Do-It-Yourself Creditors: Beware of the Claim Redaction Requirements in Bankruptcy Court

After many years of Tennessee Bankruptcy Court practice, I notice trends in litigation. Years ago, there was a flurry of attacks on Deeds of Trust for invalid notaries. Then came the debtors objecting to the documentation filed on “big mortgage lender” mortgage claims.

Right now, the hot issue is adversary proceedings (i.e. bankruptcy lawsuits)  against creditors for failure to redact personal information when they file Proofs of Claim.

When you file a Proof of Claim in Bankruptcy Court, you are obliged to comply with Federal Rule of Bankruptcy Procedure 9037, which provides in part

…in an electronic or paper filing made with the court that contains an individual’s social-security number, taxpayer-identification number, or birth date, the name of an individual, other than the debtor, known to be and identified as a minor, or a financial-account number, a party or nonparty making the filing may include only:

(1) the last four digits of the social-security number and taxpayer-identification number;

(2) the year of the individual’s birth;

(3) the minor’s initials; and

(4) the last four digits of the financial-account numb

To clarify, “redaction” means that you must cross-out or otherwise remove the information, other than the information expressly allowed above. To keep it simple, I keep a Sharpie pen at my desk and mark up any loan/account documents I file as exhibits to my claims.

Now, debtors are watching all claims filed and, where a claim contains prohibited information, the debtor files a Motion to Redact and that motion seeks also sanctions against the offending creditor. Recovery can include damages, costs of future credit monitoring, and attorney fees.

I know what you’re thinking: your borrower filed bankruptcy on your debt; you’re never going to get paid; you went to the trouble of filing a claim on a debt you’re never going to get paid on; and, now, they can sue you if you do it wrong?

Yes, they can.

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