Opinion
Case No. 8:16-bk-01766-RCT
12-13-2016
In re Ronald E. Petsch and Carol Petsch, Debtors.
Chapter 13 MEMORANDUM DECISION AND ORDER ON SUNTRUST BANK'S AMENDED MOTION TO ALLOW LATE FILED CLAIM
A creditor must file a timely proof of claim to be paid under a chapter 13 plan. To the surprise of many, even the "excusable neglect" exception to this rule does not apply in chapter 13. The issue here is whether the judge-made "informal proof of claim" exception can save a late chapter 13 claim, when a similar claim was filed—on time—in the Debtors' prior chapter 13 case.
Under Fed. R. Bankr. P. 9006(b)(1), a party who misses a deadline may be saved if the "failure to act was the result of excusable neglect." This relief is not available to save a late chapter 13 claim. Fed. R. Bankr. P. 9006(b)(3), 3002(c).
BACKGROUND
The relevant facts are not disputed. Ronald Petsch, Carol Petsch, and their company Innovative Commercial Construction, Inc. ("ICC") agreed to a summary judgment in favor of SunTrust Bank ("SunTrust") on January 29, 2015. Two weeks later, on February 15, 2015, the Petsches filed their first chapter 13 case (the "First Case"), and ICC filed a chapter 11 case.
In re Petsch, Case No. 8:15-bk-01362-CED.
In re Innovative Commercial Constr., Inc., Case No. 8:15-bk-01359-MGW. SunTrust filed an identical claim in ICC's chapter 11 case. (Claim 4-2). SunTrust actively participated in ICC's chapter 11 and was paid $10,000. (Docs. 69, 99).
SunTrust filed two timely claims in the First Case: (i) an unsecured claim for $187,354.52, based on its summary judgment, and (ii) a secured claim for $45,755.44, based on an unrelated vehicle loan to the Petsches.
SunTrust's unsecured claim in the First Case is designated Claim 6-1.
SunTrust's secured claim in the First Case is designated Claim 4-1.
No doubt, the First Case was a struggle for the Petsches. For the better part of a year, they were unable to make monthly payments to the chapter 13 trustee or confirm a plan. Ultimately, the First Case was dismissed on December 30, 2015.
Three months later, the Petsches tried again. They filed a second chapter 13 petition on March 1, 2016 (the "Second Case"). The clerk of the court sent a notice to all creditors advising them of the new bankruptcy and the deadline for filing claims. (Doc. 8). That deadline (the bar date) was July 5, 2016.
SunTrust admits that it received notice of the Second Case and the bar date. Within days of the bar date notice, SunTrust filed a notice of appearance. (Doc. 10). On March 11, 2016, well before the bar date, SunTrust filed a secured proof of claim for $34,784, based on the vehicle loan. (Claim 3-1).
But SunTrust did not file an unsecured claim for its judgment until July 7, 2016—two days after the bar date (the "Late Claim"). The Late Claim is for $197,159.04. That same day, SunTrust filed a motion to allow its late claim. (Doc. 35). The motion was later amended. (Doc. 49). SunTrust concedes the bar date was missed because of a "calendaring error."
SunTrust's unsecured claim in the Second Case is designated Claim 14-1.
The Late Claim presumably includes post-judgment interest from the date of the judgment (January 29, 2015) through the date the Second Case was filed (March 1, 2016). It is unclear if the Late Claim accounts for the $10,000 payment made during ICC's bankruptcy case.
The chapter 13 trustee objects to the Late Claim as untimely and opposes SunTrust's motion to allow the late-filed claim. (Doc. 56). After a preliminary hearing, both SunTrust and the chapter 13 trustee submitted briefs to support their positions. (Docs. 57, 58). Debtors recently joined the chapter 13 trustee in objecting to the claim. (Doc. 60).
DISCUSSION
Positions
SunTrust acknowledges that its Late Claim cannot be saved by "excusable neglect" or any other exception in the Bankruptcy Rules. Instead, SunTrust argues that its claim in the First Case serves as an informal proof of claim in the Second Case. SunTrust also argues that disallowance of its claim will result in a windfall to the Debtors.
The chapter 13 trustee counters that late claims are not permitted in chapter 13 cases. She dismisses SunTrust's reliance on the "informal proof of claim" exception because the First Case is a completely different (and closed) case. She also argues that allowance of the Late Claim will reduce the dividend paid on timely-filed unsecured claims from 100% to 60%.
Debtors join the trustee's objection but offer no further argument.
Applicable Law
As originally enacted, the Bankruptcy Code did not provide for the disallowance of late claims. In re Uwimana, 284 B.R. 218, 220 (D. Md. 2000). Not until 1994 was section 502(b)(9) added to clarify that late claims can be disallowed. Id. Section 502(b)(9) now states that a claim shall be allowed, except to the extent that "proof of such claim is not timely filed . . . ." See generally In re Jensen, 333 B.R. 906, 908-09 (Bankr. M.D. Fla. 2005) (discussing the impact of the 1994 amendment).
Unless otherwise indicated, statutory references are to 11 U.S.C. §§ 101-1532 ("Code" or "Bankruptcy Code").
A chapter 13 claim is timely only if it is filed within 90 days of the first date set for the meeting of creditors. Fed. R. Bankr. R. ("Rule(s)") 3002(c). In the early stages of a case, notice of the bar date is sent to all creditors. Any creditor (secured or unsecured) who wants to be paid under a chapter 13 plan must file a claim before the deadline. Spokane Law Enforcement Credit Union v. Barker (In re Barker), 839 F.3d 1189, 1193 (9th Cir. 2016). Official Form 10 is the proscribed proof of claim form and is intended to comply with the requirements of Rule 3001(a).
Although the Bankruptcy Code and Rules allow some flexibility for late claims in chapter 11, virtually no such flexibility exists in chapter 13. For example, a properly scheduled claim is allowed in chapter 11, without the need to file a proof of claim. § 1111(a). But a timely proof of claim must be filed in chapter 13, regardless of how the claim was scheduled. In re Barker, 839 F.3d at 1195. "Excusable neglect" also may save a late claim in chapter 11—but not in chapter 13.
Compare Rule 3003(c), with Rules 9006(b)(1), 9006(b)(3), 3002(c). --------
These rigid rules result in harsh outcomes for late-filing chapter 13 creditors. E.g., Weisheipl v. Sandstrom (In re Weisheipl), No. G12-21179-REB, 2013 WL 5429931, at *5 (Bankr. N.D. Ga. Sept. 6, 2013) (disallowing a claim faxed to the debtor and trustee before deadline, but filed with the court two days late); In re Laprade, No. 07-80001-WRS, 2007 WL 2301101, at *4 (Bankr. M.D. Ala. Aug. 9, 2007) (disallowing a claim filed one day late); In re Harris, 341 B.R. 660, 664-65 (Bankr. N.D. Ind. 2006) (disallowing a claim mistakenly filed in debtor's prior bankruptcy case). Such results are dictated by the applicable statutes, rules, and policies, which all combine to limit the discretion to allow late claims in chapter 13 cases. See generally In re Barker, 839 F.3d at 1195-97.
Still, "[u]nder some circumstances, actions by a claimant which do not amount to a formal proof of claim may constitute an informal proof of claim." Charter Co. v. Dioxin Claimants (In re Charter Co.), 876 F.2d 861, 863 (11th Cir. 1989). The informal proof of claim exception appears to have survived the 1994 amendment to section 502(b). In re Uwimana, 284 B.R. at 220-21. And this exception remains a viable tool to rescue a late chapter 13 claim. See, e.g., Belser v. Nationstar Mortgage, LLC (In re Belser), 534 B.R. 228, 239-40 (B.A.P 1st Cir. 2015) (finding that an objection to a chapter 13 plan was an informal proof of claim); Garza v. J.D. Foods, Inc. (In re Garza), No. 4:05-CV-694-A, 2006 WL 1317015, at *1-2 (D. N.D. Tex. May 15, 2006) (finding that a motion to lift stay was as an informal claim). Indeed, an informal proof of claim may be the last refuge for a late chapter 13 claim.
Informal proofs of claim have actually been around for more than a century. Barlow v. M.J. Waterman & Assocs., Inc. (In re M.J. Waterman & Assocs., Inc.), 227 F.3d 604, 608 (6th Cir. 2000). They are equitable exceptions to rigid claim deadlines. Simply stated, in chapter 13, an informal proof of claim is a document filed within 90 days of the first date set for the meeting of creditors that can be amended after the bar date to conform to the requirements of Rule 3001(a). In re Garza, 2006 WL 1317015, at *2. If a timely informal proof of claim is found, the court may allow the late-filed formal proof of claim as an amendment. Biscayne 21 Condo. Assoc., Inc. v. S. Atl. Fin. Corp. (In re S. Atl. Fin. Corp.), 767 F.2d 814, 819 (11th Cir. 1985), cert. denied, 475 U.S. 1015 (1986).
But the Eleventh Circuit cautions that "[n]ot every document filed in the bankruptcy court will constitute an informal proof of claim . . . ." In re Charter, 876 F.2d at 863. The filed document must "apprise the court of the existence, nature and amount of the claim (if ascertainable) and make clear the claimant's intention to hold the debtor liable for the claim." Id. at 863-64 (citing In re S. Atl. Fin. Corp., 767 F.2d at 819); accord Nikoloutsos v. Nikoloutsos (In re Nikoloutsos), 199 F.3d 233, 236 (5th Cir. 2000).
Allowing informal proofs of claim eases the harshness of rigid bar dates, elevates substance over form, and permits claims to be judged on their merits. Common examples of informal proofs of claim include: (i) a motion to lift stay, (ii) a complaint objecting to the dischargeabilty of a debt, and (iii) a detailed objection to a chapter 13 plan. See In re Charter, 876 F.2d at 864. To qualify, these documents must be filed within the time required by Rule 3002(c). They must also include a description of the nature and amount of the claim, and convey an intent to hold the debtor liable for the claim. Id. at 863-64.
Finally, because the burden to file a timely a claim falls squarely on the creditor, Rule 3002(a), Barker, 839 F.3d at 1194, the creditor bears the burden of proving an informal proof of claim. E.g., In re McCutchen, 536 B.R. 930, 939 (Bankr. N.D. Okla. 2015); In re Dumain, 492 B.R. 140, 149 (Bankr. S.D.N.Y. 2013).
Analysis
Nothing filed by SunTrust in the Second Case satisfies the requirements for an informal proof of claim. Its notice of appearance does little more than suggest that SunTrust wishes to monitor the case, perhaps to keep track of its timely-filed claim for the vehicle loan. See In re S. Atl. Fin. Corp., 767 F.2d at 820. Nor can its unrelated claim for the vehicle loan be amended to include the judgment. See United States v. Int'l Horizons, Inc. (In re Int'l Horizons, Inc.), 751 F.2d 1213, 1216-17 (11th Cir. 1985). SunTrust does not seriously argue these points. Instead, if the Late Claim is to survive, it must be on the back of the claim filed in the First Case.
SunTrust's proof of claim in the First Case meets the technical requirements of Rule 3001(a). See In re Charter, 876 F.2d at 863-64. It is after all a proof of claim on Official Form 10. But it is also plainly a demand for payment from the first bankruptcy estate, established in early 2015. The problem is that, when the First Case was dismissed, the assets of that estate were released from the court's jurisdiction. A new case was filed, and a new bankruptcy estate was created in early 2016.
SunTrust's position that the Second Case is a continuation of the First Case is a tempting, but difficult, stretch. Unfortunately, SunTrust cannot point to any authority allowing a claim from a prior bankruptcy to serve as an informal proof of claim in a later, separate bankruptcy.
The cases cited by SunTrust are mostly converted—not dismissed—bankruptcies. And, frankly, I have no quarrel with these authorities. A converted case is the same bankruptcy case—proceeding under a different chapter. Section 348 of the Bankruptcy Code explains exactly how claims and property move from one chapter to the next in the event of a conversion. But a conversion "does not effect a change in the date of the filing of the petition, the commencement of the case, or the order for relief." § 348(a). The case does not end, and assets remain with the estate.
In sharp contrast, dismissal ends a case and dissipates the assets. Under section 349, a dismissal actually undoes much of what was accomplished in the dismissed case. It reinstates any pre-bankruptcy receivership, and it reinstates any liens or transfers that were avoided during the dismissed case. §§ 349(b)(1)(A), (B). Certain orders are vacated. § 349(b)(2). But the biggest difference between conversion and dismissal is that—with dismissal—property of the estate returns to the debtor, subject (of course) to all existing claims and liens. § 349(b)(3). After dismissal, no bankruptcy case or bankruptcy estate remains.
For SunTrust, dismissal of the First Case meant that it could claim post-judgment interest from the date of its judgment to the filing date of the Second Case. It also meant that SunTrust was free to perfect and execute on its judgment lien for the three months that the Debtors were not in bankruptcy. These remedies are not available to SunTrust in a converted case.
When the Second Case was filed, a new bankruptcy estate was formed. §§ 541(a), 1306. A new bar date was set. (Doc. 8). And a new and different chapter 13 plan was filed by the Debtors. (Doc. 2).
Although SunTrust's two formal claims in the First Case prove a clear intention to hold the Debtors and their bankruptcy estate liable for both claims in the First Case, it does not follow that those claims carry over to the Second Case. In re Harris, 341 B.R. 660, 664-65 (Bankr. N.D. Ind. 2006) (holding that a proof of claim mistakenly filed in the debtor's prior bankruptcy case could not be an informal proof of claim); see Northeast Office & Commercial Props., Inc. v. Smith Valve Corp. (In re Northeast Office & Commercial Props., Inc.), 178 B.R. 915, 919 (Bankr. D. Mass. 1995) ("A proof of claim, formal or informal, filed in one case has no effect as a claim in another case."); cf. In re Int'l Horizons, 751 F.2d at 1217 ("[M]ere notice of a claim alone is not to be called an informal proof of claim and does not excuse the absence of a proper timely proof as the law requires."). Indeed, SunTrust knew that its claims did not carry forward to the new case—that is why it filed a timely secured claim for the vehicle loan in the Second Case.
SunTrust's best case for allowing an informal proof of claim is In re L. Meyer & Sons Seafood Corp., 188 B.R. 315 (Bankr. S.D. Fla. 1995). There, a company that filed an "assignment for the benefit of creditors" in state court was then dragged involuntarily to bankruptcy court. Id. at 316. The bankruptcy converted back and forth, from chapter 7 to chapter 11, then back to chapter 7. Id. All the while bankruptcy notices—including the bar date notice—were served using an erroneous mailing matrix. Id. at 316-17. Creditors from the assignment case knew of the bankruptcy, but never received notice of the bar date. Id. Recognizing that many creditors missed the bar date, the chapter 7 trustee even moved to extend the bar date. Id. at 317. But the motion was denied when no one showed up for the hearing. Id.
The procedural mess facing the bankruptcy court was daunting. After reviewing these extraordinary circumstances, the court determined that the proofs of claim filed in the assignment case should be treated as timely informal claims that could be amended in the chapter 7 liquidation. Id. at 320. In so ruling, the court noted that the informal claims filed in the assignment case had been transferred to the chapter 7 trustee well before the bar date. Id.
SunTrust argues that L. Meyers & Sons stands for the proposition that a document need not be filed in the Second Case to be an informal proof of claim. Again, I do not disagree with this proposition in the right case. For example, in chapter 11, a proof of claim sent to debtor's counsel and to the U.S. Trustee might be an informal proof of claim. E.g., Hi-Tech Comms. Corp. v. Poughkeepsie Bus. Park, LLC (In re Wheatfield Bus. Park, LLC), 308 B.R. 463, 469 (B.A.P. 9th Cir. 2004). Yet in chapter 13, similar facts lead to a very different result. E.g., In re Weisheipl, 2013 WL 5429931, at *5. The lesson from these cases is that the Bankruptcy Code, the Bankruptcy Rules, as well as sound practical and policy reasons simply counsel against overreaching for an informal proof of claim in chapter 13. See generally In re Pajian, 785 F.3d 1161, 1163-65 (7th Cir. 2015) (discussing why even secured claims must be timely filed chapter 13).
SunTrust also is not in the same position as the creditor in L. Meyer & Sons. SunTrust received actual notice of the bar date. SunTrust knew that it had to file a claim in the Second Case by July 5, 2016. In fact, one of its claims was filed well in advance of the deadline. SunTrust is a sophisticated participant in bankruptcies, and it was represented by excellent counsel. As sympathetic as I am to its plight, and I am, it is too much of a stretch to recognize the claim filed in the First Case as an informal proof of claim in the Second Case.
For these reasons, it is
ORDERED:
1. SunTrust's Amended Motion to Allow Late Filed Claim as Timely is DENIED.
2. The chapter 13 trustee's Objection to Claim 14-1 is SUSTAINED.
3. Claim No. 14-1, filed by SunTrust Bank, is DISALLOWED.
ORDERED.
Dated: December 13, 2016
/s/_________
Roberta A. Colton
United States Bankruptcy Judge Attorney R. Marshall Rainey is directed to serve a copy of this order on interested parties who are non-CM/ECF users and file a proof of service within 3 days of entry of the order.