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Aug. 12 — The deadline for a secured creditor to file a proof of claim in bankruptcy isn't always a firm deadline depending on the circumstances, the U.S. Bankruptcy Appellate Panel for the First Circuit concluded.
Judge Joan N. Feeney said that the bankruptcy court was right to invoke the “informal proof of claim” doctrine in this case, because an objection the creditor filed contained information similar to a proof of claim and gave the debtor notice that the creditor intended to pursue the claim.
The court also noted that there is confusion surrounding one of the Bankruptcy Rules that deals with the timeliness of a proof of claim when it comes to secured creditors. An amendment intended to clarify this rule has been proposed, but has yet to be adopted.
Nationstar Mortgage failed to file a formal proof of claim in the bankruptcy case of debtor William Belser before the deadline. A proof of claim is a “written statement setting forth a creditor's claim” and generally acts to put a debtor on notice of the claim. But Nationstar did object to the debtor's plan before the proof of claim deadline, claiming that the plan didn't provide for “adequate treatment” of Nationstar's claim.
After the deadline for filing a proof of claim had passed, Belser filed a proof of claim on behalf of Nationstar, asserting a secured claim of $93,000 and an arrearage of $10,000. Debtors are permitted to file proofs of claim on behalf of creditors within 30 days after the expiration of the proof of claim deadline.
Several weeks later, Nationstar filed a proof of claim asserting a $158,490 secured claim and a $21,690 arrearage. The debtor objected to the claim and argued it should be disallowed as untimely filed.
Nationstar countered that the objection should be considered an informal proof of claim and that its untimely proof of claim was actually just amending the timely proof of claim the debtor filed on Nationstar's behalf.
The bankruptcy court ultimately agreed with Nationstar, finding that based on the combination of circumstances in this case, it would be “inequitable” to deny the proof of claim as untimely. The debtor appealed.
The bankruptcy appellate panel first noted a problem with Rule 3002 of the Federal Rules of Bankruptcy Procedure. While Rule 3002 stipulates that unsecured creditors and equity security holders must file a proof of claim “not later than 90 days after the first date set for the meeting of creditors,” the rule makes no reference to secured creditors. The court said this has led to much confusion over what should happen when a secured creditor files an untimely proof of claim.
An amendment to Rule 3002 has been proposed that would insert secured creditors into the rule and change the deadline requirements. An attorney at the Rules Committee Support Office told Bloomberg BNA on Aug. 11 that the Advisory Committee will decide in September 2015 whether to submit the proposed amendment to the Committee on Rules of Practice and Procedure, and that the earliest the amendment would become effective is December 2016.
The court found that Nationstar's objection did qualify as an “informal proof of claim,” even though the criteria in the First Circuit are somewhat hazy.
“Although the First Circuit acknowledges the doctrine of informal proofs of claim, it has never clearly articulated the criteria for determining whether a document may be considered an informal proof of claim,” the court said. “Nor do the courts in this circuit agree on a uniform set of standards for making that determination.”
The bankruptcy court based its ruling on a Massachusetts case and an Indiana case, which had slightly different criteria for an informal proof of claim. In affirming the bankruptcy court's finding, the appellate court noted that the objection was a “written document filed with the bankruptcy court prior to the claims bar date,” that it “stated the existence and nature of the debt,” and that it “set forth the total amount of Nationstar's secured claim, and that there was a pre-petition arrearage in the amount of $21,690.80.” The court also noted that the debtor “acknowledged the existence of Nationstar's claim multiple times.”
The appellate court agreed that these circumstances were “sufficient to establish an informal proof of claim.”
The court further found that Nationstar's proof of claim could be considered an amendment to the claim filed by the debtor. The court said that “[m]any courts have held that they have discretion to allow creditors to amend a proof of claim filed by the debtor on the creditor's behalf if it is equitable to do so,” and that “[i]t well established in the First Circuit that amendments to proofs of claim are freely allowed.”
The court distinguished between a “superseding” claim, a claim that may include a “broader spectrum of demands,” and an “amending” claim, which merely adjusts the terms of a previously filed claim. The court found that although Nationstar's proof of claim “increased the amount of the claim, it was grounded in the same right to payment and, therefore, was not a new or superseding claim.”
The court also rejected the debtor's argument that Nationstar lacked standing to make its objection. The court said that “a creditor does not lose its standing as a party in interest simply because it failed to file a timely proof of claim.” The court ended the decision with a warning to creditors.
“Although we affirm the bankruptcy court's holding, we pause to point out that when a secured creditor fails to timely file a proof of claim, it runs the risk of creating the exact procedural quagmire described above,” the court said. “Nationstar could have avoided this quagmire simply by filing a proof of claim before the claims bar date.”
Judges William C. Hillman and Diane Finkle joined Judge Feeney on the three-judge panel.
Raymond J. DiLucci of Raymond J. DiLucci, PA, Concord, N.H., represented the debtor.
Joseph Dolben of Marinosci Law Group, P.C., Warwick, R.I., and Shawn Michael Masterson of Shapiro Dorry Masterson, LLC, Providence, R.I., represented Nationstar.
To contact the reporter on this story: Stephanie Cumings in Washington at firstname.lastname@example.org
To contact the editor responsible for this story: Jay Horowitz at email@example.com
The proposed amendment to Rule 3002 is at: http://www.uscourts.gov/rules-policies/proposed-amendments-published-public-comment
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