By Ryan C. Wood
If you recently filed for bankruptcy protection you may have received a document in the mail entitled request for special notice. This is a creditor requesting that all documents filed in the case be served on them so they know what is going on in the case. You may be surprised to learn that when a bankruptcy case is filed creditors only receive the two page notice of meeting of creditors. Creditors do not receive the actual petition, statements or supporting schedules. If a creditor does nothing further the notice of meeting of creditors will be the ONLY document they receive until the order of discharge or order confirming a plan of reorganization is served on them later on in the case.
Why Is This?
Quite simply just like in many areas of the law parties are required to enforce their rights. If you snooze you lose. Bankruptcy is a very time sensitive process. There are a number of deadlines and some are absolute. If you miss certain deadlines you are done for. Creditors actually have to participate in the bankruptcy case and obtain the petition and supporting documents themselves to know what is going on and enforce their rights. Again, creditors listed in bankruptcy petitions only receive the notice of meeting of creditors in the mail after the filing of the bankruptcy petition. There are applicable statutes of limitations for various causes of action like breach of contract or personal injury claims pursuant to state laws. Creditors are supposed participate in the bankruptcy process and enforce their rights just like they have to under applicable state laws when a claim exists. Again, if you snooze you lose.
For example there are 60 days from the date of the first scheduled meeting of creditors for a creditor or party in interest to file an adversary proceeding to object to a debtors discharge or dischargeability of the underlying debt unless this deadline is extended within the 60 day period. This is a deadline provided in the notice of meeting of creditors and is generally absolute. If you file the adversary proceeding on day 61 the Bankruptcy Code, Federal Rules of Bankruptcy Procedure and case law supports the adversary proceeding should be dismissed as not timely filed.
An extremely disturbing trend is for bankruptcy trustees, judges and the clerk’s office stepping into the shoes of creditors whether knowingly or not. It is open to interpretation as to the responsibilities of trustee’s and various unrelated parties to creditors. This creates rights and obligations that do not actually exist though. Whether certain amended schedules have to be served on creditors is provided for in the Federal Rules of Bankruptcy Procedure and Bankruptcy Local Rules on a jurisdictional basis.
(b) Objecting to a Claim of Exemptions: (1) Except as provided in paragraphs (2) and (3), a party in interest may file an objection to the list of property claimed as exempt within 30 days after the meeting of creditors held under §341(a) is concluded or within 30 days after any amendment to the list or supplemental schedules is filed, whichever is later. The court may, for cause, extend the time for filing objections if, before the time to object expires, a party in interest files a request for an extension.
Exemptions are what protect assets and exclude the assets of a bankruptcy filer from the bankruptcy estate. This is basic statutory interpretation 101. So a party has until 30 days after the meeting of creditors to object to claimed exemptions or from when any amendment to the list or supplemental schedules are filed, and there is no language requiring serving on anyone with an amend Schedule C. This is the plain language of FRBP 4003 and it is unambiguous. If Congress wanted the amended Schedule C to be filed and served the word served would also be included. Depending upon your jurisdiction you may have a local rule that requires service of the amended Schedule C. Here in the Northern District of California there is no such local rule requirement.
In interpreting statutes “[t]he starting point of [the] inquiry is the language of the statute itself.” United States v. Cabaccang, 332 F.3d 622, 625 (9th Cir. 2003) (en banc). In so doing, we use canons of construction. Those canons: help courts determine the meaning of legislation, and in interpreting a statute a court should always turn first to one, cardinal canon before all others. We have stated time and again that courts must presume that a legislature says in a statute what it means and means in a statute what it says there. When the words of a statute are unambiguous, then, this first canon is also the last: “judicial inquiry is complete.”
Unfortunately some chapter 13 trustees object to approval of chapter 13 plans of reorganization and require bankruptcy attorneys to provide and pay for service of amended schedules when the law does not require it. This phantom service requirement is costly and provides rights to creditor the law does not actually provide. The creditor should have filed a simple one page request for special notice that takes minutes and participated in the bankruptcy case and then all documents filed would then be served on them. Sadly bankruptcy attorneys choose to capitulate to the trustee demands for service because it is even more costly to have a contested confirmation hearing to have the court overrule the trustee’s objection to confirmation or approval of the chapter 13 plan. Damned if you do and more damned if you do not even though the words on paper are clear as day. See most jurisdictions have what are called no look fees or flat fees for various circumstances in chapter 13 cases. There is the basic case fee plus add-ons like owning a home or having vehicle loans. There are no add-ons for having to meet requirements that do not exist. If the bankruptcy attorney and client choose to fight and have the objection to confirmation overruled the bankruptcy attorney is just going to spend a bunch of their own time and money which also will result in delay of confirmation or approval of the chapter 13 plan that may have unforeseen consequences. This is a sad dynamic that exists and is getting worse.
Another examples is here in the Northern District of California we have this wonderful Bankruptcy Local Rule, B.L.R. 3015-1 that provides only parties or creditors adversely affected by a plan of reorganization amendment are entitle to service of the amended plan. Well this makes perfect sense. If a party is not adversely affected then what is the problem? Again, chapter 13 trustees ignore the plain language of this Bankruptcy Local Rule and create an obligation to service of an amended plan that does not exist thereby increasing costs in the bankruptcy case.
Another example of this is FRBP 3002.1 or the notice of final cure. While this is actually a great thing because it requires a secured creditor like a mortgage lender to have provide a notice as to whether the bankruptcy filer is current on the loan or mortgage when a chapter 13 case ends it has created problems when there are disagreements over how much is still owed or that anything is owed at all. This issue is created because of the mistaken interpretation of bankruptcy attorneys right to payment for their time. The opinion is that all bankruptcy attorneys fees must be paid through the chapter 13 plan unless ordered by the Court. The opinion that any unpaid bankruptcy attorney fees are discharged unless paid through the plan adds an even more troubling wrinkle to a bankruptcy attorneys duty to properly represent their client. The Notice of Final Cure is filed after completion of the chapter 13 plan, so how would the time spent and fees reasonable earned ever be paid through the chapter 13 plan? This issue actually came up in a case and the case was appealed to the Ninth Circuit Bankruptcy Appellate Panel. The 9th Circuit BAP held that fees the bankruptcy attorney earned for doing their job properly could not be paid given the plan was done and in their opinion had to be paid through the plan. This is even though FRBP 3002.1 provides: (i) Failure to Notify. If the holder of a claim fails to provide any information as required by subdivision (b), (c), or (g) of this rule, the court may, after notice and hearing, take either or both of the following actions: (1) preclude the holder from presenting the omitted information, in any form, as evidence in any contested matter or adversary proceeding in the case, unless the court determines that the failure was substantially justified or is harmless; or (2) award other appropriate relief, including reasonable expenses and attorney’s fees caused by the failure.
Section (i)(2) provides for the award of reasonable attorney’s caused by the failure to provide proper or accurate information in the notice of final cure? Or just reasonable attorney’s fees if the notice is not filed at all? Even if the reasonable attorney’s fees are awarded how are they to be paid when most courts incorrectly believe all bankruptcy attorney’s fees and expenses have to be paid through a plan that will now have been completed……..? More to come on this issue.