Document Retention Rules in Bankruptcy: Holding Onto the Past

By: Donald L. Swanson

Do you have any fuddy-duddies in the family holding onto the past: they refuse to get a computer or smart phone or to use email or text messaging? If so, family communications require someone to pass-on information by snail mail or telephone—if anyone bothers at all.

Or, perhaps you have a “paperless” office with an attorney whose papers are spread high and deep across every desk, table, credenza and vacant floor space in his/her office.

The bankruptcy system in these United States has similar holding onto the past problems, as it progresses into the digital world.

Retention of Documents with Wet Ink Signatures

One vestige of our bankruptcy system holding onto the past is a combination of requiring, (i) debtors’ wet ink signatures on paper documents, and (ii) a multi-year retention of documents signed in wet ink.

Retention of documents over multiple years creates serious problems. For a debtor attorney who files lots of cases, we’re talking truckloads of documents.

Additionally, compliance with such requirements is difficult, and prospects for fraud and abuse in the compliance effort are rampant.

Prosecution Rationale and its Problems

Why are multi-year document retention requirements imposed in bankruptcy for original documents bearing wet ink signatures? Here’s why:

“The primary rationale . . . is to preserve evidence for any subsequent criminal prosecutions involving bankruptcy fraud or other bankruptcy-related crimes.” [Fn. 1]

To further this rationale, a suggested approach in recent years, is this:

• To adopt a national rule requiring the retention of hard copy documents with manual signatures for four years. [Fn. 2]

But the prosecution rationale has problems. Consider these prosecution problems under existing document retention rules:

• What happens if debtor’s attorney fails to comply?
• What happens if debtor’s attorney does comply but, during an office move, documents are lost or destroyed?
• What happens if retained documents are destroyed by fire, tornado or hurricane?
• What happens if debtor’s attorney is unable to find and retrieve the original document when prosecutors want to prosecute?
• What happens if debtor’s attorney altered information on a paper document after debtor affixed a wet ink signature?

All of these concerns are real. And each involves a serious problem for prosecution of bankruptcy crimes.

Debtors’ Digital Signatures—To the Rescue

Current technology provides a highly secure and efficient solution to document retention problems.

When debtors are allowed to sign bankruptcy documents digitally (using a highly secure technological process), document retention problems evaporate. Here’s how:

• The technological signing system saves the signed document for as long as needed;
• The technological signing system provides an evidence trail for the digitally signed document;
• Debtors appear at 341 meetings and testify, under oath, whether they digitally signed the petition and schedules that appear on the cm/ecf system;
• There is no need to rely upon debtors’ attorneys to retain documents;
• The technological signing system prevents alteration of a digitally signed document; and
• The IRS has no problems prosecuting taxpayers under digitally-signed tax returns.

Solutions To Document Retention Problems

–Debtors’ digital signatures

The first solution is this: authorize debtors to sign their bankruptcy petitions and schedules digitally.

Under such a system, the problems of compliance with document retention rules evaporate: the highly secure technological system saves the signed document—and can retrieve it upon demand with a strong evidence trail in place.

–Scan the document signed in wet ink and save it electronically

A second solution is for debtor’s attorney to scan the original document bearing a wet ink signature and save the image electronically.

A corresponding good practice for debtor attorneys might be this:

• when filing a document bearing debtor’s wet ink signature, always use a scanned copy of the signature page, so the public record will always contain a copy of debtor’s wet ink signature—i.e., never use the “/s/” option for a debtor’s signature on a filed document.

In our digital and paperless age, this approach makes sense. It is efficient. It is workable. And the problems of compliance over multiple years evaporate.

A Counterpoint / Answer on Scanned Documents

One objection to scanning documents signed in wet ink, rather than retaining them, is this:

• How will prosecutors defend against a claim that the scanned signature is forged, because hand-writing experts might have difficulty using a scanned signature alone?

For signatures on a debtor’s petition and schedules, an effective answer is already in place:

• It is standard practice, at Section 341 Meetings, for the debtor to be asked whether he/she signed the petition and schedules—and the debtor’s response to such inquiry is made under oath and penalty of perjury.

The Nebraska Example

On February 5, 2018, Hon. Thomas L. Saladino, Chief Judge of the Nebraska Bankruptcy Court, amended Nebraska’s local rule 9011-1 to update and upgrade the Court’s documents retention policies. The essence of the amended policies appears in subparts C and D of local rule 9011-1 like this:

“C. Any electronically filed document containing “/s/” for a debtor or non-filing party . . . constitutes a representation under penalty of perjury by the registered CM/ECF filer that he or she has . . . evidence of permission to indicate the party’s signature by use of “/s/” . . . [and shall] retain evidence of permission to indicate the party’s signature by use of “/s/” for all bankruptcy cases and adversary proceedings for a least one year after the case is closed.”

“D. Except as provided in paragraph C above, the intent and purpose of this Rule is to eliminate most document retention requirements when a copy, scan, or other reliable evidence of a signature is present.”

Thus far, such amended policies are working well.

Conclusion

The problems of multi-year retention of bankruptcy documents bearing a debtor’s wet ink signature are real—and substantial.

Fortunately, developments in technology, including highly secure signature systems, are providing solutions to such problems—and need to be embraced by the bankruptcy system.
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Footnote 1: Molly T. Johnson, Bankruptcy Court Rules and Procedures Regarding Electronic Signatures of Persons Other than Filing Attorneys, at 9, Federal Judicial Center (February 22, 2103).
Footnote 2: Id., at 77-78.

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