Client Alerts
November 15, 2017

New Amendments to Bankruptcy Rules Could Have a Major Effect on the Rights of Secured Creditors

Stites & Harbison Client Alert, November 15, 2017

by Stites & Harbison, PLLC

On April 27, 2017, the Supreme Court adopted and submitted to Congress various amendments to the Federal Rules of Bankruptcy Procedure. The rules become effective December 1, 2017. Some of the most significant changes affect filing requirements for proofs of claim of secured creditors under Bankruptcy Rule 3002. These amendments greatly impact the rights of secured creditors in Chapter 7, 12, and 13 bankruptcy cases.

1. Amended Rule 3002 will require a secured creditor to file a Proof of Claim.

The current Rule 3002 expressly applies only to unsecured creditors. The Amended Rule 3002 applies to both secured and unsecured creditors. Under the revised rule, if a secured claim is not timely filed, the entire claim is disallowed. The Committee, in its official comments, has stated that the amended rule also clarifies that the failure of a secured creditor to file a proof of claim does not render the secured creditor’s lien void.

The implications of this rule for secured creditors caught unaware are enormous, as the failure to timely file a proof claim would bar a secured creditor from receiving a distribution under a confirmed bankruptcy plan.

2. Amended Rule 3002 will require Proofs of Claim to be filed no later than 70 days after the bankruptcy filing date.

Under the current Bankruptcy Rule 3002, unsecured creditors are required to file a proof of claim no later than 90 days after the Section 341 meeting of the creditors. The Amended Rule 3002 (which applies to both secured and unsecured creditors) reduces the bar date from 90 days after the initial meeting of the creditors to 70 days after the bankruptcy filing date. While the deadline is shorter, this amended rule does offer consistency and certainty to a creditor, especially since the date of the meeting of the creditors varies on a case-by-case basis.

3. Amended Rule 3012(a) will allow the amount of a secured claim to be set by a Debtor’s claim objection or plan.

Under the Amended Rule 3012(a), on request of a party and after notice and hearing, the Court may determine the amount of a secured claim under 506(a) of the Bankruptcy Code. A request to value a claim of a non-governmental creditor may be made in the plan, by motion, or by an objection to a claim.

Amended Rule 3015(g) provides that any determination made in the plan under Rule 3012 about the amount of a secured claim is “binding on the holder of the claim even if the holder files a contrary proof of claim or the debtor schedules that claim, and regardless of whether an objection to the claim has been filed.”

4. Amended Rule 5009(d) will allow the Debtor to file a motion to deem a secured claim satisfied once the amount determined in a Rule 3012(a) motion is paid.

Under the Amended Rule 5009(d), if a secured claim is subject to a lien, a debtor may request entry of an order declaring that the secured claim has been satisfied and the lien has been released under the terms of a confirmed plan. The request must be made by motion and served per Rule 7004 as if serving a summons and complaint in an adversary proceeding. The Committee notes that this rule was amended in part because the Debtor often needs such documentation for title purposes. The Committee further notes that although such orders are likely to be made at the time the case is being closed, the rule does not prohibit a request at another time if the lien has been released and any other requirements for entry of the order have been met.

5. Conclusion.

The amendments may have a significant impact on the rights of secured creditors. Rule 3002(a) expressly requires a secured creditor to file a proof of claim for its claims to be allowed and to receive distributions in a Chapter 7, 12, or 13 bankruptcy proceeding. The changes to Rule 3002(c) will require creditors to file proofs of claim subject to a much shorter deadline. Such rule changes will force secured creditors to assess their proof of claim filing practices in order to comply with the new requirements or risk being caught unaware with a disallowed claim.