March 2009
Patricia Antonelli, Esq.
Lauren F. Verni, Esq.


The United States Bankruptcy Court for the District of Rhode Island has amended its Local Bankruptcy Rules and Forms considerably impacting lenders and servicers filing motions for relief from the automatic stay and impacting their efforts to defend against motions to modify secured claims in Rhode Island. The amendments were effective on December 1, 2008, and they apply to all cases filed on or after that date and all cases pending as of December 1, 2008.

The Bankruptcy Court has also proposed new rules affecting professionals employed by creditors, adding new claims register filing requirements in Chapter 13 cases, along with incorporating motions to modify secured claims into Chapter 13 plans. These new rules will drastically affect lender and servicer rights to recover professional fees, contractual change amounts and any additional outstanding obligations owed to the lender during the pending bankruptcy proceeding. The new rules are effective April 1, 2009.

Amendments to Local Rules Effective December 1, 2008:
The amended local rules modify the automatic stay provided in 11 U.S.C. § 362(a) to permit secured creditors in Chapter 13 cases to send the debtor written correspondence regarding insurance coverage status, taxes and municipal charges. R.I. LBR 4001-1(a). Written correspondence may also be sent to the debtor regarding payment defaults, if the debtor is making direct payments to the creditor. The secured creditor may also send the debtor statements, payment coupons and other correspondence that the creditor typically sends to its non-debtor customers. The secured creditor must copy debtor’s counsel on all correspondence. When a debtor does not indicate an intent to surrender real property on his/her Individual Statement of Intention in a Chapter 7 proceeding or in his/her Chapter 13 plan, the amended Local Rules require the moving party to include as an attachment to its motion for relief, R.I. Bank. Form R, Relief from Stay Worksheet – Real Estate (“Form R”) along with Form R required exhibits discussed below. R.I. LBR 4001-1(b). We anticipate that debtors and creditors will test the sufficiency of Form R, which is summarized below:

Form R "Relief from Stay Worksheet" Must Include:

• Property address, lender name, date of mortgage, post-petition payment address, how the security interest was perfected and all material liens and encumbrances;
• Total pre-petition and post-petition indebtedness due;
• Estimated market value of the property and the source of the estimated valuation;
• Total pre-petition indebtedness with a breakdown of the arrearage;
• Contractual interest rate and if the interest rate is or was adjustable, a list of the rates and dates that the rates were in effect;
• Any additional pre-petition fees, charges or amounts charged to the debtor;
• Date the last payment was received, total number of post-petition payments alleged to be due and a schedule of the dates that the payments were due and the payment amounts;
• A schedule of payments that were received, if any, post-petition;
• All post-petition fees and charges, advances or sums held in suspense; and
• Amount and date of post-petition payments that may have been offered by the debtor but refused.

Required Exhibits Attached to Form R and Motion for Relief:

• Exhibits must indicate the lender’s interest in the property, such as a copy of the promissory note, mortgage and any assignments in the chain of title;
• Copies of documents establishing standing to bring the motion; and
• Exhibits that establish that the lender’s interest in the property is perfected, such as a UCC-1 financing statement.

Certification and Declaration for Business Records for Form R:

• Form R must be signed and notarized by the moving party. Counsel for the moving party cannot sign Form R. The moving party must certify that the information provided in the worksheet and/or exhibits to the worksheet were made at or near the occurrence of the matter set forth by or from information transmitted by a person with knowledge of those matters; were kept in the course of regularly conducted activity; and were made by the regularly conducted activity as a regular practice. The moving party must also certify that the exhibits attached to Form R and the Motion for Relief are true and accurate copies of the original documents and that the original documents are in the possession of the moving party or list the documentary exceptions if the original documents are not in possession of the movant.
  
  

A debtor that proposes to modify a secured claim as part of a Chapter 13 plan is required to file a separate motion to modify with the Court, until such time as the proposed amendments to the Local Rules become effective on April 1, 2009. R.I. LBR 3015-1(c). Until April 1, 2009, the debtor must serve the motion to modify, along with a copy of the proposed plan, by first class mail and certified mail on:

• An officer of the lien holder in accordance with Rule 7004(h) of the Federal Rules of Bankruptcy Procedure, if the lien holder is an insured depository institution; or
• In the event the lien holder is not an insured depository institution:

  • The attorney for the claim holder;
  • The mailing address on the filed proof of claim form; or
  • The payment address to which the debtor makes monthly payments.

  R.I. LBR 3015-1(c)(2)(A)-(B).

The time for a lien holder to respond to a motion to modify secured claim has been increased from ten (10) days to twenty (20) days, but note that under the changes to R.I. LBR 3015(c)(2) effective April 1, 2009, the debtor's intention to modify may be included in the debtor's Chapter 13 plan, instead of by motion.

Proposed Amendment to Local Rules Effective April 1, 2009:
The April 1, 2009 amendments will require the debtor to include his/her intent to modify a secured claim within the Chapter 13 plan or by filing an adversary proceeding. R.I. LBR 3015-1(c). The service requirements, as outlined above, will not change. However, any objections to the Chapter 13 plan must be filed seven (7) days before the confirmation hearing. R.I. LBR 3015-1(c)(2).

Creditors will also be required to file an application for compensation for services rendered or fees incurred by the creditor’s professionals. R.I. LBR 2016-1(d). Professionals are defined as attorneys, accountants, appraisers, auctioneers, or other professional persons. R.I. LBR 2016-1(d). The application must be filed after the debtor’s filing of the petition and before notice of discharge is issued. This rule will not be applicable to the extent that the Court has previously approved a creditor’s fees or expenses pursuant to a court order or conditional order. R.I. LBR 2016-1(d)(2). At least thirty (30) days before a contract change, such as a change in payment amount, interest rate, escrow payment requirement, insurance premiums, payment address or any other matters impacting the amount owed by the debtor under the loan documents, the creditor will be required to file a notice of contract change on the claims register and serve it upon the trustee, the debtor and debtor’s counsel. R.I. LBR 3002-1(c)(1)(A)-(B). In the event a creditor fails to comply with the filing requirements, the Court may disallow the additional amounts owed by the debtor to the extent the amounts were not reflected in the filed notice of contract change, and to the extent they exceed the amount in the creditor’s proof of claim or claim deemed filed under the plan. R.I. LBR 3002-1(c)(1)(C)(i)-(ii). Within thirty (30) days from the debtor’s receipt of the notice of contract change, the debtor must either adjust the post-petition payment amount as provided in the notice of contract change or file a motion objecting to the notice of contract change. R.I. LBR 3002-1(c)(1)(D).

In addition, creditors will be required to file a notice of outstanding obligations on the claims register. R.I. LBR 3002-1(c)(2)(A). Outstanding obligations include, but are not limited to:

• All fees, expenses, or charges incurred in connection with any agreement, such as any amounts that are due or past due related to unpaid escrow or escrow arrearages;
• Insurance premiums;
• Appraisal costs and fees;
• Taxes; and
• Costs associated with property maintenance and other similar items.

The notice must be filed within sixty (60) days after the outstanding obligations are incurred and must be sworn to by the creditor. R.I. LBR 3002-1(c)(2)(A). The debtor can object to the notice within sixty (60) days after it is filed. R.I. LBR 3002-1(c)(2)(C). Creditors will also be required to file an application for compensation from the debtor or the estate for services rendered or expenses incurred by their attorneys, accountants, appraisers, auctioneers or other professionals. R.I. LBR 3002-1(c)(3). An application must be filed before a notice of discharge has been issued.

Click here to view a copy of new Form R "Relief from Stay Worksheet".