REQUIRED READING: On April 26, the U.S. Supreme Court adopted bankruptcy rule changes that are designed to prevent the presentation of claims for which there is little or no substantiation. The rule changes, which were proposed by the Bankruptcy Rules Advisory Committee, include a new proof-of-claim (POC) form for the submission of claims. The rules take effect Dec. 1.
The new POC form has made several key changes to the current form. One such change, Section 4 of the secured-claim portion, adds the requirement that the secured-claim holder disclose the annual interest rate in effect at the time a bankruptcy case is filed. If the creditor receives notice of a bankruptcy filing on any type of a variable interest-rate loan, the creditor must cross-check the date of any interest-rate adjustments versus the petition date to ensure the rate disclosed is the one that was in effect at the time the bankruptcy was filed.
Check boxes have been added to this section to further indicate whether the interest rate is fixed or variable. An ambiguity on the current POC form has been eliminated to make it clear that the creditor must attach the documents that support a claim, and not just a summary of the documents. The form also includes language that reminds the creditor of the need to redact any documents attached to the POC.
The biggest of the POC form changes is to emphasize the duty of accuracy imposed on a party filing a POC. The signature box on the POC form has been amended to include a certification that the information submitted on the form meets the requirements of Bankruptcy Rule 9011(b), which requires that the claim be "true and correct to the best of the signer's knowledge, information and reasonable belief."
This requirement is one of the obvious fallouts from recent allegations that creditors were signing off on documents without taking steps to verify the accuracy of the facts asserted. Thus, the signer of the POC will have to declare, under penalty of perjury, that the information provided is true and correct to the best of the signer's knowledge, information and reasonable belief. The impact is that all POCs will require a person to review the information for accuracy and sign off on that assertion of accuracy.
A second major change is in the sanction language in Rule 3001. It removes the requirement that a claim be effectively disallowed as a sanction for failure to provide documentation of the claim. The sanction to disallow the claim still remains an option under judicial discretion, but the court will now also have authority to allow the creditor to prove up the claim. Specifically, the sanction provision has been revised to eliminate the phrase referencing that the claim "shall be precluded," replacing it with language that the court "may, after notice and hearing, take either or both" of the named options: disallowance of the claim and/or other appropriate relief, including reasonable expenses and attorney's fees caused by the failure.
A minor change regarding POCs on mortgage loans is in Rule 3002.1, which requires notice of payment changes, fees, expenses and charges to the loan. Additional language has been added to clarify that the rule will apply regardless of whether the ongoing mortgage payments are made directly by the debtor or are disbursed through the Chapter 13 Trustee.
POC specifics
The last change of importance is the withdrawal of the POC requirement of a last account statement sent to the debtor for unsecured open-end or revolving consumer credit agreements. The committee has withdrawn the recommendation that the POC be accompanied by the last account statement sent to the debtor prior to the filing of the bankruptcy petition. In its place, the committee recommended that a statement be filed with the POC that specifies the following:
- if the account was purchased, the name of the company selling the account to the creditor;
- the name of the company that owned the debt on the date of the last transaction on the account;
- the date and detail of the last transaction on the account;
- the date of the last payment on the account; and
- the date of the charge-off of the account.
A lack of lender preparedness to handle the requirements of Rules 3001 and 3002.1 could interfere with the ability of Chapter 13 Trustees to disburse payments. If lenders cannot implement the changes in advance of their effective date, a temporary drought of claims could result, trustees say. The subsequent deluge of claims that follows the temporary drought would then likely cause a severe backlog.
Mortgage lenders that have not already started to implement the IT resources and procedures to support these new requirements could face significant challenges to comply, come December. Is your shop ready for these changes?
Jim Curzan is general counsel for Arlington, Texas-based Ascension Capital Group Bankruptcy Services. He can be reached at (817) 277- 2011, ext. 46412, or jcurzan@ acgbk.com
