Thursday, Oct. 21, 1999
Amendments to the Bankruptcy Rules to Become Effective Dec. 1
By WESLEY H. AVERY
The author, an attorney at Sulmeyer, Kupetz, Baumann, & Rothman, is a certified specialist in both personal and business bankruptcy law.
Last April 26th, the U.S. Supreme Court issued amendments to the Federal Rules of Bankruptcy Procedure and ordered that they be transmitted to Congress. The period for Congressional review lasts until December 1. If Congress makes no change to the amendments during the review period, the amendments are to become effective as of then.
The most significant changes will be new rules designed to give litigants more time to obtain a stay of certain adverse court rulings pending appeal, and new rules that simplify the notice required on some routine motions. Other proposed amendments clarify the meaning of existing rules, or make stylistic changes. A summary of the proposed amendments to the rules follows.
Rule 1017 applies to the dismissal, conversion or suspension of bankruptcy cases. Rule 1017 will be amended to greatly reduce the number of parties entitled to notice of a United States Trustee's motion to dismiss a voluntary chapter 7 or chapter 13 case based on a failure to file a list of creditors, schedules, and statement of financial affairs. This amendment, and the requisite proposed amendments to Rule 2002(a)(4) and 2002(f)(2), will have the effect of avoiding the expense of sending notice of the motion to all creditors in a chapter 7 case. (Notice to be given to creditors after the case is actually dismissed remains unchanged.) Rule 1017 will also be amended to clarify that a motion to abstain under Bankruptcy Code Section 305, or to dismiss a case for substantial abuse under Bankruptcy Code Section 707(b), is a contested matter governed by Rule 9014.
Rule 1019 describes the procedure to be followed when cases are converted from chapter 11, 12 or 13 to chapter 7. This rule will be amended to require holders of post-petition, pre-conversion administrative expense claims to timely file a request for payment under Bankruptcy Code Section 503(a), rather than a proof of claim under Bankruptcy Code Section 501. Rule 1019 will also be amended to provide, in cases where there is the possibility of a dividend, that the court shall fix a deadline for filing pre-conversion administrative expense claims. Finally, Rule 1019 will be changed to conform to the 1994 amendments, such that governmental units may file a proof of claim either 180 days from the date of conversion or the date fixed by the court, whichever is later.
Rule 2003 addresses the mechanics by which a meeting of creditors is held under Bankruptcy Code Section 341(a). Rule 2003(d) will be amended to require the U.S. Trustee to mail a copy of the report of a disputed election of a chapter 7 trustee on the date it is filed with the court to any party in interest requesting a copy. In addition, subparagraph (d) will now give a party in interest 10 days from the filing of the report, rather than from the date of the meeting of creditors under Section 341(a), in which to initiate a contested matter to resolve the dispute. These amendments are designed to conform elections of chapter 7 trustees to the 1997 amendments to Rule 2007.1(b)(3) regarding the election of a trustee in a chapter 11 case.
Rules 3020 and 3021 deal with plans of reorganization. Rule 3020(e) will be added, and Rule 3021 will be changed, to automatically stay for ten days an order confirming a chapter 9 or chapter 11 plan unless the court orders otherwise. The purpose of these changes is to allow plan opponents time to request a stay of consummation of the plan pending appeal.
Under existing Ninth Circuit case law, an order for relief from the automatic stay is "effective and binding upon the parties" when announced in court, not when it is entered, as Fed. R.Civ. P. 58 has been held to be inapplicable. Noli v. Commissioner of Internal Revenue, 860 F.2d 1521, 1525 (9th Cir. 1988). New Rule 4001(a)(3) would supercede this holding in Noli. Under this amendment, an order granting relief from the automatic stay will be stayed for ten days after its entry unless the court orders otherwise. During that 10 day period, the movant may not foreclose on collateral or take other steps that would violate Bankruptcy Code Section 362(a).
Rules 4004 and 4007 set deadlines for the filing of certain adversary proceedings. Rule 4004(a) will be amended to clarify that the deadline for filing a complaint objecting to a discharge under Bankruptcy Code Section 727(a) is 60 days after the first date set for the meeting of creditors, whether or not the meeting is held on that date. Likewise, Rule 4007 will be amended to clarify that the deadline for filing a complaint to determine dischargeability of debt under Bankruptcy Code Section 523(c) is 60 days after the first date set for the meeting of creditors, irrespective of whether a meeting is actually held on that date.
Rule 6004 deals with the use, sale or lease of a debtor's property. Unless the court orders otherwise, new Rule 6004(g) will automatically stay for 10 days an order authorizing the use, sale, or lease of property, other than cash collateral, so that respondents will have time to request a stay pending appeal.
Rule 6006 relates to executory contracts and unexpired leases. New Rule 6006(d) will automatically stay for ten days an order authorizing the assignment of an executory contract or unexpired lease under Bankruptcy Code Section 365(f) unless the court orders otherwise. Again, this amendment is presumably to aid appellants who might otherwise have their appeals dismissed on the basis of mootness.
Rule 7001 defines under what circumstances the initiation of an adversary proceeding is necessary. Rule 7001 will be amended to recognize that an adversary proceeding is not necessary to obtain injunctive or other equitable relief, or to obtain the subordination of a claim or interest, when such remedies are provided for in a plan of reorganization confirmed under chapter 9, 11, 12 or 13.
Rule 7004 deals with the special rules of the Bankruptcy Court for service of process. Subparagraph (e) will be amended to provide that the ten-day time limit for service of a summons does not apply if the summons were served in a foreign country.
Finally, Rule 7062 addresses the stay of proceedings to enforce a judgment. It will be amended to state that this rule shall apply only to adversary proceedings, and not to contested matters, unless the court orders otherwise.