January 16, 2009
Copyright © 2006-2008 by Steven L. Higgs, P.C. All Rights Reserved.
A. General
1. Except in Chapter 11 cases, in which certain scheduled claims are “deemed filed” [1] a creditor desiring to receive distributions in a bankruptcy case must file a timely proof of claim.[2]
2. A proof of claim is a written statement that sets forth the creditor’s claim.[3] It must conform substantially to Official Form 10, which can be found in the Bankruptcy Rules.[4] While completing the proof of claim form is not difficult, it must be done carefully to avoid mistakes that could give the trustee or the debtor grounds to defeat the claim.
3. In most cases, the Court will have sent to creditors a proof of claim form with the initial Notice of Commencement of Case.
4. With the implementation of mandatory electronic case filing (ECF) both districts in Virginia,[5] proofs of claim must be filed electronically if filed by counsel, unless the lawyer has obtained an exemption.
B. Definition of Claim
1. A “claim” in bankruptcy is defined as:
“(A) a right to payment, whether or not reduced to judgement, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured; or
(B) a right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured or unsecured.[6]
2. A “Debt” is defined in bankruptcy as “a liability on a claim.”[7]
3. Claims “arise” for bankruptcy purposes when all “transactions” or acts necessary for liability occur.[8]
4. A claim arises regardless of whether the claim is contingent, liquidated, or matured when the petition is filed.[9]
C. Filing Proofs of Claim
1. As noted above, proofs of claim must substantially conform to Official Form 10.
2. The creditor or the creditor’s agent must sign the proof of claim.[10]
3. Copies of the documents evidencing the claim, and evidence of perfection of any security interest claimed, must be attached to the proof of claim.[11]
4. The bar date establishes the date by which proofs of claim must be filed against the estate. The bar date is similar to a statute of limitations and must be strictly observed.[12]
5. For non-governmental creditors, claims must be filed within 90 days after the first date set for the meeting of creditors.[13] The bar date for governmental claims is 180 days after the date of the order for relief.[14]
6. In Chapter 11 cases, the court fixes the bar date for filing proofs of claim and notice of such deadline must be given to all creditors and parties in interest.[15]
7. A creditor may seek leave for an extension of time to file a late proof of claim due to inadvertence, mistake, or carelessness amounting to “excusable neglect” as well as due to intervening circumstances beyond the parties’ control.[16]
D. Secured Claims
1. “Secured claims” include “liens,”[17] “security,”[18] “security agreements”[19] and “secured claims.”[20]
2. An allowed claim secured by a lien on property in which the estate has an interest, or that is subject to setoff, is a “secured claim” to the extent of the value of the creditor’s interest in the estate’s interest in the property, or the amount subject to setoff.[21] A secured claim carries the right to “adequate protection” of collateral.[22]
3. Secured creditors are not required to file proofs of claim. The secured creditor holding a pre-bankruptcy lien need not file a proof of claim to preserve its status as a secured creditor, and the lien will pass through the bankruptcy case unaffected regardless of whether the secured creditor files a proof of claim.[23] When there is a pre-petition arrearage, the secured creditor may wish to file a proof of claim to establish its claim for treatment in a Chapter 11 or 13 plan. Similarly, where the claim is only partially secured, the creditor may wish to file a proof of claim to establish a claim for the unsecured portion of its debt.
4. Common Mistakes
a. Failure to provide proof of debt. Rule 3001(c) requires that evidence of all claims based on a writing be filed with the proof of claim form. Most claims have some documentary evidence that should be filed with the proof of claim.
b. Misuse of check boxes. Official Form No. 10 contains boxes to check only for secured and priority claims. An unsecured claim without priority status under the Bankruptcy Code is the default, and there is no box to check for unsecured, non-priority claims. Creditors should only claim secured or priority status if there is a good faith basis to do so.
b. Failure to provide proof of perfection of security interest. The nature of the proof required depends upon the requirements for perfection of a security interest in the underlying collateral. For example, the creditor should provide copies of certificates of title for motor vehicles and manufactured homes, a copy of the recorded deed of trust for real estate, and copies of the recorded UCC-1 financing statement(s) for security interests in other personal property. If the documentation is lengthy, a summary may be provided.
c. Improper claim of priority status. Priority claims[24] as prescribed by the Bankruptcy Code are paid before other claims, which is a considerable advantage. Creditors often claim priority status when they are not legally entitled to do so. A creditor should not file a proof of claim form alleging priority status without a good faith basis to do so.
d. Late Filed Claims. With few exceptions, claims filed after the bar date are subject to disallowance. Creditors who learn of a bankruptcy filing should file promptly a proof of claim even if they do not receive official notice from the Court.
e. Failure to indicate amended claim. Duplicate proofs of claim are a recurring problem for bankruptcy trustees. The proof of claim contains a box to check if a proof of claim replaces or amends a previously filed proof of claim. Creditors often file replacement or amended proofs of claim without checking the “replace” or “amends” box. This creates obvious confusion because it is not clear whether the latest claim is a new, separate claim. If the box is not checked, the debtor or the trustee may object on the grounds that one of the claims is a duplicate of the other, and an inattentive creditor may find that the preferred claim is disallowed. Checking the “amends” or “replace” box makes it clear that there is only one claim. It may be helpful to explain the reason for the amendment on the face of the proof of claim or in an attachment.
E. Allowance of Claims and Objections
1. If a proof of claim is timely and properly filed, it is “deemed allowed” unless a party in interest objects.[25]
2. Claims scheduled as undisputed, fixed or liquidated in Chapters 9 and 11 are deemed allowed even if no proof of claim is filed.[26]
3. A “party in interest” may object to the proof of claim.[27] The objection becomes a “contested matter.”[28] If the objection is joined with a demand for relief of the kind specified in Bankruptcy Rule 7001, it becomes an adversary proceeding.[29] At least 30 days notice of a hearing is required on an objection to a proof of claim.[30]
4. Once filed, a proof of claim constitutes “prima facie evidence of the validity and amount of the claim”.[31] As a result, the party objecting to a properly filed proof of claim has the initial burden of presenting sufficient probative evidence to overcome the prima facie effect of the proof of claim.[32]
5. Once the objector has produced “sufficient evidence to place the claimant’s entitlement at issue”, the burden of proof then shifts to the creditor to establish the validity and amount of its claim.[33] The claimant bears the ultimate burden of establishing a valid claim by a preponderance of the evidence.[34]
6. Neither the Bankruptcy Code nor the Bankruptcy Rules establish an absolute deadline for filing an objection to a claim. In Chapter 7 cases, objections should be filed prior to any distribution by the Chapter 7 trustee. In Chapter 11 cases, the plan of reorganization will often include a deadline to object to claims.
F. Effect of Filing a Proof of Claim.
1. A proof of claim supersedes the claim as scheduled by the debtor.[35]
2. A claim is “deemed allowed” unless and until an objection is filed.[36]
3. Only creditors holding allowed claims are entitled to vote on the confirmation of a Chapter 11 plan of reorganization.[37] If a party objects to a claim prior to the claimant voting on a plan of reorganization, the claimant is ineligible to vote on the plan. On request of the claimant, the Bankruptcy Court, after notice and a hearing, can temporarily allow the claim for voting purposes in an amount that the Bankruptcy Court deems proper.[38]
4. A creditor must hold an allowed claim in order to receive a distribution under a Chapter 7, a Chapter 13, or a Chapter 11 bankruptcy case.[39] A properly executed and filed proof of claim establishes a creditor’s allowed claim, unless a party in interest objects.[40]
5. There is some risk for a creditor in filing a proof of claim because the creditor is generally deemed to have submitted itself to the jurisdiction of the Bankruptcy Court for purposes of the claim and issues related to the treatment and payment of the claim. This may not be desirable in all circumstances. It may result in a waiver of the right to a jury trial.[41]
[1] 11 U.S.C. §1111(a); Fed. R. Bankr. Proc. 3003(b)(1). The schedule of liabilities filed in a case under Chapter 9 or Chapter 11 is “prima facie evidence of the validity and amount of the claims of creditors, unless they are scheduled as disputed, contingent or unliquidated.”
[2] 11 U.S.C. § 501; Fed. R. Bankr. Proc. 3002(a).
[3] Fed. R. Bankr. Proc. 3001(a)
[4] The proof of claim form can be downloaded from the website for the United States Courts at http://www.uscourts.gov/rules/Revised_Rules_and_Forms/BK_Form_B10.pdf
[5] See Standing Order 02-2, Order Adopting Case Management/Electronic Case Filing Procedures, (Bankr. E.D. Va. 2002), available at www.vaeb.uscourts.gov/ notice/standing_order_02-2.pdf; and see, Order Amending Administrative Procedures for Case Management/Electronic Case Filing (Bankr. W.D. Va. May 1, 2005, eff. October 1, 2005), available at http://www.vawb.uscourts.gov/courtweb/cmorder05.pdf
[8] See, Epstein v. Official Committee of Unsecured Creditors of Estate of Piper Aircraft Corp., 58 F.3d 1573 (11th Cir. 1995); Lemelle v. Universal Mfg. Corp., 18 F.3d 1268, 1274-77 (5th Cir. 1994); In re Jensen, 995 F.2d 925 (9th Cir. 1993); In re Chateaugay Corp., 944 F.2d 997 (2d Cir. 1991).
[9] See In re Stewart Foods, Inc., 64 F.3d 141, 146 (4th Cir. 1995) (“[T]hat the payments became due after the bankruptcy filing does not alter the conclusion that the payments are pre-petition obligations.”); In re Oxford Mgmt., Inc., 4 F.3d 1329, 1335 n.7 (5th Cir. 1993) (“A claim is not rendered a post-petition claim simply by the fact that time for payment is triggered by an event that happens after the filing of the petition.”); United States v. Gerth, 991 F.2d 1428, 1433 (8th Cir. 1993) (“[D]ependency on a postpetition event does not prevent a debt from arising prepetition.”); Braniff Airways v. Exxon, 814 F.2d 1030, 1036 (5th Cir. 1987) (“The character of a claim is not transformed from pre-petition to postpetition simply because it is contingent, unliquidated or unmatured when the debtor’s petition is filed.”)(quoting Morristown Lincoln Mercury, Inc., 42 B.R. 413, 418 (Bankr. E.D. Tenn. 1984)).
[10] Fed. R. Bankr. Proc. 3001(b).
[11] Fed. R. Bankr. Proc. 3001(c) and (d).
[12] In re Keene Corp., 188 B.R. 903, 907 (Bankr. S.D.N.Y. 1995).
[13] Fed. R. Bankr. Proc. 3002(c).
[14] Fed. R. Bankr. Proc. 3002(c)(1).
[15] Fed. R. Bankr. Proc. 3003 (c)(3). In the Eastern District, Local Rule 3003-1 requires that proofs of claim (other than governmental claims) in Chapter 11 cases must be filed within 90 days after the date first scheduled for the meeting of creditors.
[16] Pioneer Inv. Services Co. v. Brunswick Assocs. Ltd. P’ship, 507 U.S. 380 (1993). In re Nyeste, 273 B.R. 148 (Bankr. S.D. Ohio 2001).
[17] 11 U.S.C. § 101(37).
[18] 11 U.S.C. §101(49). This section includes a long list of assets included and excluded from the definition of “security.”
[21] Fed. R. Bankr. Proc. § 506(a).
[22] Fed. R. Bankr. Proc. §§ 361-364. See also, United Sav. Ass’n v. Timbers of Inwood Forest Assocs., 484 U.S. 365 (1988).
[23] See, Dewsnup v. Timm, 502 U.S. 410, 417 (1992); Cen-Pen Corp. v. Hanson, 58 F.3d 89 (4th Cir. 1995).
[25] 11 U.S.C. § 502(a); Fed. R. Bankr. Proc. 3003(f).
[26] Fed. R. Bankr. Proc. 3003(c)(2).
[28] See Fed. R. Bankr. Proc. 9014.
[29] Fed. R. Bankr. Proc. 3007.
[31] Fed. R. Bankr. Proc. 3001(f).
[32] In re C-4 Media Cable South, L.P., 150 B.R. 374, 377 (Bankr. E.D. Va. 1992).
[33] In re Taylor, 99 B. R. 371, 373-74 (Bankr. S.D. Ohio 1989).
[34] In re South Motor Co., 161 B.R. 532, 547 (Bankr. S.D. Fla. 1993).
[35] Fed. R. Bankr. Proc. 3003(c)(4).
[37] 11 U.S.C. § 1126(a).
[38] Fed. R. Bankr. Proc. 3018(a). See, Jacksonville Airport v. Micheldel, Case No. 05-1242 (4th Cir., decided January 19, 2006.
[39] Fed. R. Bankr. Proc. 3003(c)(2).
[41] See Granfinanciera S.A. v. Nordberg, 492 U.S. 33 (1989); Murray v. Richmond Steel & Welding Co. (In re Hudson), 170 B.R. 868, 875 (E.D.N.C. 1994)(creditor who files counterclaim against debtor in adversary proceeding loses right to jury trial because creditor seeks a piece of the debtor’s estate, subjecting creditor to the bankruptcy court’s equitable powers to allow or disallow claims).
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