New Bankruptcy Rules to Take Effect December 1, 2021

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A few changes to the Federal Rules of Bankruptcy Procedure became effective on December 1, 2021. The most noteworthy change relates to Bankruptcy Rule 9036, which addresses notice and service by electronic transmission.

  • Bankruptcy Rule 2005 – Bankruptcy Rule 2005 generally deals with the apprehension and removal of a debtor to compel attendance at an examination regarding the administration of the bankruptcy estate. Upon motion of a party in interest supported by an affidavit regarding the necessity of the examination and the risk of the debtor’s flight, the court may issue to the marshal or another officer of the court an order to bring the debtor before the court without unnecessary delay. The amendment to Bankruptcy Rule 2005(c) fixes a technical error related to the conditions of release of the debtor. The technical error arose in connection with the repeal and replacement of certain provisions under the Bail Reform Act of 1984, and the new reference to 28 U.S.C. § 3142 now properly tracks the conditions for release and gives the court discretion to consider only the “relevant” provisions of that section.
    • Next Steps – Although this rule is not frequently invoked, clients will benefit from the reminder that a debtor may be compelled to appear at an examination as a potential step in cases where the bankruptcy estate is not administered properly.
  • Bankruptcy Rule 3007 – Bankruptcy Rule 3007 covers the procedure for objecting to claims, and Bankruptcy Rule 3007(a) addresses the timing and manner of service of such objections. The amendment to Bankruptcy Rule 3007(a)(2)(A)(ii) clarifies that the specialized service requirements of Bankruptcy Rule 7004(h) apply only to insured depository institutions as defined in Section 3 of the Federal Deposit Insurance Act. In other words, institutions insured by the Federal Deposit Insurance Corporation are covered by Bankruptcy Rule 7004(h), which generally requires service by certified mail addressed to an officer of the institution, subject to limited exceptions. Institutions not insured by the FDIC, such as credit unions, may be served by first-class mail sent to the person designated for receipt of notice on the proof of claim.
    • Next Steps – Clients that are not insured by the FDIC should amend their policies and procedures as necessary to actively monitor for service of claim objections so that they are received in time to take necessary action to protect their claims.
  • Bankruptcy Rule 7007.1 – Bankruptcy Rule 7007.1 applies in adversary proceedings and generally deals with the requirement that a party file a disclosure listing the party’s parent corporation, if any, and publicly held corporations owning 10% or more of the party’s stock. The rule is used to assist the court in determining whether the assigned judge should be disqualified under Canon 3C(1)(c) of the Code of Conduct of United States Judges. The amendment makes clear that the Bankruptcy Rule 7007.1 applies to non-governmental corporations and also provides for supplementation of the notice when the information required by the rule changes.
    • Next Steps – Corporate clients should be sure to file a Rule 7007.1 disclosure at the beginning of an adversary proceeding as applicable. Clients should also be sure to check the bankruptcy court’s local rules, as some courts expand Rule 7007.1 to require non-corporate entities, such as limited liability companies, to file Rule 7007.1 disclosures.
  • Bankruptcy Rule 9036 – Bankruptcy Rule 9036 addresses notice and service by electronic transmission. When the bankruptcy rules require or permit sending a notice or serving a paper, Bankruptcy Rule 9036 provides for certain documents to be served electronically. The amendments to Bankruptcy Rule 9036 are designed to deal with high-volume paper- notice recipients. The clerk is now allowed to send notice or serve registered users by using CM/ECF (the court’s electronic-filing system) and also may serve any recipient by electronic means if the recipient had consented to such electronic notice in writing, subject to certain exceptions. The amended rule further clarifies that electronic notice or service is complete upon sending and that it is the recipient’s responsibility to keep its electronic address current with the clerk.
    • Next Steps – Clients that are high-volume recipients, such as those that regularly appear as creditors in consumer bankruptcy cases, should amend their policies and procedures as necessary to actively monitor their electronic addresses to ensure they receive notices in time to take any necessary action. Clients should also ensure that the electronic addresses registered with each bankruptcy court are active and correct.

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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