The New Federal Rules of Bankruptcy Procedure: What You Need to Know

Big news for bankruptcy practitioners: On Dec. 1, 2016, 10 amendments to the Federal Rules of Bankruptcy Procedure and one new rule came into effect. The changes affect nearly all bankruptcy proceedings—even those that were filed prior to Dec. 1st. 

Changes of particular interest to practitioners include imposition of new timelines for electronic service, modifications related to creditors in Chapter 13 cases, and new procedures in international Chapter 15 cases.  Of special note is that the amendments also address issues raised by the controversial U.S. Supreme Court decision in Stern v. Marshall, 564 U.S. 462 (2011).

Here’s a breakdown of the main points that bankruptcy professionals need to know:

Chapter 13: Debtors Get Notice

Chapter 13 is used generally by individuals with regular income to develop a five-year plan to repay all or part of their debts, and, in some cases, to discharge or reduce principal on secured debts. Under the new changes, where the debt is secured by the debtor’s principal residence, Rule 3002.1 now provides that notice of any changes made by the creditor under a contractual installment plan must be given to the debtor, debtor’s counsel, and trustee no later than 21 days before a payment in the new amount is due. For more on this rule, click here

Chapter 15

Chapter 15 governs multinational cases for recognizing foreign judgment and giving them effect in U.S. courts. The new Rules (1010, 1011, 2002 and new Rule 1012) have streamlined procedures. Petitioners wanting foreign judgments to be recognized use a straightforward form for filing under Chapter 15. Parties wishing to challenge such petitions must follow new Rule 1012, which requires objections and other responses to petitions to be made seven days before the hearing date on the petitions, unless the court directs otherwise. Under amended Rule 2002 (q), courts are now generally required to give at least 21 days’ notice of hearings. The court may set a shorter notice period if it consolidates the hearing on the petition with the hearing on a request for provisional relief.  For more on this, click here and refer to page 135, rule 2002(Q)(1).

Electronic Service 

Up to now, when parties were served electronically, they were permitted an additional three days to respond. This is now no longer the case and the usual periods of seven, 14, 21 and 28 days will apply.

New Form for Forms

Certain revised forms apply to bankruptcy cases filed after Dec. 1, 2016.

Specifically, Forms 420A/B - Notice and Motion of Objection (previous form numbers B20A/B) was amended to conform to the numbering scheme of the Forms Modernization Project.

Also, Form 410S2 - Notice of Postpetition Mortgage Fees, Expenses, and Charges was amended to include minor language amendments in the instructions in Part 1.

These changes follow a previous form modernization in 2015 that provided better tailored forms to both individuals and businesses.

Stern v. Marshall Clarified

The changes clear up some of the ambiguities left by the Supreme Court decision in Stern v. Marshall in 2011. The U.S. Supreme Court held that a counterclaim based solely on state law was not a “core proceeding” under federal bankruptcy rules, and that bankruptcy courts lacked constitutional authority to enter final judgment on a defendant’s state-law-based counterclaim. As a result, cases must move to district courts in such circumstances.

One of main stumbling blocks raised by Stern was the requirement that pleaders state whether a claim is “core” or “non-core.” New Rule 7008 dispenses with this. Instead, the party must state only whether it consents to a final order or judgment by the bankruptcy court.  In addition, under Rule 70216, the bankruptcy court is now required to decide whether to hear and determine an adversary proceeding, to hear it and issue proposed findings of fact and conclusions of law, or to take some other action.

Given the complexity of the changes, bankruptcy practitioners are advised to ensure that any pending bankruptcy cases are filed with the appropriate new forms and in accordance with the new rules.

The Bankruptcy Rules amended are: 1010, 1011, 2002, 3002.1, 7008, 7012, 7016, 9006, 9027 and 9033. A new Rule 1012 has been added. Additional details of the changes and new forms can be found on the U.S. Courts website.

Filed under: chapter 11, chapter 13, chapter 15, corporate restructuring

The contents of this article are intended to convey general information only and not to provide legal advice or opinions.

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