Creditors Beware: Inbound Bankruptcy Rule Changes Require Heightened Awareness

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Spilman Thomas & Battle, PLLC

On December 1, 2017, several important changes to the Federal Rules of Bankruptcy Procedure will be implemented. Those changes will impact creditors who have secured claims, judgment liens, and unsecured claims against bankrupt debtors.   
 
The most significant changes follow:

  • A debtor may now obtain a binding valuation of collateral and reduction of a secured claim by including the request in a Chapter 12 or 13 Plan without the need for a separate motion or notice;
  • A debtor may now remove a judicial lien (or a non-purchase-money lien secured by household goods, tools of the trade, or health aids) by including the request in a Chapter 12 or 13 Plan without the need for a separate motion or notice;
  • A creditor is now entitled to a standard notice of 28 days prior to the hearing on the confirmation of a plan and must now file an objection in all jurisdictions within seven days of that confirmation hearing;
  • A secured creditor must now file a secured claim before it will receive payment on a secured claim under a Plan (note: failure to file a secured claim will not void the lien);
  • A debtor may now object to a claim and obtain an order granting the objection so long as the creditor has been provided sufficient notice of the objection (a hearing need not be set so long as the creditor had the opportunity for a hearing); and
  • A debtor may now file a motion at the close of a Chapter 7, 12 or 13 case to get an order declaring a secured debt to be satisfied.

Together, these changes allow debtors to obtain more expedited relief in these instances and will require creditors to pay specific attention to plans, claim objections, and any motions filed near the conclusion of a case as these pleadings may seek to alter creditors' rights substantially. At minimum, creditors should ensure their (or their counsel's) bankruptcy monitoring practices are robust enough to review these pleadings promptly; otherwise, important deadlines may pass with detrimental results.

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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