Important Changes to Bankruptcy Proof of Claim Rules
Effective December 1, 2011, the new amendments to the Federal Rules of Bankruptcy Procedure (“FRBP”) impose dramatic changes to lenders’ existing proof of claim procedures with failure to comply exposing one to harsh penalties. These new rules are applicable to any case under Chapters 7, 11 or 13.
1. Initial Filing of Proof of Claim
Pursuant to FRBP 3001(c), proofs of claim must be filed on the new Official Form B10 which includes a disclosure of the interest rate at the time of filing and whether it is fixed or adjustable. Although the old form B10 required the attachment of relevant documentation supporting the lender’s claim, the new rule now mandates the inclusion of specific documentation and subjects the lender to possible sanctions for noncompliance.
As to individual debtors, an itemization of the pre-petition interest, fees, expenses and charges assessed against the account must be provided in the proof of claim. This rule applies to all claims, even those not secured by a debtor’s principal residence.
If the lender claims to have a security interest in any property of the debtor, a statement of the amount required to cure the pre-petition default must be given.
If the lender’s claim is secured by an individual debtor’s principal residence, then Official Form B10 (Attachment A) must be attached to a proof of claim. It requires a lender to itemize the pre-petition arrearage and total debt by breaking down the amount of the pre-petition interest, outstanding principal debt, fees, expenses or charges, as well as a statement of the amount necessary to cure a pre-petition default (a total payoff). If the mortgage payment includes any escrow, an escrow statement as of the petition date must now be attached to the proof of claim.
As a practical matter, to comply with Rule 3001, a lender may wish to use Attachment A with ALL proofs of claim that involve an individual debtor and whose claim is secured by ANY of the debtor’s property.
Proofs of claim must be signed under the pains and penalty of perjury that the statements in the claim are “true and correct and to the best of my knowledge, information and reasonable belief.”
2. Notice of Mortgage Payment Change
New FRBP 3002.1(b) requires notice where there is a change in the amount of the monthly mortgage payment of a claim being paid through the Chapter 13 plan. The two most common payment changes on a mortgage are to the interest rate or an escrow adjustment. The mortgage lender must file a Notice of Mortgage Payment Change on Official Form B10 (Supplement 1) and serve that at least 21 days prior to the date the new payment is due. This form must also be mailed to the debtor, debtor’s counsel, and the Chapter 13 trustee.
Note that a post-petition loan modification also requires the filing of a Supplement 1.
3. Notice of Post Petition Mortgage Fees, Expenses, and Charges
New FRBP 3002.1(c)(i) requires that lenders give notice of any post petition fees, expenses, and charges that the mortgage lender intends to charge against the debtor’s account within 180 days of when incurred. Under this new rule, a new form, Notice of Postpetition Mortgage Fees, Expenses, and Charges, Official Form B10 (Supplement 2), must be filed with the mortgage lender’s proof of claim and served upon the debtor, debtor’s counsel, and the Chapter 13 trustee.
4. Final Cure Notice
Under new FRBP 3002.1(f)-(h), within 30 days of the debtor making a final payment under the Chapter 13 plan, the trustee must file and serve a notice stating the debtor has paid in full the amount required to cure the default on the mortgage lender’s claim (the “Final Cure Notice”). The Final Cure Notice must include a statement that advises mortgage lenders of their obligation to file a response within 21 days after the Final Cure Notice. Failure to file the written response within this time period may be fatal to the mortgage lender’s ability to later assert that a pre-petition arrearage was not cured or that the debtor is not current.
Within 21 days of service of the Notice of Final Cure Payment, the lender must file a statement indicating whether it agrees that the pre-petition arrears according to its claim have been paid in full, and whether the debtor is current on all post-petition payments. This statement must itemize the amount needed to cure all post-petition amounts, if any, that the lender contends remain unpaid as of the date of the statement. The statement will be filed as a supplement to the lender’s proof of claim. There is no specific form required to be filed but our office has prepared an appropriate form.
Within 21 days of service of the lender’s notice of the amount needed to become current, the debtor or trustee may file a motion with the court to determine if the default has been cured and/or what amount is needed to bring the account current. The court will hold a hearing to determine whether the debtor has cured the default and paid all required post petition amounts.
5. Sanctions for Noncompliance
If a lender fails to provide the information required by FRBP 3001 and 3002.1, the court, after notice and a hearing, may take either or both of the following actions: (i) preclude the lender from presenting the omitted information, in any form, as evidence in any contested matter or adversary proceeding in the case, unless the court determines that the lender’s failure to comply was substantially justified or is harmless; or (ii) award other appropriate relief, including reasonable attorneys’ fees, caused by the failure to comply. The comments to the new Rule indicate that failure to provide the information does not itself constitute grounds for disallowance of the claim, but if an objection to claim or other litigation is filed regarding the claim, the court may preclude presenting any evidence that was missing from the proof of claim.