Creditors Take Note: New Bankruptcy Forms Become Effective December 1, 2015

Effective December 1, 2015, most existing Official Bankruptcy Forms will be replaced with new forms. This article provides an overview of the new forms that are likely to be used by creditors, including the new (a) Proof of Claim Form, (b) Mortgage Proof of Claim Attachment, (c) Mortgage Payment Change form, (d) Notice of Postpetition Mortgage Fees, Expenses, and Charges form, (e) new forms to use to communicate with Chapter 13 Trustees regarding final default-cure payments, and (f) new forms for reaffirmation agreements. Links to certain new forms are provided below, and all of the new forms, as well as instructions, can be obtained here.

Creditors should use the new forms in all bankruptcy cases filed on or after December 1, 2015. They should also use the new forms in cases filed before December 1 if to do so is “just and practicable” - in the words of U.S. Bankruptcy Court for the Eastern District of Virginia - which should be interpreted to mean “if it at all possible.” Creditors should also be aware that documents they receive in the future from the debtor or the bankruptcy court might look substantially different than documents they have received in the past. For example, the new notice of the filing of the bankruptcy case, which contains important deadlines such as the proof of claim filing deadline, looks quite different than the existing notice.

For creditors, the most notable new forms are the Proof of Claim and Mortgage Proof of Claim Attachment forms, each of which is a substantial change from the existing form. These new forms, which are Official Forms 410 and 410A, are linked here and here, respectively.

The New Proof of Claim Form

The new Proof of Claim form has been reorganized and reformatted to try to elicit more complete and accurate information from creditors. For example, the form’s parts have a new sequence, and the form now presents a series of questions - e.g., “Is all or part of the claim secured?” - instead of simple phrases - e.g., “Secured Claim.” Note that the creditor has to write the bankruptcy case name and number, and the name of the bankruptcy court, in a small box at the very top of the first page, above the “Proof of Claim” caption and “Part 1” of the form. That location, outside of the main body of the form, seems counterintuitive, and creditors should be careful to not overlook it, as failure to include the case name and number could result in the claim not being timely filed.

In terms of substantive changes, the new Proof of Claim form contains a question - “Is this claim based on a lease?” - that has no equivalent in the existing form. It also asks if the claim is “subject to a right of setoff,” whereas the existing form mentions setoff rights only in small print in the secured-claim section. The setoff question is ambiguous and might have been better phrased as “[d]o you claim a right of setoff against property of the debtor?” The new form is also more direct than the existing form in instructing the creditor to “[a]ttach statement itemizing interest, fees, expenses, or other charges required by Bankruptcy Rule 3001(c)(2)(A).”

Overall, the new Proof of Claim form reflects the need of the bankruptcy courts, trustees, and debtors’ counsel for a clear and complete picture of what the debtor owes and how much must be paid to cure a pre-bankruptcy arrearage. Difficulty in getting a clear picture, particularly in the context of mortgage loans, has been perceived as a problem over the years. In 2011, new bankruptcy rules came into effect that are aimed at alleviating the problem by requiring more detail from creditors and exposing creditors to potential sanctions if they failed to provide it. The new forms are another step in the direction of greater clarity, and creditors are well advised to closely follow the claim form and accompanying instructions.

With that said, it is a surprise that neither the new form nor the instructions alert the creditor to the fact that under Bankruptcy Rule 3001(c)(3), if the claim is based on an open-end or revolving consumer credit agreement (other than a claim secured by the debtor’s real property), then the proof of claim needs to include a statement detailing “(1) the name of the entity from whom the creditor purchased the account, if any; (2) the name of the entity to whom the debt was owed at the time of an account holder’s last transaction on the account; (3) the date of an account holder’s last transaction; (4) the date of the last payment on the account; and (5) the date on which the account was charged to profit and loss.”

Finally, as always, a creditor should attach an Addendum to its proof of claim that provides any necessary details and reservations of rights that can’t be adequately set forth in the form.

The New Mortgage Proof of Claim Attachment Form

The new Mortgage Proof of Claim Attachment form, which must be attached to any Proof of Claim based on a claim secured by property that is the debtor’s principal residence, is very different from the existing form. Most notably, the new form requires the creditor to provide a loan history from the date of the first default that is still outstanding on the date the bankruptcy case is filed (i.e., defaults that were brought current before the bankruptcy filing are not relevant). The loan history should reveal “when payments were received, how they were applied, when fees and charges were incurred, and when escrow charges were satisfied,” in the words of the Rules Committee that is responsible for the new forms. The loan history is to be provided in the format of Part 5 of the new form. The Rules Committee asserts that completion of Part 5 can be automated, though one wonders whether that will be practicable for some creditors. The new form is accompanied by a detailed set of instructions that cover each of the parts of the form, and they should be followed closely. Also, as is already the case, if the creditor has established an escrow account in connection with its claim, then it must attach to its proof of claim an escrow statement prepared as of the date of the bankruptcy filing and in a form consistent with applicable nonbankruptcy law.

Relatedly, there is a new Notice of Mortgage Payment Change form and a new Notice of Postpetition Mortgage Fees, Expenses, and Charges form. These new forms, which are Official Forms 410S1 and 410S2, are linked here and here, respectively. The new forms reflect some formatting changes to the existing forms but are not substantively different than the existing forms. These forms should be used by a creditor whose claim is secured by the Chapter 13 debtor’s principal residence to meet the creditor’s obligations under Bankruptcy Rule 3002.1 to notify the debtor of upcoming payment changes and of fees, expenses, and charges that were incurred after the bankruptcy case was filed and are recoverable from the debtor or the principal residence.

Sanctions for Failing to Provide Required Information in Proof of Claim

Bankruptcy Rule 3001(c)(2)(D), under which a bankruptcy court can sanction a creditor for failing to provide required information in its proof of claim, will continue to apply after December 1, and it seems reasonable to expect the courts to impose sanctions more often once the new forms become effective. Under the Rule, the court may “(i) preclude the holder from presenting the omitted information, in any form, as evidence in any contested matter [such as a motion for relief from stay] or adversary proceeding in the case, unless the court determines that the failure was substantially justified or is harmless; or (ii) award other appropriate relief, including reasonable expenses and attorney's fees caused by the failure.”

New Forms To Use in Communicating With Chapter 13 Trustees Regarding Final Cure Payments

There are also two new forms that can be used by the Chapter 13 Trustee and the creditor to meet their obligation under Rule 3002.1 to communicate regarding whether the debtor has cured his default on his principal-residence mortgage. Under that Rule, within 30 days after the debtor completes its Chapter 13 plan payments, the trustee is supposed to send the creditor a notice that the debtor has paid all amounts necessary to cure his default. The creditor then has 21 days to file and serve a response stating whether it agrees that the debtor has cured his default and whether the debtor is otherwise current on all payments. To date there have been no forms to use in facilitating this communication, but there now will be: the “Notice of Final Cure Payment (Form 4100N)” and the “Response to Notice of Final Cure Payment (Form 4100R).” These two forms are linked here and here, respectively. Note that these are not Official Forms, so they do not have to be used, but it seems reasonable to expect that Chapter 13 Trustees will use the former form and that the latter form will be helpful to creditors in meeting their obligation under Rule 3002.1.

New Reaffirmation Agreement Forms

The new Official Forms include a new Reaffirmation Agreement Cover Sheet, Official Form 427, which is linked here. The form has been substantially revised, including to provide for calculation of the debtor’s net monthly income both at the time of the bankruptcy filing and at the time of the reaffirmation agreement. Creditors should be careful to use the new form in connection with any reaffirmation agreement.

The other forms relating to reaffirmation agreements, including the form Reaffirmation Agreement, have received new form numbers. Further, one of them - the “Reaffirmation Documents” form, which includes required disclosures to the debtor - has received a number of revisions. These other forms are not Official Forms. Nonetheless, it is important that creditors be aware of them, as well as the local rules of the applicable bankruptcy court, so that all appropriate forms are used in connection with any reaffirmation agreement. Failure to use the correct forms and follow the local rules could compromise the effectiveness of a reaffirmation agreement.

Conclusion

The new forms will hopefully make completing claims correctly, as well as other bankruptcy tasks, simpler and easier for creditors. Nonetheless, creditors should consult with counsel if they have questions about the new forms.