Houston – What started as a bill to protect bankruptcy debtors from fraudulent claims by their mortgage lenders should be striking fear in other creditors (and their attorneys). The Senate Judiciary Committee is currently reviewing a bill referred to as the Fighting Fraud in Bankruptcy Act of 2011. The bill provides for increased penalties for the negligent, reckless or fraudulent assertion of claims by creditors, or by any person or entity who files a proof of claim on behalf of a creditor (including attorneys).
Committee Chairman, Senator Patrick Leahy, initially introduced the bill to target mortgage lenders, however the bill now appears to apply to proofs of claim filed by any creditor. The bill will expand the current penalty provisions of 28 U.S.C. § 586(a), and all monetary penalties paid will fund proof of claim audits by the U.S. Trustees. The increased scrutiny and liability for even negligent claim errors should make all creditors (and their bankruptcy counsel) use even greater caution when calculating and preparing proofs of claim in order to ensure their accuracy.
Contributed by Lisa M. Norman; 713.850.4245 or lnorman@andrewsmyers.com.
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