Debtor’s Digital Signature in Bankruptcy: The Nebraska Rule

Federal Courthouse in Omaha, Nebraska

By: Donald L Swanson

The Nebraska Bankruptcy Court is the first in the nation to allow debtors to digitally sign petitions, schedules and other bankruptcy documents, rather than requiring a wet ink signature on paper documents.

The Nebraska Rule

On February 5, 2018, the Hon. Thomas L. Saladino, Chief Judge of the Nebraska Bankruptcy Court, amended the Court’s local rule 9011-1 to authorize digital signatures by debtors on bankruptcy documents. Here are portions of the amended local rule 9011-1:

“A. Petitions, lists, schedules and statements, amendments, pleadings, affidavits, and other documents which must contain original wet ink signatures or which require verification under Fed. R. Bankr. P. 1008, or an unsworn declaration as provided in 28 U.S.C. § 1746, shall be filed electronically and may include, in lieu of the original wet ink signature, the signature forms described in this Local Rule.”

“B. . . . all of the following shall constitute a signature on an electronically filed document . . . 2. An image with a signature captured electronically at the time of document creation, and signatures created and verified by use of special software programs for electronic signatures, such as DocuSign and SignEasy.”

Judge Saladino explains that this amended local rule “was established through a cooperative effort with the bankruptcy bar” and that “the attorneys requested the change and participated in drafting the rule.”

Sam Turco, a debtors’ attorney in Omaha, Nebraska, has championed the use of digital signatures and has written extensively about this subject on his “Nebraska Debt & Bankruptcy Blog.” What follows is taken from Sam’s writings on the subject.

The Immediate Reaction [Fn. 1]

Shortly after adoption of the local rule, a central Nebraska attorney wrote:

“This is fantastic! My client signed, we were notified, I signed, all before I could even drop her hard copy in the mail (mail leaves [our small central Nebraska town] at 12:30, so timing wise we have a completed document before the mail left the building)! I am so pumped!”

“Nebraska bankruptcy attorneys are lucky to receive this historic change in court procedure,” Mr. Turco writes. And he adds, “Sincere thanks is due to Judge Thomas Saladino who was willing to review the signature process and to make changes to Nebraska’s court procedures.”

The Subsequent Experience [Fn. 2]

As to what we’ve learned about using digital signatures, since February 5, 2018, Mr. Turco observes:

A bankruptcy attorney is charged with perfectly stating a person’s financial condition on one day, while the underlying data is constantly changing. Digital signatures allow us to send a client home with a rough draft of a document and then when they provide the missing information, we can instantly send them an updated document to sign electronically. Digital signatures bring sanity to the process.

Mr. Turco identifies the following practical benefits from utilizing digital signatures for debtor clients:

  • Clients absolutely love the convenience of signing documents digitally. They no longer have to take time off work or drive through sometimes hazardous weather to sign documents.
  • Debtors are able to review documents in a less hurried fashion and frequently point out errors and omissions.
  • Debtors receive a full copy of what they sign immediately.
  • Digital signatures allow attorneys to get signatures quickly on updated documents.
  • Digital signatures take the pressure out of signings.

Further, Mr. Turco observes:

Many people worry that allowing debtors to sign court documents digitally may undermine the trustworthiness of those documents. However, my experience is just the opposite. Digital signatures improve attorney-client communication and increase client accountability. Clients get a full copy of what they sign immediately and that improves transparency. Attorneys are able to get updated signatures quickly when helpful changes are made to documents. Really, I can’t think of a single negative consequence of using digital signatures in bankruptcy cases, and I suspect we are going to see bankruptcy courts nationwide begin to adopt this technology in the next two years.

Digital Signatures Explained and Authorized [Fn. 3]

Mr. Turco explains digital signatures, and their authorization, like this:

Digital signatures are electronic signatures encrypted by computer technology, and encryption process protects the document from alteration. A document that is signed digitally provides an assurance that it was signed by the sender and receiver without alteration. Parties to a digitally signed document typically receive an executed copy of the document instantly. A digital signature is similar to a notarized document or a document embossed with a seal to ensure authenticity.

Digital signatures have been authorized in the United States by the Electronic Signature in Global and International Commerce Act of 2000 (ESGICA), 11 U.S.C. 7001. The Nebraska Digital Signatures Act was enacted in 1998, and other states have similar laws. In short, these laws give digital signatures the same legal effect as a penned ink signature on paper (sometimes called “wet” signatures).

Unfortunate Opposition

There are opposing views that seem unwarranted. Here are two.

–Court Sanction for Using Digital Signatures [Fn. 4]

A bankruptcy judge for the Eastern District of California, back in 2016, sanctioned an attorney for filing a bankruptcy petition signed by Debtor with digital signatures. (See In re Mayfield, Case #16-22134).

The attorney sent completed bankruptcy documents to the debtor to sign via a digital signature service called DocuSign. The Bankruptcy Judge imposed sanctions for failure to obtain an “original signature,” under Federal Bankruptcy Rule 9004-1(c)(1)C) & (D), based on a fear that digital signatures will enable bankruptcy fraud because of “the ease with which a DocuSign affixation can be manipulated or forged.”

Mr. Turco argues that Rule 9004-1 does not specifically reject digital signatures: the Judge may assume such a rejection is obvious—but it’s not obvious, especially to a generation of lawyers who live in a digital universe.

Mr. Turco adds that jurists should support digital signatures in bankruptcy cases because:

  • Debtors receive a written notice mailed to them days after the case is filed. If a signature is forged, this is a first clue to the debtor.
  • Debtors attend court hearings within 30 days of filing the case and testify that they actually signed the documents.
  • Digitally signed documents cannot be altered after they are signed, unlike paper documents with one or two signature pages buried within an 80-page document.
  • Digitally signed documents provide “audit trails” showing where the documents were emailed and the IP address of the sender and receiver.
  • Digitally signed documents are immediately distributed to all signing parties and the debtors have evidence of exactly what they signed.
  • Digitally signed documents have a third party (DocuSign, for example) that can verify what was signed and who signed the document.
  • Updated pleadings can be signed fast. Yes, the key advantage of digital signatures is that they make it easy to get updated signatures in a matter of minutes. Bankruptcy attorneys often discover errors in the originally signed pleadings, and making it easier to get corrections signed actually improves the integrity of bankruptcy documents.

–Department of Justice Objection [Fn. 5]

Mr. Turco explains that Department of Justice prosecutors worry about individuals committing bankruptcy fraud and attempting to avoid liability by denying that they signed the bankruptcy petition digitally. So, the DOJ opposes the use of digital signatures by debtors in bankruptcy.

The irony, Mr. Turco says, is that these same prosecutors obtain tax fraud convictions against taxpayers who file tax returns electronically: taxpayers do not enter a federal courthouse shortly after filing tax returns to testify under oath that they signed the tax return electronically, but bankruptcy debtors do just that in every case filed.

Moreover, wet signatures on paper documents are inherently insecure and unreliable: if debtors can prove that the document they signed was altered, the DOJ will have a problem prosecuting bankruptcy fraud. The only thing a wet ink signature on paper proves is that a debtor signed a signature page. It is not proof that the rest of the document is genuine.

The Real Problem: Attorneys Altering Signed Documents [Fn. 6]

What everyone should be concerned about, Mr. Turco argues, is the fact that bankruptcy attorneys commonly alter bankruptcy schedules after they have been signed. Why does this occur? Because attorneys who prepare bankruptcy cases are under constant pressure to file cases quickly and without adequate documentation.

This problem has been documented by the United States Trustee, Mr. Turco says. In the case of In re Harmon, the US Trustee found that debtor attorneys made material alteration to signed bankruptcy petitions in 82% of the files it audited. In a report prepared by the bankruptcy practices committee, bankruptcy trustees complained that debtors are frequently asked to sign petitions they have not reviewed.

Adding Protections by Local Rules [Fn. 7]

The fear that debtors may deny signing documents digitally is understandable. But if courts update their local rules, Mr. Turco argues, to add sensible safeguards to the signing process, these concerns can be addressed. Such safeguards may include:

  • Requiring debtor attorneys to file a copy of the digitally signed petition with the court so the court is not dependent on the debtor’s attorney for safeguarding the petition;
  • Requiring debtor attorneys to mail a hard copy of the digital document to the debtor with a cover letter to advise of the digital signing;
  • Sending a copy of the digital document to the appointed trustee so they may ask additional questions at the court hearing about how the document was signed; and
  • Requiring debtors to sign an Authorization form, similar to to IRS Form 8879, with a wet ink signature on paper.

Conclusion [Fn. 8]

Digitally signed bankruptcy petitions are coming, Mr. Turco says, and it is time for the bankruptcy court system to craft new procedures to balance the needs of debtor attorneys to obtain updated signatures quickly with the need of the courts and DOJ to have confidence in the integrity of the bankruptcy documents.

And congratulations to Chief Judge Thomas L. Saladino, of the Nebraska Bankruptcy Court, for his foresight and leadership in creating a first-in-the-nation local rule on the subject.

Footnote 1: Information in this section is from Sam Turco’s February 10, 2019, article titled, “Digital Signatures Allowed in Nebraska Bankruptcy Court.”
Footnote 2: Information in this section is from Sam Turco’s August 23, 2018, article titled, “Digital Signatures in Bankruptcy Update.”
Footnote 3: Information in this section is from Sam Turco’s July 15, 2016, article titled, “Digital Signatures in Bankruptcy Cases.”
Footnote 4: Information in this section is from Sam Turco’s August 9, 2016, article titled, “Bankruptcy Attorney Sanctioned for Using DocuSign.”
Footnote 5: Information in this section is from Sam Turco’s October 17, 2017, article titled, “Prosecutors Fear Use of Digital Signatures in Bankruptcy Cases.”
Footnote 6: Id.
Footnote 7: Id.
Footnote 8: Id.

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