2019(b).  If the court, on motion by a party in interest, determines that a group, committee or entity has filed to comply with the rule, the court may, among other things, (1) refuse to permit such group, committee or entity to be heard or to intervene in the case, or (2) invalidate any authority, acceptance, rejection or objection given, procured or received by such group, committee or entity.

FRBP 3001

FRBP 3001(c) currently provides that if a claim, or an interest in property of the debtor securing the claim, is based on a writing, the original or a duplicate shall be filed with the proof of claim.  The amended Rule 3001(c) still will say that, but also will include numerous additional requirements applicable in individual debtors’ cases.  Among other things, if a claim includes interest, fees, expenses or other charges incurred prepetition, an itemized statement of such items must be filed with the proof of claim.

If a security interest is claimed in the debtor’s property, a statement of the amount necessary to cure any default as of the petition date must be filed with the proof of claim.  This requirement applies to consensual liens, and not to judgment liens.  See 11 U.S.C. § 101(51) (“‘security interest’ means lien created by an agreement”).

To facilitate these disclosures where a security interest is claimed in the debtor’s principal residence, a proposed new form (designated Official Form 10) must be filed with the proof of claim.  In addition, where an escrow account has been established, an escrow account statement prepared as of the petition date must be filed with the proof of claim.

New FRBP 3001(c)(2)(D) provides that if a creditor fails to provide information required by FRBP 3001(c), the court may, after notice and hearing, preclude the creditor from presenting the omitted information as evidence in a contested matter or adversary proceeding, or award other appropriate relief.  In response to concerns that subparagraph (D) improperly provides a new basis for disallowance of a claim, one that is not authorized by the Bankruptcy Code, the Committee Note specifically recognizes that a creditor’s failure to provide the required information does not itself constitute a ground for disallowance of the claim.

FRBP 4004

FRBP 4004(a) establishes deadlines by which complaints objecting to a debtor’s discharge must be filed in Chapter 7 and 11 cases, and FRBP 4004(b) currently provides that a motion to extend the time to file the complaint must be filed before the time to object has expired.  Some grounds for revocation of the discharge require the party seeking revocation to have learned of the debtor’s misconduct after entry of the discharge.  See, e.g., 11 U.S.C. § 727(d)(1) (discharge obtained through fraud of the debtor).  However, in some cases the court does not enter a discharge immediately after the objection period expires.  If a party learns of the debtor’s misconduct during the “gap period” after the objection deadline and before entry of the discharge, the party may be precluded from seeking revocation of the discharge.  To address this situation, new FRBP 4004(b)(2) provides that a motion extending the time to object to the discharge may be filed after the objection deadline, but before a discharge is granted, if (A) the objection is based on facts that, if learned after the discharge, would provide a basis for revocation under 11 U.S.C. § 727(d), and (B) the movant did not have knowledge of those facts in time to permit an objection prior to the deadline.

FRBP 6003

FRBP 6003 provides that, except to the extent that relief is necessary to avoid immediate and irreparable harm, the court cannot “grant relief regarding” certain motions within 21 days after a case is filed, including an application to employ counsel, a motion to sell property, a motion to pay all or part of a prepetition claim, and a motion to assume or assign an executory contract or unexpired lease.  Revised FRBP 6003 as amended provides that the court cannot “issue an order granting” such a motion within 21 days after the petition date.  This amendment is intended to clarify that the 21-day waiting period before a court can enter such orders does not prevent the court from specifying in the order that it is effective as of an earlier date (e.g., employment of a debtor’s professionals nunc pro tunc to the petition date).  The amendment also is intended to clarify that the court is not precluded from entering other orders “regarding” such motions, such as orders establishing bidding procedures for a sale to be approved by order entered after the 21-day period.

For the full text of the revisions please click here:


These materials were written by John N. Tedford, IV, of Danning, Gill, Diamond & Kollitz, LLP, in Los Angeles, California.

Thank you for your continued support of the Committee.

Best regards,

Insolvency Law Committee

The Insolvency Law Committee of the Business Law Section of the California State Bar provides a forum for interested bankruptcy practitioners to act for the benefit of all lawyers in the areas of legislation, education and promoting efficiency of practice. For more information about the Business Law Standing Committees, please see the standing committees web page.

November 16, 2011 | Permalink


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