The proposed amendments to Bankruptcy Rule 3002.1 and official bankruptcy forms published on June 6, 2023 include changes to existing processes such as payment change notices as well as adding a new method for debtors and trustees to assess the status of a mortgage during the course of Chapter 13 case. The comment period on these proposed amendments opened on August 15, 2023 and closes on February 16, 2024. From a mortgage creditor’s perspective, the proposals present a mixed bag.
The update to 3002.1(b)’s payment change notices was intended to do two things. First, to clearly include a provision to allow HELOC (home equity lines of credit) accounts an option to provide an annual payment change notice including a reconciliation, as opposed to having to provide notice monthly (see 3002.1(b)(2)). HELOC accounts can often have different payment amounts each month though the actual dollar amount of the changes were minimal. This option allows creditors to file an annual notice with reconciliation as long as the payment change is less than $10 in any month. The second update to 3002.1(b) is to define the effect of an untimely notice (see 3002.1(b)(3)). Under the current version of the Rule, there was uncertainty as to when or if an untimely filed payment change notice took effect. The proposal follows the prevailing creditor’s best practice of the untimely payment change being effective on the first payment date due at least 21 days following the filing of the notice (3002.1(b)(3)(A)). This results in untimely payment increases not harming the Debtor, and providing that decreases are effective as soon as possible from the filing.
The Motion to Determine Status (3002.1 (f)) is completely new but is modeled off of some jurisdictions which have a “mid case review” in their Local Rules. It allows either the debtor or the Trustee review the status of the mortgage claim at any time post confirmation. The process entails the use of proscribed Bankruptcy Forms for both the motion and the response. It seeks to validate the payments made to and application of those funds by the mortgage creditor on both the post-petition payments and any pre-petition arrears. The response must be filed within 21 days of the motion being served, and the Bankruptcy Form requires the responsive information be in a format similar to the Proof of Claim mortgage attachment (Form 410C13-M1R). If the response disagrees with the motion, the matter must be set for hearing by the court. The Committee Note accompanying new section (f) state that the motion “should only be used when necessary and appropriate for carrying out the plan”, but the rule itself places no limit on the number of motions that can be filed in any given case. Creditors are concerned about the possibility of abuse of this provision and will likely submit comments suggesting some logical limitation be added.
Finally, the Notice of Final Cure Payment process (currently 3002.1(f), proposed 3002.1(g)) is being revamped. The new title is “Trustee’s End-of-Case Notice of Payments Made.” The updated process provides that the Trustee, within 45 days of completion of plan payments, must file a notice of what the Trustee paid to the claim holder and whether any pre-petition default has been cured. This process now has a prescribed forms (Form 410C13-N & 410C13-NR) which must be used by both the Trustee and by the creditors in response. The response timeline has been extended to 28 days. Upon expiration of the response deadline, the debtor or the Trustee may file a motion to determine whether the defaults have been cured and the post-petition payments have been made (Form 410C13-M2). Again, the creditor must file a response within 21 days (Form 410C13-M2R). The court must then set a hearing to determine the status. The changes to this provision are intended to provide both the debtors and the creditors with an order clearly establishing the status of the account at the end of the case.
The proposed changes to Rule 3002.1 and the accompanying Official Bankruptcy Forms are available for review on the US Court’s website (www.uscourts.gov/rules-policies/proposed-amendments-published-public-comment). I would encourage all bankruptcy practitioners to go to the site, review the proposal, and provide their commentary.
Hilary B. Bonial Director |Bonial & Associates, P.C.