Although little time has passed since the Dec. 1, 2011, effective date of the Federal Bankruptcy Rules amendments, creditors and their counsel have already seen significant impact and changes. The rules are clearly in their infancy, and we will likely see many challenges to application over the next 12 months. The new amendments discussed here all require increased disclosure of amounts that creditors allege they are owed and, in many cases, dictate the time, form and manner of disclosure.
Changes to the claims process are both procedural and legal. Amended Rule 3001 requires a significantly higher level of disclosure and detail than the former rule required. Additionally, requirement of the use of the B-10 attachment has resulted in technical challenges. The forms required do not easily accommodate automated completion and, in fact, do not provide some of the basic elements that are historically provided in claims, such as property address, post-petition payment amount and correct account totals.
Creditors that want to continue to have their claims clear and concise need to make manual adjustments, resulting in additional time and effort for completion. The preparation time for a single claim has at least doubled – resulting in significant staffing increases and driving up the cost of servicing bankruptcy accounts. One significant failure in the forms is that completion of the attachment per the form directions will not result in a correct claim total being placed in sections 1 and 4 of the actual B-10 claim form. Again, creditors and their counsel must make manual adjustments so that total debt claims correctly include actual escrow advances, but do not include shortages.
The legal challenges to the new B-10 form appear, at this early stage, to be directed toward the failure of some creditors and/or their counsel to ‘check a box’ in section 8 of the claim form, the inclusion of the post-petition/pre-confirmation attorney fees on the B-10 attachment, and the accurate submission of an escrow statement ‘as of the date of filing.’ The complications surrounding the escrow issue alone have filled many conference rooms for hours on end around the country. There is no common solution, and most mortgage servicers are attempting to implement procedures that will result in the most beneficial solution for borrowers.
In the ‘check box’ dispute, local trustees around the country are requiring that attorneys executing claims identify themselves as agents, leading to the possible argument that they need a power of attorney. However, attorneys do not need a power of attorney to act as attorneys, and Rule 9010(c) indicates that a power of attorney is not necessary for claim filing. It is hoped that this oversight will be addressed when the form is modified at some future date.
As for the inclusion in some districts of the creditors' post-petition/pre-confirmation fees in the claim and on the B-10 attachment form, this is a long-established practice that is being challenged merely because of the new form language. The amended rule itself does not address these particular charges. Additionally, early bankruptcy rule committee notes indicate that nothing in the new forms, which do not have the power of law, is meant to change accepted local practice.
The rule changes have also resulted in a plethora of proposed local rules that attempt to complement the federal rules and ‘fill in the gaps’ that normally result when a national rule is applied locally. It will be the challenge of local rulemakers and practitioners to ensure that the integrity of the federal rules is not compromised, which would otherwise result once again in inconsistency of practice around the country.
Rule 3002.1 requires that creditors use B-10 Supplement 2 to disclose all fees, costs and charges (non-escrow) that the creditor has incurred within the last 180 days. While this seems like a rather good requirement, technical compliance is again proving challenging. Does a creditor disclose charges it has already recovered (e.g., late charges assessed on a direct pay account)? Does the creditor disclose charges already agreed to in a stipulation (e.g., attorney fees for a motion)? Does the filing of the Supplement 2 result in actual payment by a party (e.g., trustee or debtor)? These are all questions that have no clear answers at this time; thus, the most conservative option should generally be elected.
New Rule 3002.1(f), the Notice of Final Cure Payment rule, provides another new predicament for creditors. Although most presumed that the trustees would not send the notice after the mortgage creditor obtained relief from stay, as clearly the loan was not current, that does not always appear to be the case. Creditors have reported receiving the notices when the loan has been released from bankruptcy post-stay termination.
While the logical response is that the rule simply cannot apply to accounts released from bankruptcy, ignoring notices received in bankruptcy generally proves to be an expensive mistake. Until there are local rules or court decisions confirming the inapplicability where the stay has been terminated, notices of final cure payment should not be ignored. An ounce of prevention in the form of a response can prevent a court ruling from deeming a loan current by default.
Since Dec. 1, 2011, creditors and their counsel have already felt the effects of the amendments to Rule 3001 and the addition of Rule 3002, and it appears this is just the beginning. While certain realities have quickly become apparent – e.g., the additional staffing required as a result of incomplete forms and more in-depth disclosures – it remains unclear how other initial issues and ambiguities will be addressed. Needless to say, this will be a pertinent topic that the industry will observe and examine closely throughout the remainder of 2012.
Marcy Ford serves as partner and executive committee chairwoman of Farmington Hills, Mich.-based Trott & Trott PC. She can be reached at firstname.lastname@example.org.