Cite as: Keith M. Lundin, Lundin On Chapter 13, § 4.3, at ¶ ____, LundinOnChapter13.com (last visited __________).
Giving and getting notice are the juice that drives the bankruptcy system. With one notable exception,1 prior to 2005, responsibility for giving notice, the content of notice and the manner of giving notice were controlled by the Federal Rules of Bankruptcy Procedure2 or by local bankruptcy rules and orders in individual cases. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA)3 intruded on what had been the province of the Judicial Conference of the United States. BAPCPA amended § 342 of the Bankruptcy Code to inartfully and incompletely define to whom and how notice must be given in bankruptcy cases.
At first reading of § 342 as amended by BAPCPA, it looked like Congress had defined notice for many important bankruptcy purposes in cases filed on or after October 17, 2005. It looked to many of us that § 342 would become one of the most important provisions of BAPCPA. How wrong we were.
With the hindsight of nearly a decade, you can count the reported § 342 decisions on one hand. Perhaps § 342 is having invisible effects on notice in bankruptcy cases—the potential is there. Bankruptcy practitioners need to know what § 342 says if for no other reason to be ready to make some new law when notice is an issue. There are huge unresolved problems with notice in consumer bankruptcy cases that could be reduced or eliminated if there was will to make robust use of § 342. Maybe § 342 will realize its potential in the next decade.
Section 342 contains three potentially important notice rules that did not exist before BAPCPA. If the details in § 342 are not respected, the consequence may be that notice is “not effective.”4 One of the new provisions contemplates a nationwide noticing system that does not now exist but would be embraced with love by many in the bankruptcy community.
Notice is basic to just about everything that happens in a bankruptcy case. From the notice of the commencement of the case through the notice of the meeting of creditors, notice of the deadline for objecting to discharge or dischargeability, notice of the content of a plan, notice of motions for everything from relief from the stay to redemption of personal property—notice is everywhere in bankruptcy cases. In many bankruptcy courts, notice is often a “negative” concept: if notice of some action is adequate and an affected party does not respond within a specified period, the relief requested is granted and preclusive.
Especially in consumer bankruptcy cases, notice typically starts with the names and addresses gathered by the debtor and delivered to the debtor’s counsel.5 Debtors find those addresses in the monthly statements, coupon books and other papers received from creditors. The addresses assembled by the debtor—enhanced by whatever the attorney does in the way of verification or further information gathering—go on the list,6 schedules7 and matrix8 filed with the bankruptcy petition. Those addresses are then used by the court, the trustee, creditors and the Bankruptcy Noticing Center (BNC) in Reston, Virginia, whenever notice is required in a bankruptcy case.
Sometimes creditors or creditors’ attorneys file papers to change or add an address within a bankruptcy case. Typically, the clerk of the bankruptcy court (or in some districts, the Chapter 13 trustee in Chapter 13 cases) maintains a matrix or list that is updated to reflect appearances and changes of address. Within the Electronic Case Filing system (ECF), there is a module that maintains the names and addresses of creditors and other parties in interest that can be amended or added to on-line.9 In complex cases, a court order may designate an agent to maintain the notice list(s) for that case.
Section 342, as amended by BAPCPA, displaces all existing notice rules in several key respects and limits the discretion of the rule makers with respect to future notice rules.
The changes begin in § 342(c)(1). The requirement of former law that the taxpayer identification number of the debtor be included on any notice “by the debtor to a creditor” was truncated to the last four digits only. This name, address and partial I.D. number requirement applies to notices by the debtor required by the Code, by any rule, by other law or by a court order. The enigmatic closing phrase added to § 342(c) in 1994—that “the failure of such notice to contain such information shall not invalidate the legal effect of such notice”—was eliminated by BAPCPA. Section 342(c)(1) is mandatory: any notice by the debtor to a creditor in any bankruptcy case must contain the name, address and last four digits of the debtor’s taxpayer identification number.
Section 342(c)(2)(A) is where the fun begins:
If, within the 90 days before the commencement of a voluntary case, a creditor supplies the debtor in at least 2 communications sent to the debtor with the current account number of the debtor and the address at which such creditor requests to receive correspondence, then any notice required by this title to be sent by the debtor to such creditor shall be sent to such address and shall include such account number.10
Without limitation as to chapter, in all voluntary bankruptcy cases, any notice “required by this title to be sent by the debtor” shall be sent to the address at which such creditor “requests to receive correspondence” if within 90 days before the petition, the creditor “supplies” the debtor that correspondence address in at least “2 communications” that contain the “current account number” of the debtor. There are a lot of hoops and trip wires here.
“Communications” is not defined. A letter or billing statement is a good candidate for a communication, but what about a telephone conversation? A phone call (sent?) to the debtor would not satisfy the “communication” requirement unless the conversation included the “current account number” of the debtor and the “correspondence address” for the creditor—not the usual stuff of a phone call.
Is a “correspondence” address the same as an address for “billing inquiries” typically identified on monthly statements from many creditors? What is the “current” account number that triggers § 342(c)(2)(A) notice if there are several accounts with different numbers or when the scheduled debt has an account number different from one or more of the communications? Does the current account number change when the account is purchased or assigned for collection and given a new number?
What notices are “required” by Title 11 “to be sent by the debtor”? Many notices are sent by the bankruptcy court clerk or by the BNC. In Chapter 13 cases, many notices are sent by the Chapter 13 trustee. Determining who is “required” to send a bankruptcy notice typically means looking to the Bankruptcy Rules, to local rules, or to a court order, not to Title 11.
Notices required by Title 11 to be sent by the debtor are not an easily assembled list. A quick search of Title 11 reveals only one provision of the former Code—§ 524(c)(4), notice by the debtor to a creditor of rescission of a reaffirmation agreement—and two new provisions added by BAPCPA—§ 365(p)(2), notice by a Chapter 7 debtor of desire to assume a lease, and § 1121(e)(3)(A), notice by the debtor in a small business Chapter 11 case. The name, address and truncated taxpayer I.D. requirements in § 342(c)(1) specifically apply more broadly to notices by the debtor required by “any rule, any applicable law, or any order of the court.” No similar provision appears in § 342(c)(2)(A). Either the new requirement for notice by the debtor to the correspondence address supplied by a creditor in two communications within 90 days of the petition is narrowly tailored to the three statutory provisions cited above or § 342(c)(2)(A) was intended to do something different from what it says.
Section 342(c)(2)(B) expands the new requirement of notice to the correspondence address in § 342(c)(2)(A) but in a curious way. If a creditor “would be in violation of applicable nonbankruptcy law by sending any such communication within such 90 day period,” then the correspondence address requirement applies if the creditor “supplies the debtor in the last 2 communications with the current account number of the debtor and the address at which such creditor requests to receive correspondence.”11 The phrase “the last 2 communications” that contain the current account number and the correspondence address could reach back indefinitely before the petition when communication by the creditor within 90 days of bankruptcy would be in violation of nonbankruptcy law.
It is not clear what nonbankruptcy law § 342(c)(2)(B) contemplates that would be violated by a communication to the debtor within the 90-day period before bankruptcy. Of course, there are nonbankruptcy laws that regulate the timing and frequency of communications from creditors—including the Fair Debt Collections Practices Act,12 and other state and federal laws regulating collection activity. If the limitations of nonbankruptcy law on the sending of communications by creditors are broadly interpreted, then the last two communications test in § 342(c)(2)(B) will displace the two communications within 90 days of the petition in § 342(c)(2)(A) in many cases. Section 342(c)(2)(B) continues the (odd) condition that notice to the correspondence address is required only when Title 11 requires notice to be sent by the debtor.
Perhaps in dicta, one of the few Chapter 13 cases to discuss § 342 as amended by BAPCPA could be read to say that § 342(c)(2)(A) broadly mandates use of the correspondence address by the debtor when there have been two communications within 90 days of the petition:
The Code and Rules are silent with respect to which address for the creditor must be provided by the debtor, unless the creditor has contacted the debtor within the 90 days before filing. In that situation, and if there have been two contacts and those contacts have contained an address to which the creditor wants to have correspondence sent, the debtor must use that address. 11 U.S.C. § 342(c)(2)(A).13
“Hanging” sentences and paragraphs were a baffling feature of BAPCPA.14 There may be a hanging sentence at the end of § 342(c)(1) or at the end of § 342(c)(2), depending on how you read BAPCPA. Placement matters in this situation.
Section 234(b) of BAPCPA15 recites that “Section 342(c) of title 11 . . . is amended . . . by adding at the end the following:”
If the notice concerns an amendment that adds a creditor to the schedules of assets and liabilities, the debtor shall include the full taxpayer identification number in the notice sent to that creditor, but the debtor shall include only the last 4 digits of the taxpayer identification number in the copy of the notice filed with the court.16
Later in BAPCPA—at § 315—Congress again amended § 342 “in subsection (c)” by relettering to add a subsection (1) after (c) and then “by adding at the end the following:”—new subsections (2)(a) and (b). There is no cross-reference in § 315 of BAPCPA to § 234(b) of BAPCPA. The two amendments can be read different ways. The “hanging” sentence quoted above either hangs at the end of § 342(c)(1) or hangs at the end of § 342(c)(2), depending on how the instructions in §§ 234(b) and 315 are executed.
Current versions of the Bankruptcy Code put the quoted hanging sentence at the end of § 342(c)(1). Some earlier versions—including the “redline” versions of the Code produced soon after the passage of BAPCPA—put the hanging sentence at the end of § 342(c)(2).
Here’s why you might care. Depending on where you hang the hanging sentence, it is more or less clear whether “the notice” in the hanging sentence refers back to § 342(c)(1), to § 342(c)(2), to both or generically to any notice that concerns an amendment that adds a creditor. The answer to this question determines whether the full taxpayer I.D. requirement applies to notice by the debtor required by Title 11 (only) under the correspondence address provisions of § 342(c)(2) or whether the broader § 342(c)(1) notice required by Title 11, any rule, applicable law or court order must include the full taxpayer I.D. when notice concerns an amendment that adds a creditor. This difference could render notice to an added creditor ineffective under § 342(g) (discussed below) when it contains the wrong number of taxpayer I.D. digits.
If the hanging sentence refers to notice under § 342(c)(1), then the full taxpayer identification number (not just the last four digits) must be included in a notice that concerns an amendment that adds a creditor when that notice is required to be given by the debtor, by Title 11, by any rule, by other law or by order of the court. If so interpreted, the full I.D. number requirement in the hanging sentence is not limited to the three statutory provisions to which the correspondence address requirement in § 342(c)(2)(A) and (B) applies.
Section 342(e) is where things get stickier:
(1) In a case under Chapter 7 or 13 of this title of a debtor who is an individual, a creditor at any time may both file with the court and serve on the debtor a notice of address to be used to provide notice in such case to such creditor.
(2) Any notice in such case required to be provided to such creditor by the debtor or the court later than 7 days after the court and the debtor receive such creditor’s notice of address, shall be provided to such address.17
The first thing to notice about § 342(e)(1) is that it only applies in Chapter 7 and Chapter 13 cases for individual debtors—unlike subsections (c)(1) and (2) above. Surely no negative implication was intended with respect to notices to creditors in other chapters?
Under (e)(1), if a creditor files with the court and serves on the debtor a notice of address, then any notice required to be provided “in such case” to that creditor “by the debtor or the court” shall be provided to the address requested beginning not later than seven days after (both) the court and the debtor receive the creditor’s notice. This provision is specific to a particular case under Chapter 7 or Chapter 13 in a particular bankruptcy court.
The repetitive use of the conjunctive “court and . . . debtor” signals that the creditor’s notice must be both filed and served on the debtor and then both the debtor and the court must use the address requested by the creditor. Curiously, new § 342(e) does not require creditors, the trustee or the U.S. trustee to use an address requested by a creditor. The seven-day delay seems manageable, but the date of receipt by the debtor and by the court of a creditor’s notice of address could become an evidentiary issue with respect to the effectiveness of notices.18
Unlike § 342(c)(1) and (2), § 342(e) is not limited to notices required by Title 11 or by other statutes or rules. It applies to “any notice” to such creditor in the Chapter 7 or Chapter 13 case so long as the notice is required to be provided by the debtor or the court.
Section 342(e) may conflict with § 342(c) in any Chapter 7 or Chapter 13 case in which the two communications described in § 342(c)(2) were supplied to the debtor with a correspondence address that is different from the notice of address filed under § 342(e)(1). Is § 342(e) the more specific provision only with respect to notice to creditors in Chapter 7 or Chapter 13 cases? Is it possible that § 342(c)(2) would require the debtor to give notice to a creditor at the correspondence address when § 342(e) would require the court to give notice to a creditor at a different address? If the notice requirement is contained in a rule, would § 342(e) control, but if the notice requirement is in Title 11, § 342(c)(2) would become the more specific provision? Unlike § 342(f)(2), below, § 342(e) does not contain instructions for resolving conflicts with other parts of new § 342. Because the correspondence address discussed in § 342(c)(2) is likely to be different from the notice of address provided by a creditor in a specific Chapter 7 or Chapter 13 case under § 342(e), reconciling the differences in these two subsections will not be just an academic exercise.
If you are not having fun yet, read § 342(f):
(1) An entity may file with any bankruptcy court a notice of address to be used by all the bankruptcy courts or by particular bankruptcy courts, as so specified by such entity at the time such notice is filed, to provide notice to such entity in all cases under chapters 7 and 13 pending in the courts with respect to which such notice is filed, in which such entity is a creditor.
(2) In any case filed under Chapter 7 or 13, any notice required to be provided by a court with respect to which a notice is filed under paragraph (1), to such entity later than 30 days after the filing of such notice under paragraph (1) shall be provided to such address unless with respect to a particular case a different address is specified in a notice filed and served in accordance with subsection (e).
(3) A notice filed under paragraph (1) may be withdrawn by such entity.19
There is a temptation to ask who was smoking what when this new section was rolled into BAPCPA. The legislative history is revealing for the stealth with which this fantastically broad notice provision crept into the law. Section 342(f) does not appear in any version of bankruptcy reform between 1997 and 2002. Section 342(f) pops into the new law out of the secrecy that surrounded the Conference Report in the summer of 2002.20 Here is what the House Report to BAPCPA has to say about § 342(f):
In addition, section 315(a) specifies that an entity may file a notice with the court stating an address to be used generally by all bankruptcy courts for Chapter 7 and 13 cases, or by particular bankruptcy courts, as specified by such entity. This address must be used by the court to supply notice in such cases within 30 days following the filing of such notice where the entity is a creditor.21
Any entity may file with any bankruptcy court a notice of address that then must be used by all bankruptcy courts or by particular bankruptcy courts—as specified in the notice of address—to provide notice in all cases under Chapters 7 and 13 pending in those courts. The repetitive use of “all” and “any” could not be clearer: § 342(f)(1) is a statutory mechanism for a creditor to demand that all bankruptcy courts provide notice in all Chapter 7 and Chapter 13 cases to the address or addresses specified by the creditor.
Section 342(f)(1) contemplates a single notice of address filed in any bankruptcy court that is effective in all bankruptcy courts. The notice of address can be tailored by the creditor (or other entity) to be used by all bankruptcy courts or by specified bankruptcy courts. The creditor could designate that bankruptcy cases filed in different districts will be noticed at the same or at different addresses—by state? by region? by district?—this is up to the creditor. “All cases . . . pending in the courts” seems to include not just cases filed after the effective date of § 342(f)(1) (October 17, 2005) but all cases pending in any bankruptcy court on the date the notice is filed.
Section 342(f)(2) applies only to Chapter 7 and Chapter 13 cases and only to notices “required to be provided by a court.” Notices provided by the debtor, by the trustee or by any other entity are not included in the national noticing scheme contemplated by § 342(f). Remember that debtors in all bankruptcy cases must use the correspondence address under the circumstances described in § 342(c)(1). How many different mandatory addresses do we have now?
Under § 342(f)(2), the notice of address filed in any bankruptcy court under § 342(f)(1) becomes effective 30 days after filing unless the creditor files a different notice of address in a particular case under § 342(e). As stated above in the House Report, § 342(f)(2) requires all bankruptcy courts in the country to use an address filed by any entity in any bankruptcy court, 30 days after filing.
According to conversations with representatives of the BNC in Reston, Virginia, a rudimentary system exists for a creditor to designate a single address for notices sent by the BNC, but there is no mechanism at the BNC that can collect notices of address from “any” bankruptcy court and apply the address to a named entity with respect to cases in designated other districts.
Notices are often sent by bankruptcy courts in Chapter 7 and Chapter 13 cases without use of the BNC. There is no system for “sharing” addresses between or among bankruptcy courts when the BNC is not involved. The technology to create these systems is expensive, and there is no provision in BAPCPA for funding. No reliable national bankruptcy noticing system of the sort contemplated by § 342(f) exists. You might say, “so what?” Read on to new § 342(g):
(1) Notice provided to a creditor by the debtor or the court other than in accordance with this section (excluding this subsection) shall not be effective notice until such notice is brought to the attention of such creditor. If such creditor designates a person or an organizational subdivision of such creditor to be responsible for receiving notices under this title and establishes reasonable procedures so that such notices receivable by such creditor are to be delivered to such person or such subdivision, then a notice provided to such creditor other than in accordance with this section (excluding this subsection) shall not be considered to have been brought to the attention of such creditor until such notice is received by such person or such subdivision.
(2) A monetary penalty may not be imposed on a creditor for a violation of a stay in effect under section 362(a) (including a monetary penalty imposed under section 362(k)) or for failure to comply with section 542 or 543 unless the conduct that is the basis of such violation or of such failure occurs after such creditor receives notice effective under this section of the order for relief.22
Section 342(g) is a lot to chew on. Without limitation as to chapter, notice provided to a creditor by the debtor or the court must be in accordance with § 342 else notice “shall not be effective” until “brought to the attention of such creditor.” Notice in accordance with § 342 means all of the notices discussed above—including the 90-day/two-communications notice by the debtor to a correspondence address under § 342(c)(2)(A); the notice in Chapter 7 and Chapter 13 cases provided by the debtor or the court to the address specified by a creditor in a filing in a particular court and case under § 342(e); and the national notice of address that may be filed by any entity in any bankruptcy court with respect to notices by any or all courts in a Chapter 7 or Chapter 13 case under § 342(f).
Notice not in accordance with § 342 becomes effective under § 342(g)(1) when it is “brought to the attention of such creditor.” Brought to the attention is a new term of art only partially defined in § 342(g)(1) by negative example. If a creditor “designates” a person or an organizational subdivision to be responsible for receiving bankruptcy notices and if the creditor establishes reasonable procedures so that notices receivable by the creditor are delivered to that person or subdivision, then a notice that is not provided in accordance with § 342 is not considered to have been brought to the attention of such creditor—and thus is not effective notice—until received by the person or subdivision so designated. One court has described § 342(g)(1) as a “timing” provision that delays the effectiveness of notice under some circumstances when no notice has been given that otherwise satisfies § 342:
[Section] 342(g)’s function . . . is a “timing and consequence” provision, not a “to whom notice must be directed” provision. . . . [Section] 342(g) applies when notice has not been effected by a debtor serving a creditor with a Code-required notice at an address provided by the creditor . . . (§ 342(c)(2)). It applies when . . . the debtor or the court has not served a creditor with a Code-required notice at an address designated for the case (§ 342(e)). It applies . . . when a bankruptcy court fails to provide notice to an entity at an address that has been filed with a bankruptcy court in accordance with § 342(f) . . . . Section 342(g)(1) provides, in essence, a “delay” mechanism. If a creditor designates a “person or an organizational subdivision of [the] creditor to be responsible for receiving notices under this title” . . . and establishes “reasonable procedures so that [bankruptcy] notices receivable by [the] creditor are to be delivered” to that person or subdivision, [the creditor is] deemed “unaware” of notices directed to that creditor, other than to the designated person or subdivision, and, therefore, those notices are not deemed to have been brought to the creditor’s attention until the designated person or subdivision receives them. In other words, if a creditor has established, in-house or out, someone (“someone” in the broadest sense) who is authorized and empowered to receive (and, presumably, deal effectively with) bankruptcy notices, then delivering the notice to another arm, agent, or employee of that creditor does not establish “effective notice” simultaneously.23
How does a creditor “designate” a person or an organizational subdivision to be responsible for receiving (misdirected) bankruptcy notices?24 Will designation require a filing with the (any?) bankruptcy court or a central registry? An internal memorandum? How will debtors’ attorneys know the person or organizational subdivision responsible for receiving bankruptcy notices for purposes of § 342(g)?
Bankruptcy Rule 2002(g)(5) purports to add a predicate to Code § 342(g)(1) by requiring the filing of a “statement that designates” as follows:
A creditor may treat a notice as not having been brought to the creditor’s attention under § 342(g)(1) only if, prior to issuance of the notice, the creditor has filed a statement that designates the name and address of the person or organizational subdivision of the creditor responsible for receiving notices under the Code, and that describes the procedures established by the creditor to cause such notices to be delivered to the designated person or subdivision.25
This curious rule is not altogether consistent with the statute it references. Bankruptcy Rule 2002(g)(5) addresses the negative example in § 342(g)(1) by requiring the filing of a statement that “designates” the name and address of the person or organizational subdivision responsible for receiving notices. In addition to the name and address of the person or organizational subdivision, the new “statement” in Bankruptcy Rule 2002(g)(5) must describe “the procedures established by the creditor to cause such notices to be delivered to the designated person or subdivision.” Of course, requirements that creditors file a statement, provide a name and address and describe delivery procedures appear nowhere in § 342(g)(1) itself.
Perhaps more importantly, Bankruptcy Rule 2002(g)(5) could be read to limit the statutory right to treat a notice as “not having been brought to the creditor’s attention” to creditors that have exercised the option in § 342(g)(1) to designate a person or organizational subdivision to be responsible for receiving notices. In other words, the new concept of “brought to the attention of such creditor” in § 342(g)(1) becomes a shield under Bankruptcy Rule 2002(g)(5) “only if” the creditor exercises the designation option consistent with Bankruptcy Rule 2002(g)(5). Section 342(g)(1) is not written that way—the Code section more broadly protects creditors from notice that is not provided in accordance with § 342 without regard to whether the creditor has undertaken the designation described in the negative example in § 342(g)(1).
Notice also that Bankruptcy Rule 2002(g)(5) tells us nothing about where the creditor should file the statement designating the name and address of the person or organizational subdivision responsible for receiving notice and describing the procedures established by the creditor to cause notices to be delivered to the designated person or subdivision. The rule is clear that the statement must be filed before a disputed notice is issued, but filed where? In the court that issued the notice? In any court? In one court for the whole country? This critical bit of information is missing from Bankruptcy Rule 2002(g)(5).
“Person” of course includes corporations, partnerships and other non-corporals.26 Guessing for a moment, an “organizational subdivision” might be an individual or group or office that only exists on an institutional chart.
Section 342(g)(1) applies the § 342 rules for effective notice only to notices that are provided by the debtor or the court. The effectiveness of notice provided by the Chapter 7 or Chapter 13 trustee, by a creditor or by the U.S. trustee is measured against standard(s) left unstated in § 342. What happens if a creditor has not designated a person or an organizational subdivision to be responsible for receiving notices under Title 11? In the absence of a designation, § 342(g) tells us nothing about when a bankruptcy notice not in accordance with § 342 has been brought to the attention of a creditor. Bankruptcy Rule 2002(g)(5) seems to go further than the statute.
When is notice “received” by the person or organizational subdivision responsible for receiving notices? When mailed? When that person or subdivision receives a phone call from debtor’s counsel? If a creditor designates a person or subdivision to receive notice under Title 11 and establishes a reasonable procedure so that notices will be delivered to that person or subdivision, can notice by the debtor or court to the creditor in any other manner be “effective” if not otherwise in accordance with § 342?
Take a silly example. The tow truck operator is in the driveway to repo the debtor’s car. The debtor waives a copy of the Chapter 13 petition in the driver’s face. Is that “effective” notice of bankruptcy if the car lender that engaged the tow truck has designated a person or organizational subdivision to receive bankruptcy notices and the tow truck operator isn’t that person or organizational subdivision?
What will the courts do with the “reasonable procedures” requirement? Would it be reasonable for a car lender to designate office personnel in its central collection division to receive bankruptcy notices not in accordance with § 342 when the car lender routinely hires tow truck operators to locate and pick up cars? Bankruptcy Rule 2002(g)(5) seems to say that “establish[ing]” a reasonable procedure is not enough—the procedures must also be described in a statement filed (somewhere) before issuance of a disputed notice.
In many districts, the Chapter 13 trustee provides to all creditors a copy (or summary) of the plan together with notice of the hearing on confirmation and notice of the deadlines for objecting to confirmation. The address for each creditor used by the Chapter 13 trustee typically will be the address supplied by the debtor in the list of creditors, schedules or matrix. If the court designates the trustee to give notice of the plan and if the address used by the trustee is the address supplied by the debtor, then § 342(g)(1) may be read to require that notice given by the trustee must be in accordance with § 342 to be “effective notice.”
If the address supplied by the debtor is not in accordance with § 342, then notice by the trustee of the plan and of confirmation may not be effective until it is “brought to the attention” of the creditor under § 342(g)(1). The effectiveness of notice under § 342(g) will intrude when the debtor seeks to enforce a provision of the confirmed plan and the creditor responds that notice was not in accordance with § 342. The reasonableness of the procedures within the organizational structure of the creditor for digesting bankruptcy notices could be outcome determinative of the binding effect of confirmation—but “only if” the creditor first satisfies the filing requirement in Bankruptcy Rule 2002(g)(5).
If a creditor files with any bankruptcy court a § 342(f) notice of address to be used in all bankruptcy courts (or particular bankruptcy courts) and the (Chapter 7 or Chapter 13) debtor schedules a different address, it is arguable that notice of the commencement of the bankruptcy case provided by the debtor or by the court to the scheduled address will trigger the alternative ‘brought to the attention” standard for effective notice under § 342(g)(1). Section 342(g)(1) raises the specter that actual notice to a creditor by phone or fax or other traditional means not in accordance with § 342 will not be effective notice if the person receiving notice is not the person (or organizational subdivision) designated by the creditor to receive bankruptcy notices. If the national noticing system contemplated by § 342(f) is not operational, creditors filing notices of addresses to be used in some or all bankruptcy courts can (by intent or default) insulate themselves from significant consequences (see below) by designating a person or organizational subdivision to receive bankruptcy notice and establishing “reasonable procedures” for delivery of bankruptcy notices to that person or subdivision. Bankruptcy Rule 2002(g)(5) may require filing of a designation statement somewhere to complete the protection.
The problem of correctly naming a creditor becomes critical in this new world of bankruptcy noticing and § 342 is silent about names. Many national lenders have almost as many names as there are jurisdictions in which they do business. A “correct” name for General Motors Acceptance Corporation may or may not be “GMAC” or “G.M.A.C.” depending on the particular contract, the region of the country, etc. Under what name(s) will General Motors Acceptance Corporation specify addresses under § 342(f) for use in all bankruptcy courts or in particular bankruptcy courts? Presumably, GMAC could choose to identify all of its names and tie some or all of those names to a particular address or addresses. Any national registry of creditor addresses for use in other districts under § 342(f) must be able to accommodate the almost unlimited number of names in which some creditors do business. The technical aspects of this problem are not small.
New § 342 puts a premium on what some would call the “insider factor” in bankruptcy practice. Absent a national registry for creditor addresses and designations, the effectiveness of notices in bankruptcy cases will turn on the special knowledge of bankruptcy practitioners with respect to the names and addresses of creditors. Experienced bankruptcy professionals will know a particular creditor has a designated address that is “effective” for § 342 purposes; other bankruptcy practitioners will not be privy to this special information. Creditors may purposefully or inadvertently fall into this game by specifying addresses for use in bankruptcy cases in particular districts or regions, creating a myriad of noticing addresses that divide up the bankruptcy work rationally from the creditor’s perspective but create a labyrinth for debtors’ attorneys not schooled in the secret handshakes.
One consequence that may be avoided by designating a person or organizational subdivision to receive bankruptcy notices is in § 342(g)(2), reproduced above: a “monetary penalty” may not be imposed on a creditor for violating the automatic stay or for failing to comply with the turnover provisions in §§ 542 and 543 until notice of the order for relief effective under § 342 is received by the creditor. This is a big stick. Without monetary penalties for violation of the automatic stay, a creditor that has not received “effective notice” faces much reduced jeopardy to violate the automatic stay or refuse turnover.
Imagine again the tow truck operator. If the creditor has filed a national notice of address under § 342(f)(1) and the address used by the court to give notice of the order for relief is different and if the creditor has filed a Bankruptcy Rule 2002(g)(5) statement that designates a person or subdivision (other than the tow operator) and describes reasonable procedures under § 342(g)(1), then § 342(g)(2) could be interpreted to preclude monetary penalties for violating the automatic stay when the tow truck operator ignores the debtor and pulls the car.
Is a “monetary penalty” the same thing as “actual damages” recoverable by an individual injured by a willful violation of the stay under § 362(k) (as amended by BAPCPA)?27 Is it significant that § 342(g)(2) does not preclude penalties—monetary or otherwise—for violating the codebtor stay under § 1301?28
As mentioned above, § 342(g) limits the effectiveness of notice provided by the debtor or the court. What about notice provided by the trustee? Can a creditor blithely ignore a Chapter 13 trustee’s demand for turnover of property of the estate without fear of monetary penalty if notice of the order for relief from the debtor or the court was not in accordance with § 342?
Section 342 as amended by BAPCPA creates many challenges for debtors’ attorneys. Collecting correct names and addresses for creditors is tough enough when “correct” means an address that the creditor has used on a billing statement or coupon book that the debtor can actually locate. When “effective” notice depends on using the exact correspondence address found somewhere on two bills randomly mixed with other mail received by the debtor sometime in the three months before bankruptcy, chances are that the debtor can’t provide this information to counsel, and there is no obvious alternative source for the correspondence address that will support effective notice under § 342(c)(2)(A).
Without a national registry or some other ready source of notice requests by creditors and designations of responsible persons or organizational subdivisions, debtors’ counsel won’t know the correct names and addresses of creditors for § 342(f) and (g) purposes. Will § 342, as amended by BAPCPA, spawn a new industry that will audit the names and addresses of creditors for debtors’ counsel before Chapter 13 petitions are filed? What will the cost of that service add to the price of access to bankruptcy?
The strategy for debtors’ counsel is clear but clearly lousy. Without a reliable method of knowing which § 342 statutory notice procedure is available, debtors’ counsel will list and send notice to creditors using every possible name and address that can be collected. For creditors, this means multiple bankruptcy notices received at various address(es) in the same Chapter 13 case dealing with the same debt. This is an administrative nightmare. Most creditors would prefer one notice of bankruptcy with respect to each debt in each Chapter 13 case.
Are creditors better off or worse off by formally designating a responsible person or organizational subdivision to receive bankruptcy notices under § 342(g)? When notice is not otherwise in compliance with § 342, § 342(g) could be read as a conclusive statutory definition of effective notice (by the debtor or by the court) if the creditor makes the designation and files the statement required by Bankruptcy Rule 2002(g)(5). In other words, once a creditor designates the responsible person or organizational subdivision and sets up a reasonable procedure to route bankruptcy notices, effective notice by a debtor or bankruptcy court can only be accomplished in one of the statutory ways described above. This would be a substantial incentive for creditors to make the designation and to establish reasonable procedures as described in § 342(g).
It is not accidental that the forms of effective notice specified in § 342 are each easily controlled or disabled by unilateral creditor action. If a creditor does not supply a correspondence address to the debtor in two communications within 90 days, § 342(c)(2)(A) is simply not available as a method for giving effective notice under § 342. If the creditor does not give “notice of address” in a particular case, in a particular court, or in any court, then effective notice is not possible under § 342(e)(1) or (f)(1). If a creditor then designates a person or organizational subdivision and sets up reasonable procedures for routing notice consistent with § 342(g)(1), it appears that the creditor can confine effective notice in the entire bankruptcy universe to that one avenue—at least with respect to notice by the debtor or the court after the filing of a Bankruptcy Rule 2002(g)(5) statement. This is a fantastic new power created by BAPCPA.
One final twist. If a creditor disables (or fails to enable) all of the forms of effective notice in § 342, then the statute fails to define when notice becomes effective by being “brought to the attention” of the creditor. Courts will fill that gap. Creditors might reasonably conclude that they are better off self-selecting the form of effective notice they want in bankruptcy cases by at least making the designation in § 342(g).
In many respects debtors and creditors have similar incentives to ensure that notice in bankruptcy cases is effective. If § 342 contained workable and understandable new rules for notice to creditors in bankruptcy cases, it would be good news to most bankruptcy practitioners and the limitation on monetary penalties in § 342(g) would be a small price to pay for certainty. But § 342(c), (e) and (f) are internally inconsistent, are impossible of implementation in some respects and create complex questions of statutory interpretation that leave debtors and creditors with too much uncertainty with respect to the adequacy of notice in bankruptcy cases. Debtors’ counsel are likely to react to increased uncertainty by scheduling multiple noticing names and addresses for creditors in a blind search for the acorn. Whatever good ideas are here are obscured by the lack of craftsmanship in new § 342. Convoluting and corrupting the giving and getting of notice is not an improvement in bankruptcy law.
1 See Fed. R. Bankr. P. 7004(h), amended by Pub. L. No. 103-394, § 114, 108 Stat. 4118 (Oct. 22, 1994) (Service of Process in Bankruptcy Proceedings on an Insured Depository Institution).
2 See, e.g., Fed. R. Bankr. P. 2002.
3 Pub. L. No. 109-8, 119 Stat. 23 (2005).
4 See 11 U.S.C. § 342(g)(1), discussed below in this section.
5 See § 31.1 Debt Information—In General for the use of pre-interview forms and § 31.2 Use of Credit Reporting Agencies, § 31.3 Bills and Coupon Books, § 31.4 Loan Documents, Security Instruments and Mortgages, § 31.5 Collection Agencies, § 31.6 Taxes, § 31.7 Leases and Rental Agreements, § 31.8 Guaranties and Other Secondary Liabilities and § 31.9 Wage Assignments and Payroll Deductions, discussing the collection of debt information from Chapter 13 debtors. See also § 36.4 List of Creditors and Addresses and § 36.27 Matrix of Creditors for discussion of the list of creditors and the matrix of creditors required in many districts.
8 See § 36.27 Matrix of Creditors.
9 Ironically, at the time of passage of BAPCPA, there was pending an amendment to Bankruptcy Rule 2002(g) that became effective on December 1, 2005, that is not altogether consistent with parts of § 342, as amended. As discussed below, § 342(e) and (f) as amended by BAPCPA define new forms of statutory notice in some of the circumstances addressed by Bankruptcy Rule 2002(g), as amended.
10 11 U.S.C. § 342(c)(2)(A).
11 11 U.S.C. § 342(c)(2)(B).
12 Pub. L. No. 95-109, 91 Stat. 874 (1977) (codified at 15 U.S.C. §§ 1692–1692o).
13 In re Dozier, No. 05-17911, 2010 WL 4810829, at *2 (Bankr. E.D. Tenn. Nov. 19, 2010) (Rucker).
15 Pub. L. No. 109-8, § 234, 119 Stat. 23, 75 (2005).
16 Pub. L. No. 109-8, § 234, 119 Stat. 23, 75 (2005).
17 11 U.S.C. § 342(e), amended by Pub. L. No. 111-16, 123 Stat. 1607 (May 7, 2009). Prior to the 2009 amendment, § 342(e) said “5 days.”
18 See discussion of 11 U.S.C. § 342(g) below in this section.
19 11 U.S.C. § 342(f).
20 See H.R. Conf. Rep. No. 107-617, § 315 (July 26, 2002). See also H.R. 5744, § 315 (Nov. 14, 2002); H.R. 5745 (Nov. 14, 2002).
21 H.R. Rep. No. 109-31, at 58 (2005) (emphasis added).
22 11 U.S.C. § 342(g).
23 Harvey v. United Techs. (In re Harvey), 388 B.R. 440, 445–46 (Bankr. D. Me. Apr. 23, 2008) (Haines).
24 In a Chapter 7 case, one bankruptcy court concluded that designation of CT System by a creditor for service of process was not designation of a person to receive notices for purposes of § 342(g)(1). See Harvey v. United Techs. (In re Harvey), 388 B.R. 440, 446–47 (Bankr. D. Me. Apr. 23, 2008) (Haines) (“[United Technologies] argues that appointing CT System its authorized agent for service of process in the State of Maine constitutes its designation . . . within the meaning of § 342(g)(1) . . . . The argument ignores both the structure of § 342 and the function of § 342(g)(1). Section 342’s other subparagraphs dictate how, and to what extent, an entity can inform the ‘world’ . . . how it chooses to receive certain bankruptcy notices. To say that appointing a registered agent for receipt of service works the same way, ignores—more accurately contradicts—those subsections. . . . [I]t would be surprising for a foreign corporation’s registered agent for service also to be the ‘go to’ entity to assure timely action in response to notices and news of bankruptcy developments. But even if we were to assume that CT System’s agency was so substantive and far-reaching, the record is devoid of any indication that UT established ‘reasonable procedures’ to convey such information to it.”).
25 Fed. R. Bankr. P. 2002(g)(5).
26 See 11 U.S.C. § 101(41).
27 11 U.S.C. § 362(k)(1) provides:
Except as provided in paragraph (2), an individual injured by any willful violation of a stay provided by this section shall recover actual damages, including costs and attorneys’ fees, and, in appropriate circumstances, may recover punitive damages.
28 The codebtor stay in 11 U.S.C. § 1301 is discussed in § 65.1 Cosigners and Joint Obligors Are Protected, § 65.2 Consumer Debts Only, § 65.3 Codebtor Heaven after BAPCPA, § 65.4 Can Plan Enlarge Codebtor Stay?, § 65.5 Expiration of Codebtor Stay, § 66.1 Motion Practice, § 66.2 Automatic Relief under § 1301(d), § 66.3 Timing of Request for Relief, § 66.4 Burden of Proof, § 67.1 Codebtor Received the Consideration, § 67.2 Plan Does Not Pay Debt in Full § 67.3 Postpetition Interest, Attorneys’ Fees, Costs and Other Charges § 67.4 Can Creditor Collect Original Contract Payment from Codebtor? and§ 67.5 Irreparable Harm and in § 58.2 BAPCPA Shrank Stay.