Bloomberg Law’s® Bankruptcy Law News publishes case summaries of the most recent important bankruptcy law decisions, tracks major commercial bankruptcies, and reports on developments in bankruptcy...
By Daniel Gill
July 25 — Motions to lift the automatic stay of proceedings imposed in a Chapter 7 case don't count as “informal proofs of claim” that would save an undersecured creditor's late-filed claim against the bankruptcy estate ( In re Noggle, 2016 BL 233210, Bankr. C.D. Ill., No. 15-90708, 7/20/16 ).
Chief Judge Mary P. Gorman of the U.S. Bankruptcy Court for the Central District of Illinois on July 20 sustained the Chapter 7 trustee's objection to the claim filed by Illini FS in the bankruptcy case of co-debtors Kevin and Michelle Noggle.
In so doing, the court noted that the Seventh Circuit, and bankruptcy courts within the circuit, disfavor the “informal proof of claim doctrine” and found that the creditor's three motions for relief from stay did not purport to assert a claim against the bankruptcy estate and therefore didn't function as a proof of claim.
In Chapter 7 bankruptcy, a debtor's nonexempt assets are liquidated by a trustee, and the proceeds are distributed to creditors according to a priority scheme established in the Bankruptcy Code. In Chapter 7, creditors filing timely proofs of claim are paid before creditors tardily filing their claims.
Even though the debtor listed Illini FS, a division of GROWMARK, Inc., as a creditor in their official schedules filed with the court, the company failed to file a proof of claim after the court sent a notice to all creditors setting a bar date by which all claims must be filed.
The creditor filed a motion to have its claim deemed filed timely because it had filed motions for relief from the automatic stay prior to the expiration of the claims bar-date. The automatic stay is created by the filing of the bankruptcy case and halts all judicial proceedings against the debtor. A party must get court permission to lift the automatic stay in order to proceed with an action against the debtor or property of the debtor.
Here, the creditor filed its motions for relief from stay to get permission to pursue farm equipment and other collateral which secured the company's loans to the debtors. According to the debtor's schedules, they owed the company about $178,000, which debt was secured by equipment worth about $29,000. In bankruptcy, the creditor would hold a general unsecured claim for the amount of its debt less the value of its security.
The informal proof of claim doctrine “is an equitable doctrine developed by the courts to ameliorate the strict enforcement of the claims bar date,” the court said. But the Seventh Circuit, although it hasn't outright rejected the doctrine, “has not looked favorably on requests to approve such claims,” the court said.
The court decided that the doctrine failed in this case, because the relief from stay motions never asserted a claim against the bankruptcy estate, which is the purpose of filing a proof of claim. Instead, those motions “sought relief only as to the specific collateral described in each motion. None of the motions made a demand on the estate for the payment of Illini FS's claim,” the court explained.
Accordingly, the court denied the creditor's motion to have its claim deemed timely and sustained the trustee's objection to claim. The decision did not disallow the creditor's tardy claim.
The trustee Kristin Wilson, Charleston, Ill., appeared on her own behalf. The debtors were represented by Curtis A. Anderson, Danville, Ill.
Papers on behalf of Illini FS were filed by Mark A. Ludolph, Heyl, Royster, Voelker & Allen, Peoria, Ill.
To contact the reporter on this story: Daniel Gill in Washington at email@example.com
To contact the editor responsible for this story: Jay Horowitz at firstname.lastname@example.org
Copyright © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to email@example.com.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to firstname.lastname@example.org.
Put me on standing order
Notify me when new releases are available (no standing order will be created)