Understand the complexities and nuances of the Bankruptcy Code to better advise clients and prepare for court.
By Daniel Gill
May 17 — A creditor's claim filed eight days late in a Chapter 13 case may not be allowed as “excusable neglect,” the U.S. Bankruptcy Appellate Panel for the Sixth Circuit ruled.
In a May 11 opinion, the bankruptcy appellate panel ruled that “excusable neglect” did not allow a creditor to submit a late filed claim in a Chapter 13 case, irrespective of whether the debtor or other parties in interest were prejudiced by the late filing. The claim in this case was filed only eight days late.
A creditor having notice of a Chapter 13 bankruptcy case must file a timely claim or be barred from sharing in the plan distributions. Although there may be precedent allowing late-filed claims in Chapter 7 liquidation cases, the Bankruptcy Code and Federal Rules of Bankruptcy Procedure make no such exceptions in Chapter 13.
The debtors filed a Chapter 13 petition on Oct. 22, 2014. Chapter 13 allows individuals receiving regular income to obtain debt relief while retaining their property. To do so, the debtor must propose a plan that uses future income to repay a portion of her debts over a three to five year period.
Unsecured creditor Ohio Catholic Federal Credit Union moved the U.S. Bankruptcy Court for the Northern District of Ohio to have its proof of claim, filed eight days after the claims bar date, allowed as “excusable neglect.” It argued that there was a change of personnel within the creditor's organization, and the claims bar date notice was not sent to any particular individual.
The creditor also alleged that after a phone call with debtor's counsel, it expected to receive further communications from the debtor (which, presumably, would have provided clearer notice of the claims bar date). Finally, the creditor argued that since the proof of claim was only eight days late — and had no relationship with the timing for the confirmation hearing, since the original bar date expired after the confirmation hearing — there would be no prejudice to any party if the relief were granted.
After the bankruptcy court found excusable neglect, it ordered that the creditor could file its claim late. The BAP reversed.
The BAP noted that although Bankruptcy Rule 9006(b)(1) gives courts authority to extend certain time periods on a showing of excusable neglect, that relief is not available under Rule 9006(b)(3), which in turn lists Rule 3002(c). Rule 3002(c) lists the time frame for filing proofs of claim, and it does not provide for any extensions for excusable neglect.
Citing United States v. Chavis (In re Chavis), 47 F.3d 818 (6th Cir. 1995), the court explained that although there may be precedent allowing late-filed claims in Chapter 7 liquidation cases, the Code and Bankruptcy Rules make no such exceptions in Chapter 13. (Although the court does not mention the provision, Section 726(a) of the Bankruptcy Code specifically contemplates payments of “tardily-filed” claims in Chapter 7 cases; no such corollary exists in Chapter 13.)
After finding no statutory authority allowing the late filed claim, the BAP then considered whether the bankruptcy court could allow the late claim under its equitable powers. It could not, the court held.
Citing a number of cases, including the Supreme Court's decision in Law v. Siegel, 2014 BL 57926, 134 S. Ct. 1188 (2014) (26 BBLR 311, 3/6/14), the BAP explained that Section 105 of the Code, which authorizes bankruptcy courts to “issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title,” did not allow the courts to fashion relief that was explicitly excluded from operative sections of the Code.
The court said, “Even if the equities weigh against disallowing the late-filed claims, § 105 cannot be used to expand the Code and Rules to allow them.”
Similarly, the BAP concluded that the doctrine of “equitable tolling” would not apply to extend the time for the creditor to file its claim. The court found that the doctrine is inconsistent with the plain meaning of the rules, discussed above.
Moreover, the court found that even if equitable tolling might be available, it would not apply to the facts of this case because the creditor knew of the bankruptcy with adequate opportunity to file a timely proof of claim.
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