Bar News - July 19, 2013
Federal Practice and Bankruptcy: ‘You Filed What?’
By: Richard L. Levine
Personally Identifiable Information in the Bankruptcy Court
Accidental inclusion of personal information in bankruptcy filings can lead to serious consequences
Bankruptcy practice is complex. Even simple-seeming components contain traps that are not immediately evident and can trip up experienced practitioners.
Federal Rule of Bankruptcy Procedure 9037 establishes the concept of Personally Identifiable Information (PII) in bankruptcy proceedings. Other federal proceedings have similar rules, but the bankruptcy rule is broader.
Put simply, PII cannot appear in any filing, with limited exceptions. The real concern is online access and identity theft, but the rule relates to any filings, including trial exhibits.
PII consists of tax identification numbers (last four digits OK), names of minor children (initials OK), month and day of birth (year OK), and any financial account number (last four digits OK). The rule allows a court to broaden the scope of what constitutes PII in any particular case, and there are special procedures for insuring that PII that is required to open a case does not appear on the public docket.
Why is there such a particular concern about PII in bankruptcy cases? Bankruptcy is all about finances, and bankruptcy proceedings routinely involve documents that are likely to contain PII, such as loan documents and applications, tax returns, trust documents, documents relating to co-owned property, and lists of employees and their social security numbers. Many of these are reflexively transferred over to bankruptcy forms and pleadings from a client’s regularly maintained computer programs.
It is the filer’s job to redact PII in any filing. If it turns out that PII is included in a filing, it is the filer’s job to correct the problem. It is not the bankruptcy clerk’s job to act as a safety net and explore filings for PII.
So, why has this issue arisen in New Hampshire and elsewhere with such fanfare?
There are classes of creditors who routinely file large numbers of proofs of claim. In the normal course of collection, their respective accounts departments attach copies of underlying documents, which are festooned with PII. Examples are mortgagees, student lenders, credit unions, and health care providers, particularly those with a minimal collections staff. What if a medical bill was for treatment of a minor child, for example (to say nothing of a possible simultaneous HIPPA violation)?
Additionally, many practitioners are not reflexively on alert for PII issues, even though the PACER system contains a prominent warning before the consummation of any filing. How about a motion for relief from stay that attaches copies of state court pleadings? The state court pleadings don’t provide the same PII protections, but when those pleadings turn into an exhibit in a bankruptcy pleading, they need redaction.
One more thing to worry about: There are different ways to redact, but you need to be sure that you have deleted all access to metadata in the process. Otherwise, even moderately capable hackers could retrieve the deleted material.
So, what do you do when you discover mounds of PII – filed by you – profligately displayed on PACER? If you are dealing with proofs of claim, they are on the claims docket – a docket maintained separately in the case from the basic case docket.
How do you disable public access to the PII?
You face several challenges. First, you would need to file any corrective pleading ex parte, so hackers won’t receive advance notice that there is PII available to search through.
Second, if the case is closed (bankruptcy courts are efficient about closing cases), you might have to file a motion to reopen the case to file a substantive motion. Ordinarily, it costs $245 to reopen a Chapter 7 case, $235 for a Chapter 13, and $1,167 for a Chapter 11. If your client filed 300 proofs of claim, the math could stagger.
The way the issue was addressed in New Hampshire formed the basis for a national model, under the direction of Bankruptcy Judge Michael Deasy, who has been recalled from his recent retirement and is back on the New Hampshire bench. The US Trustee’s New Hampshire office has also provided extensive education to bankruptcy practitioners on these issues.
With regard to proofs of claim, there is a solution. The New Hampshire Bankruptcy Court has promulgated Local Bankruptcy Rule 9037-1 and accompanying Local Forms 9037-1A and 1B. Together, they describe a detailed procedure, which rests in part on the premise that the claims docket is not an integral part of the case docket, and that therefore, a formal reopening of the case is not required for the court to restrict public access to the proof of claim. That rule is intended to encourage self-correction, which otherwise might not occur if the moving party faced exorbitant filing fees. Where the case is still open, the rule prescribes an ex parte motion to strike the PII.
If the PII has strayed into the main docket, which it would if there were any disputes concerning the claim or if it was referred to in another pleading, then standard motions to reopen the case (if closed) and to strike are mandated. These motions can be filed ex parte.
There is no explicit penalty for violating the PII disclosure rules, although one court has applied sanctions based on what amounts to recklessness. Whether a party whose PII was accessed would have a damage claim has not yet been tested. One could imagine a claim against someone who disclosed materials that were contractually confidential, even if not technically PII.
The lesson is to pay careful attention to PII issues. The New Hampshire Bankruptcy Court has worked to find a user-friendly fix for mistakes. Not all jurisdictions may make it so easy to correct errors.
Once again, a simple procedure, such as filing a proof of claim – something clients often perform without counsel – has ramifications that stray beyond the traditional ones.
Richard Levine is of counsel and chair of the Bankruptcy and Insolvency Department at the Manchester firm of Nelson Kinder & Mosseau, PC, and is based in Boston. He is a member of the Massachusetts and DC Bars. Mr. Levine acknowledges the assistance of the US Trustee’s office in his preparation of this article.