9th Cir. Holds debtor’s IOU does not excuse late proof of claim

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This article has already been published on Maurice Wutscher Consumer Financial Services Blog and is republished here with permission.

The United States Court of Appeals for the Ninth Circuit recently ruled that if a creditor wishes to participate in the distribution of a debtor’s assets under Chapter 13, he must timely file a proof of claim, and the Recognition by the debtor of the debt to the creditor does not exempt the creditor from this positive obligation.

A copy of the notice is available at: Link to the notice.

The debtor filed for Chapter 13 bankruptcy. The bankruptcy court issued a notice with a time limit for the creditors to file a proof of claim. The creditor received a copy of the notice with the deadline, along with all versions of the debtors Chapter 13 plan which has been amended several times.

Four months after the deadline for filing proof of claims expired, the creditor filed one secured claim and two unsecured claims with the bankruptcy court. After a hearing on the late-filed claims, the bankruptcy court dismissed the claims because proof of the claims was not filed on time.

The creditor appealed, and the Ninth Circuit Bankruptcy Appellate Panel (“BAP”) upheld the decision. This call followed.

As you may recall, in bankruptcy proceedings, a debtor must file an asset and liability schedule and a statement of financial affairs. Fed. R. Bankr. P. 1007 (b) (1). In order to participate in and receive distributions in a Chapter 13 bankruptcy, a creditor must file a valid “proof of claim” and follow the allocation process set out in 11 USC § 502. About Blendheim, 803 F.3d at 484–85. A secured creditor who does not wish to participate in a Chapter 13 plan, or who fails to file a proof of claim in a timely manner, does not lose their lien. Identifier.

A bankruptcy court can dismiss a claim for many reasons, including if proof of the claim was late. 11 USC § 502 (b) (9); About Blendheim, 803 F.3d at 485. Here, the creditor admitted that he filed his proof of claim late.

However, the creditor argued that the court should allow him to participate in the plan because his debt was on the bankruptcy lists. The Ninth Circuit BAP disagreed.

Federal bankruptcy rules provide that, in a Chapter 13 plan, “[a]n an unsecured creditor or an equity holder must produce proof of claim or interest in order for the claim or interest to be accepted. Fed. R. Bankr. P. 3002 (a). The Ninth Circuit made it clear that the wording of the law was to be given its “ordinary meaning” and applied accordingly. Garden rental against IRS (In re rental of garden), 209 F.3d 1145, 1148 (9th Cir. 2000).

The Ninth Circuit noted that debtor lists are used by bankruptcy courts to determine whether debtors are eligible for relief, and by creditors to determine whether they wish to participate in the plan. See Guastella vs. Hampton (About Guastella), 341 BR 908, 918 (BAP 9th Cir. 2006); Hamilton v. State Farm Fire & Cas. Co., 270 F.3d 778, 785 (9th Cir. 2001). A creditor can choose not to pursue a claim after evaluating all of a debtor’s debts under Chapter 13 and the proposed repayment plan. Perry v. Thrift Sav certificate holders., 320 F.2d 584, 589 (9th Cir. 1963).

The Court also noted that “[t]The proof of claim plays the important role of “warning[ing] the court, the trustee and the other creditors, as well as the debtor, to the claims against the mass’ and the intention of the creditor to assert the claims. See With regard to Daystar of California, Inc., 122 BR 406, 408 (Bankr. CD Cal. 1990); see also Adair v. Sherman, 230 F.3d 890, 896 (7th Cir. 2000); Pear, 320 F.2d at 589.

The Ninth Circuit has agreed with other courts that have rejected late-filed claims, even when the debt is on the debtor’s bankruptcy lists. See, for example, Bowden v. Structured investments. Co. (About Bowden), 315 BR 903, 907 (Bankr. WD Wash. 2004); In re Greenig, 152 F.3d 631, 632–34 (7th Cir. 1998).

The creditor argued that by listing the debt on its schedule, the doctrine of judicial admissions applies and the debtor is required to pay all the listed debts.

Judicial admissions are formal admissions in pleadings which have the effect of excluding a fact from examination and completely dispensing with the need for proof of the fact. Judicial confessions are definitively binding on the party who made them.

The Ninth Circuit ruled that it recognized the doctrine of judicial admissions, but never ruled that a bankruptcy schedule was considered a formal admission under the doctrine. The Court did not address this issue here either.

Instead, the court ruled that putting a debt on the bankruptcy lists, even if it is a judicial admission, does not remove the requirement to file a proof of claim. The Ninth Circuit explained that “Congress chose to require Chapter 13 creditors to file proof of claims demonstrating their intention to enforce their claims; the judicial confession of a debtor does not meet this strict requirement or its purpose.

The creditor attempted to argue that the listing of the debt on the schedules was informal proof of claim. “Creditors, failing to file formal proof of claim in a timely manner, often argue that informal proof of claim can work to establish creditor’s claims. ” See City. of Napa v. Franciscan Vineyards, Inc. (In re Franciscan Vineyards, Inc.), 597 F.2d 181, 183 (9th Cir. 1979).

“To be considered informal proof of claim: (1) the document must indicate an explicit demand indicating the nature and amount of the claim against the estate, and (2) the document must prove an intention to hold the debtor liable. ” Sambo’s Restaurants, Inc. v. Wheeler (In re Sambo’s Rest., Inc.), 754 F.2d 811, 815 (9th Cir. 1985).

In the Ninth Circuit, the establishment of an informal proof of claim requires, among other things, positive action by the obligee within the required time frame. About Bowden, 315 BR at 907 (rejecting argument that debtor’s lists alone are sufficient to establish informal proof of claim). In this case, the creditor took no positive action and relied solely on the bankruptcy schedules. The Court said that the schedules neither require nor demonstrate the intention to hold the debtor liable.

The creditor further argued that the debtor’s bankruptcy lists constituted proof of the debtor’s claim. However, the Court disagreed again. First, the bankruptcy schedules were not filed within the time limit for filing proof of claim and otherwise did not meet the requirements of Rule 3004. Second, the schedules do not constitute proof of the debtor’s claim. “Rule 3004 requires debtors to provide further evidence of their desire to include an unclaimed debt in their Chapter 13 plan after receiving notice of which creditors intend to assert their claims.” No further evidence of this type has been made by the debtor.

Finally, the creditor argued that it would be unfair if its claims were not upheld. The Ninth Circuit said that while this may not have been fair, it noted that it has previously “stated on several occasions that the time limit for filing a proof of claim in Chapter 13 proceedings is rigid and that the bankruptcy court does not have the equitable power to extend this time limit. afterwards.” In re rental of garden, 209 F.3d at 1148. Explaining further, the Court noted that it would be difficult for creditors to make a fresh start if creditors are able to continually add claims after time limits have expired. About Goodwin, 58 BR at 77).

As a result, the Court held that in order to participate in distributions of a debtor’s assets under its Chapter 13 plan, the creditor was required to file a proof of claim within the prescribed period, and the bankruptcy court ordered them. rightly rejected.



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