New Consumer-Friendly Bankruptcy Rules Take Effect

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New Consumer-Friendly Bankruptcy Rules Take Effect

New federal bankruptcy rules may provide some relief if you end up filing a Chapter 13 bankruptcy.  These changes, applied to the Federal Rules of Bankruptcy Procedure, took effect on December 1, 2017, and place new requirements on creditors who wish to protect their interests in a bankruptcy case.

The US District Court of the Eastern District of Pennsylvania has also added new local bankruptcy rules which also went into effect on December 1, 2017.

Federal Rule Change: Proof of Claim Filing Requirements are Shorter

A Chapter 13 bankruptcy creates a payment plan which debtors use to pay creditors. In the past, any creditor whose debts were included in the bankruptcy proceedings could expect to receive payments under the plan if they filed a proof of claim within 90 days. However, the new rules state secured creditors must file a proof of claim within 70 days of the bankruptcy filing (if the claim is secured by a home they have 120 days).

Note a failure to file a proof of claim does not wipe out the creditor’s lien. If, for example, your mortgage provider fails to file a proof of claim they wouldn’t be able to take your house thanks to the bankruptcy’s automatic stay provision, and you won’t have to pay them under the plan thanks to their failure to file a proof of claim. However, you’d still be unable to sell your house until the lien was satisfied.

Under the new rules, your lawyer may also be able to request that the removal of certain liens be included in your Chapter 13 plan, without having to file a separate motion.

Note the purpose of this change isn’t really to keep creditors from receiving payments. It’s meant to help debtors understand what they need to pay off faster so they can get on with the business of satisfying the terms of their Chapter 13 bankruptcy.

Federal Rule Change: Secured Claims May Be Reduced

As a debtor you now have the right to request a “binding valuation of collateral.” If the value of the collateral is less than the amount of the secured claim, you may be able to satisfy your debts for less.

“Up to now, a debtor had to request this relief in a separate motion. This means creditors must now be vigilant because debtors routinely seek to bifurcate a creditor’s claims into secured and unsecured portions. The unsecured portion is then combined with the other unsecured claims in the case, and only a small percentage of the total is repaid.” The National Law Review

This rule change is not very favorable to creditors, but it’s incredibly helpful to debtors who typically enter a bankruptcy proceeding “upside down” on secured debt payments like home and car payments.

Federal Rule Change: It’s Possible to File a Motion Declaring Secured Debts Satisfied

You’ll have your lawyer file this motion at the close of your bankruptcy case, and it may be very helpful to do so. Some creditors are slow to declare a debt satisfied even if they are required to do so under the terms of a Chapter 13 case. This change allows you to receive a court order that will force your creditors to play ball when you’ve met all your obligations.

Local Rule Changes: An Overview

Most of the local rule changes are a bit “deep in the weeds,” touching on things your lawyer will need to worry about. They are primarily aimed at streamlining procedures, mandating the use of district-wide forms, and solidifying rules related to electronic filing. Some rule changes also made it easier for lawyers to identify potential mediators on behalf of their clients.

Still, these rule changes do underscore the need to have a competent legal attorney guide you through the bankruptcy process.

Don’t Try to Tackle Chapter 13 Alone

Bankruptcies aren’t simple. You will need help to navigate yours successfully. Here at the Law Offices of Sadek Bankruptcy Law Offices we offer free consultations, as well as full reviews of your financial situation. We’ll develop a strategy that helps you get your life back on track. Call (215)-545-0008 now to learn more.

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