The Not So Secret Rules Of Bankruptcy Service

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Today’s post comes from Jay Jump, Washington bankruptcy attorney and expert on service in bankruptcy cases.  When he waxed animated and eloquent on the subject on a list serve we frequent, I roped him into telling us more about service.

When is service required?, was the original question.

A better question to ask might be ‘ What is service?‘.

Answer that and then we can get to when you are actually supposed to serve your bankruptcy documents.

A matter of numbers

The practice of bankruptcy is a forms driven practice.  Everything is reduced to a forms system  because of the sheer number of parties involved in every bankruptcy case.

Most typical litigation cases involve a plaintiff and a defendant, or perhaps multiple plaintiffs and defendants, but still the number of parties is relatively small.

In the bankruptcy world, one bankruptcy case can have anywhere from 30 parties to 5000.  Every creditor your client’s list in a bankruptcy proceeding is a party to the case.

As such, those parties are required to be served, just as any other party to a case would be in the non-bankruptcy forum.

Demands of due process

Whether you are continuing a section 341 meeting, or asking for a plan to be modified, or requesting an extension of credit in a chapter 13, this is an action you are taking in a case that will affect the other parties.

Due process mandates that all of the parties in your case are notified of the action you are taking.

For example, you want to modify your current Chapter 13 plan to reclassify certain civil infraction tickets your client received last year as a ‘Special Unsecured Class’.  I do this quite often so my client’s drivers license does not become suspended.

Because you are going to be giving different treatment to this ‘Special Unsecured Class’ it means you are going to be taking away money from the other unsecured claimants who are not being put into the special class.

Your reclassification of the debt means that other creditors will be adversely affected.  If they were expecting in the original plan to receive ten cents on the dollar and now, because of this reclassification, they are going to receive only four cents on the dollar, they have to be notified so they have the opportunity to object.

Who needs service

You can determine who you need to send notices to by looking at the master mailing matrix (“MML”) for your case.

You were the one who created the MML when you input all of the creditors into the petition schedules and the court takes that MML from your initial upload in the form of a file called ‘creditor.txt’.

The Court then incorporates your list of addresses with the preferred set of addresses that some creditors have requested and your MML is created on the ECF/PACER website.

How is service accomplished

Because of the high volume of servicing required, the folks who make the rules decreed that service can be accomplished by First Class Mail.  Personal Service, such as required in a collection lawsuit, or a divorce action, is not required.

The mailing of a notice via first class mail is sufficient to state that notice was provided.

The duty falls squarely to the debtor or the debtor’s attorney to provide the service of the documents to the MML.  Failure to serve your documents to the MML may result in a minimum of a continued hearing date so that you can get the documents served to a denial of your motion, to sanctions, and in one case, the failure to serve documents resulted in disbarment.

Service in action

The general rule I follow applies a two fold approach.

The first question I ask is whether or not any party to the bankruptcy case is going to be adversely affected by the action I am taking.  Typically, this is ” yes.”

In the example I used above, service would clearly be required because the unsecured class of creditors is going to receive less than what I originally proposed before I reclassified the tickets as a special class.  Service is a necessity.

But, what if I had amended the plan from a 10% distribution to unsecured creditors to a 100% distribution?  This results in a benefit for everyone: service is not necessary because no party is adversely affected.  Who  is going to object to receiving more money.

For the most part, my analysis ends there but, sometimes, I am not sure.

When in doubt

Fortunately, the Fed.R.Bk.Proc. are there to help you out.  For general reference, the service rules are found in Rule 7001, 7004, 9013, 9014(a), 7005, 2002, and 9016.

I review these rules if question number one did not get answered in the affirmative.

If I’m still not sure after reading the rules, then I default to serving the documents.  In the end, it makes the most sense.

It is a relatively inexpensive insurance policy to send out a letter or motion to all of the entities in the case and it makes sure that the Court has jurisdiction over the parties.  In order for courts to have jurisdiction of a party, proper service is necessary.  Mason v. Genisco Tech. Corp, 960 F.2d 849, 851 (9th Cir. 1992).

Misplaced reliance

Bottom line, service of your document is required.

ECF/PACER is not a substitute for service by first class mail unless the party has expressly consented to receiving notices via the ECF system.  The Court does not serve every document for you.

Check with your local Court Clerk to find out which documents they take responsibility for serving and which ones they don’t.

Your argument of “I thought the Clerk did it.” won’t win you any friends in the Court and will probably upset the Clerk.

You are the responsible party in your bankruptcy proceeding.  The duty to serve and make sure the interested parties receive notice falls to you and no one else.

So, the next time you file a motion to amend the plan, make sure you get it in the mail to all of the interested parties.

Now go be an awesome attorney.

jay jumpJay S. Jump is a practicing attorney in the Western District of Washington and the owner of www.certificateofservice.com, a company dedicated to mailing bankruptcy notices for Debtor Attorneys, Panel Trustees, and Chapter 13 Trustees.

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