Coming Soon: Bankruptcy Proofs of Claim Must be Filed Sooner and by More Claimants

by Snell & Wilmer
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Bankruptcy Rule 3002 is getting an update, which goes into effect on December 1, 2017.[1] Creditors in a Chapter 7 (liquidation), Chapter 12 (family farmer), and Chapter 13 (individual reorganization) bankruptcy need to take heed of this change for two reasons: (1) the rule now requires secured creditors to file proofs of claim; and (2) the time to file a proof of claim has been cut nearly in half.

Under the current version of Rule 3002, only an “unsecured creditor or an equity security holder” is required to file a proof of claim in a Chapter 7, Chapter 12, or Chapter 13 case for that claim to be “allowed.”[2] Whether a claim is “allowed” or not makes a difference for, among other things, determining whether a creditor gets paid.[3]

New Rule 3002 continues to require unsecured creditors and equity security holders to file proofs of claim, but adds secured creditors to the mandatory-filer list. Accordingly, secured creditors will now need to be vigilant in filing a claim if they hope to get paid through the debtor’s bankruptcy. One saving grace in the new rule is that it specifically states that a secured creditor will not lose its lien merely because it failed to file a proof of claim.

In addition to the foregoing, creditors will no longer have until 90 days after the first date set for the Section 341(a) meeting of creditors to file their proofs of claim. As many bankruptcy practitioners know, the meeting of creditors is often set about 30 days after the filing of the bankruptcy case. Unsecured creditors and equity security holders, therefore, currently have roughly 120 days from the filing of the bankruptcy petition to file a proof of claim.

Starting on December 1, 2017, that time period will be shortened considerably. In most cases, the new Rule 3002 will require proofs of claim to be filed within 70 days of the filing of the bankruptcy petition. That is, in effect, cutting the time for filing a claim in half.

Given the shortened time, the logical question from creditors is “what if I do not know about the bankruptcy until after the time period to file a proof of claim has run?” The new rule has provided a mechanism, though not robust, for having the time period to file a proof of claim extended for up to 60 days. That mechanism involves a party wishing to file a proof of claim after the deadline filing a motion and establishing either: (1) there was not sufficient notice to give a creditor reasonable time to file the proof of claim because the debtor did not timely file the list of creditors’ names and addresses; or (2) the notice was insufficient to give reasonable time to file a proof of claim and it was mailed to the creditor at a foreign address.

Creditors, including secured creditors, receiving bankruptcy notices should be aware of these changes and should prepare and file their proofs of claim in Chapter 7, Chapter 12, and Chapter 13 cases accordingly after December 1, 2017.

Notes:

[1] The changes to the Bankruptcy Rules that are set to go into effect on December 1, 2017 are located at: https://www.supremecourt.gov/orders/courtorders/frbk17_d18e.pdf.
[2] Fed. R. Bankr. P. 3002(a). See Fed. R. Bankr. P. 3003 for the rules related to proofs of claim in Chapter 9 and Chapter 11 cases.
[3] See Fed. R. Bankr. P. 3009.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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