what to say for a late filed proof of claim for bankruptcy

8/9/2019 What to say for a Late Filed Proof of Claim for Bankruptcy

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Attributed to Woody Allen in Annie Hall (United Artists Entertainment 1977), but1

possibly dating from the Mesozoic Era.

WHAT TO SAY WHEN YOUR PROOF OF CLAIM

IS FILED AFTER THE BAR DATE

Understandably, creditors of bankruptcy debtors often feel

like restaurant patrons who not only hate the food, but think theportions are too small. To press the analogy, they also dont like1

having to wait in line for a table, possibly being seated only to find

out the kitchen has just closed. In re Omegas Group, Inc., 16 F.3d

1443 (6 Cir. 1994).th

Margaret A. Mahoney

Jeffery J. Hartley

United States Bankruptcy Court

Southern District of AlabamaMobile, Alabama

Margaret A. Mahoney, Jeffery J. Hartley, 1994


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All subsequent cites of the Federal Rules of Bankruptcy Procedure will simply be to a1

Rule.

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WHAT TO SAY WHEN YOUR PROOF OF CLAIM

IS FILED AFTER THE BAR DATE

This article discusses the common problem of late filed claims. What can creditors

counsel do when a bar date is missed? What should debtors counsel argue when faced with a

late claim? What plan drafting problems are created by late filed claims?

We have identified five excuses creditors may have to partially or completely validate

late filed claims. The five arguments are:

1. I filed a timely informal proof of claim;

2. I wasnt listed as a creditor on the schedules and I never knew about the

bankruptcy case until recently or I was scheduled but I never got notice;

3. I filed a claim that I can now properly amend to add additional amounts owed;

4. I filed the claim late, but I have an excuse; and

5. Even if its late, it should be allowed and paid as a tardily filed claim.

Of course, the end result always depends upon your facts and your judge.

I. I Filed a Timely Informal Proof of Claim

Rule 3001(a) of the Federal Rules of Bankruptcy Procedure states in part that a proof of1

claim is a written statement setting forth a creditors claim . . . . There is even an official form

to be used by creditors. See Official Form No. 10. In Chapter 7, 12, and 13 actions, the creditor

is given 90 days to file this formal proof of claim. In Chapter 11, the listing of the creditor on the

schedules will suffice as a proof of claim unless the debt is determined to be disputed,

contingent, or unliquidated, in which case the creditor will be provided at least a 20-day notice of


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any bar date in which to file a formal written, or, in some jurisdictions, a local rule will establish

a deadline. Rules 2002(a) and 3003(c)(3). When these requirements are not met, the question

arises whether a creditor that gave some written notice of its claim to the debtor and/or the court

can rely on that notice serving as an informal proof of claim.

The Seventh Circuit has concluded that while the filing of a written proof of claim is

prima facie evidence that the claim is valid, the absence of documentation does not necessarily

bar the creditor from ever establishing a claim. In re Stoecker, 5 F.3d 1022 (7 Cir. 1993). In theth

Stoeckercase, the court determined that there is no bankruptcy doctrine that seeks to punish the

creditor for a harmless error. In fact, the Stoeckercourt concurred with two other circuit courts

in concluding that informal proofs of claim are amendable as long as the omission was not

intended to mislead or harm anyone. SeeIn re Unioil, 962 F.2d 988 (10 Cir. 1992);In reth

Unroe, 937 F.2d 346 (7 Cir. 1991); Wilkens v. Simon Bros., 731 F.2d 462 (7 Cir. 1984) (perth th

curiam);In re South Atlantic Financial Corp., 767 F.2d 814 (11 Cir. 1985). Courts realize, ofth

course, that any time a late or improperly filed claim is allowed, there will be a decrease in assets

available to the other creditors; however, absent intentional wrongdoing, the harm is thought to

be negligible. In re Stoecker, 5 F.3d at 1028.

If the creditor is to establish the existence of an informal proof of claim, courts clearly

require that such informal claims must state an explicit demand showing the nature and the

amount of the claim against the estate and evidence an intent to hold the debtor liable. Sambos

Restaurants, Inc. v. Peggy Wheeler, 754 F.2d 811 (9 Cir. 1985) (quotingIn re Franciscanth

Vineyards, Inc., 597 F.2d 181, 183 (9 Cir. 1979) (per curiam), cert. denied, 445 U.S. 915, 100th

S.Ct. 1274, 63 L.Ed. 2d 598 (1980)).


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Although informal proofs of claim have taken various forms, there are no reported cases

of allowing an informal claim to stand that was simply communicated verbally. Court

appearances followed or preceded by written documentation, however, have served to solidify

the assertion of an informal proof of claim. SeePizza of Hawaii Inc. v. Shakeys, Inc., 761 F.2d

1374 (9 Cir. 1985).th

In Sambos, the Ninth Circuit Court of Appeals found that a complaint filed in related

Alabama state court civil litigation which set out the nature and amount of the claim was enough

to constitute an informal proof of claim. In other words, the court concluded that the informal

claim did not even have to be filed in a bankruptcy court. SeeFranciscan Vineyards, Inc., 597

F.2d 181 (9 Cir. 1979).th

Two other examples of informal claims accepted by the Ninth Circuit are:

Correspondence from a creditor to a trustee inquiring about the status of distribution mailed

during the period for filing a claim; and filing of a disclosure statement by a creditor stating its

intention to hold the estate liable for the debt. In re Anderson-Walker Industries, 798 F.2d 1285

(9 Cir. 1986) andIn re Halm, 931 F.2d 620 (9 Cir. 1991), contra In re Dauer, 165 B.R. 146th th

(Bankr. D.N.J. 1994) (a letter to the trustee in response to a subpoena request with the debtors

promissory note to creditor, a state court complaint and a stipulated settlement attached did not

constitute an informal proof of claim).

The Eleventh Circuit Court of Appeals has also adopted the rule that for any informal

claim to be binding, it must be capable of being amended. In re Intl Horizons, Inc., 751 F.2d

1213 (11 Cir. 1985). In this case, several months prepetition, the IRS had discussion with theth

debtor regarding alleged tax liabilities. After the bankruptcy filing, the IRS field a $70,000 proof


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of claim for withholding taxes but failed to file a claim for $20 million in corporate taxes.

Finally, over four months past the bar date, the IRS filed a notice of deficiency of the corporate

taxes. The debtor successfully had the bankruptcy court disallow the IRS late filed claim as to

the corporate taxes. The district court upheld this decision. On appeal, the Circuit Court upheld

the lower courts by concluding:

Mere 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 the law requires. An

informal claim may be asserted, if it can at all, only when it is apparent that the

creditor intends to seek recovery from the estate and when the informal proof of

claim is filed prior to the bar date. SeeWilkens v. Simon Bros., Inc., 731 F.2d

462, 465 (7 Cir. 1984) (The general rule is that a claim arises where the creditorth

evidences an intent to assert its claim against the debtor. Mere knowledge of theexistence of the claim by the debtor, trustee or bankruptcy court is insufficient).

Id. at 1217.

In the case ofIn re South Atlantic Financial Corp., 767 F.2d 814 (11 Cir. 1985), theth

court held that a notice of appearance that does not notify the court as to the existence, nature

and amount of the claim is not sufficient to substitute for a formal proof of claim. Id. At 819.

This three prong base of information existence, nature and amount has developed into an

important standard in litigation and case law in this area.

Following South Atlantic, the Eleventh Circuit Court of Appeals determined that not

every instrument filed prior to the bar date will serve as an informal proof of claim. In the

Chartercase, the court had to determine whether a motion for relief from stay meets the South

Atlantic test; apprising the court of the existence, nature and amount of the claim and whether it

was clear the claimants intent was to hold the debtor liable. In Charter, a motion for relief from

stay was filed and resolved prior to the bar date. Nevertheless, it was after the bar date that the

question of the relief from stay motion serving as an informal proof of claim was raised. The


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Court of Appeal found that the motion met the necessary criteria to constitute an informal proof

of claim. Id. at 866.

Amendable informal proofs of claim have taken many forms. Some courts are very

particular about the requirements, while others are more interested in the underlying claim itself.

In the case ofIn re Analytical Systems, Inc., 113 B.R. 91 (N.D. Ga. 1990), the court found that

simply listing a creditor on the schedules did not constitute a proof of claim. The court

concluded that allowing schedules to substitute for an actual claim would set a dangerous

precedent and lead to a practice of creditors amending their claims and asking for a greater

amount of money than initially scheduled. Id. at 95.

Some courts are not terribly specific in describing the requirements for an informal proof

of claim. In the matter ofIn re Gateway Investments Corp., 114 B.R. 784 (Bankr. S.D. Fla.

1990), the court summed the issue up this way:

The minimum requirement for amendment is that there must be something timely

filed with the bankruptcy court capable of being amended before the court will

permit a party to file an amended proof of claim.

Id. at 786 (citingIn re Intl Horizons, Inc., 751 F.2d at 1217;In re Sems Music Co., 24 B.R. 376,

380 (Bankr. M.D. Tenn. 1982)).

An attorney being unclear as to the need to file a proof of claim for a disputed claim

properly listed on the debtors schedules does not meet the necessary standards for an informal

proof of claim even though by listing the creditor on the schedules the debtor certainly had

knowledge of the claimant. In re Square Shooter, Inc., 130 B.R. 108 (Bankr. S.D. Ala. 1991). In

that case, the court concluded that mere knowledge by the debtor is not sufficient for a valid

proof of claim. Id. at 109.


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All subsequent cites to United States Bankruptcy Code sections will simply be to a2

specific section or .

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A counterclaim would likely be accepted as an informal proof of claim according to the

holding inIn re Malkove & Womack, Inc., 134 B.R. 965 (Bankr. N.D. Ala. 1991). However, the

court rejected the counterclaim in that instance because it was filed after the bar date. Id. at 971.

Nevertheless, the court gives every indication that based on previous Eleventh Circuit Court of

Appeals rulings, timely filed counterclaims could serve as informal proofs of claim.

The threshold requirements which have evolved from the South Atlantic case of apprising

the court of the existence, nature and amount of claim must always be met so as to establish an

informal claim. In the case ofIn re Stocks, 137 B.R. 516 (Bankr. N.D. Fla. 1991), the court

rejected all of the documents filed by the creditor including an objection to an examination

being taken of its present and past trustees, motion for relief from stay, motion to quash request

for production of documents, and a motion for a protection order because the requisite three

prong test was not satisfied. Id. at 520-21.

II. I Wasnt Listed as a Creditor on the Schedules and I Never Knew About the

Bankruptcy Case Until Recently or I Was Scheduled But I Never Got Notice

A crucial issue for a creditor is when the creditor received notice of bankruptcy and the

claims bar date. What happens if a creditor, who is properly scheduled, does not get notice of the

impending bar date? To properly answer this question, first you must decide what constitutes

notice. Bankruptcy Code 523(a)(3) and 726(a)(2)(C) use the phrase notice or actual2

knowledge. Although there is no universally accepted definition of this phrase, the Supreme

Court, inNew York v. New York, New Haven and Hartford RR Co., 344 U.S. 293, 73 S.Ct. 299,

97 L.Ed. 33 (1953), concluded that a reasonable opportunity to be heard must precede judicial


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denial of a partys claimed rights. Id. Following this case isReliable Electric Co., Inc. v. Olsen

Construction Co., 726 F.2d 620 (10 Cir. 1984), in which the court concluded that due processth

mandates proper notice and an opportunity to be heard. InReliable, the court found that the

discharge of a claim without reasonable notice is violative of the Fifth Amendment to the United

States Constitution . . . . Id. at 623. Finally, theReliable court concluded: A fundamental right

guaranteed by the Constitution is the opportunity to be heard when a property interest is at stake.

Id. at 623.

Regardless of the fact that theNew YorkCourt ruled well before the enactment of the

current Bankruptcy Code, many modern courts have accepted this holding. See In re Harbor

Tank Storage Co., 385 F.2d 111 (3d. Cir. 1967);In re Charter Co., 93 B.R. 281 (Bankr. M.D.

Fla. 1988);In re Aquaproof Roofing Co., Inc., 119 B.R. 864 (Bankr. M.D. Fla. 1990).

Regardless of the relevant case law, a working, practical definition of notice is nowhere

to be found in either the Bankruptcy Code or the Bankruptcy Rules. Some well respected

bankruptcy scholars have suggested that the adoption of the relevant section of the Uniform

Commercial Code (UCC) would solve the problem. See Epstein, Nickles and White,Bankruptcy

Practitioners Treatise Series, Vol. 2, Sec. 7-27 (1992). However, the UCC requires that the

notice must be received, (UCC 1-201(27)) which still does not resolve our initial question.

What happens if the creditor has no notice of the relevant bar date for filing claims?

Although there are various opinions on this point, the trend is to require the allowance of

late filed claims. In the case ofIn re Cole, 146 B.R. 837 (D. Colo. 1992), the court determined

that the notice requirements found in the Bankruptcy Code and the Bankruptcy Rules, coupled

with due process and fundamental fairness, lead to this conclusion. Id. at 839. The Cole case


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draws this conclusion based on the widely accepted fairness doctrine handed down in United

States v. Cardinal Mine Supply, Inc., 916 F.2d 1087 (6 Cir. 1990). In Cardinal Mine, the courtth

had to determine the fate of the IRS tardily filed claim in a chapter 7 case. The Sixth Circuit,

looking to the basic principles of justices held:

Due process and equitable concerns require that when a creditor does not have

notice or actual knowledge of a bankruptcy, the creditor must be permitted to file

tardily when the creditor does so promptly after learning of the bankruptcy.

In re Cole, supra at 841 (citing Cardinal Mine, supra at 1089).

In the matter ofIn re Spring Valley Farms, Inc., 68 B.R. 756 (Bankr. N.D. Ala. 1986), the

court discussed the relevant bankruptcy rules that require that all creditors are given written

notice of the bar date for filing claims. The Spring Valley decision concludes that written notice

is simply a good idea that aids tremendously in the equitable administration of bankruptcy. The

court pointed out:

Creditors are frequently . . . located a considerable distance from the bankruptcy

court and cannot personally review the court records. . . .Viewed from this

standpoint, the importance of full compliance with the notice requirements of the

Bankruptcy Code and Rules is obvious.

Id. at 759 (citation omitted).

Although under normal circumstances many debts are discharged even if a proof of claim

is timely filed, if the creditor did not have actual knowledge of the bar date, the debt may be

found to be nondischargeable. Section 523(a)(3). In re American Properties, Inc., 30 B.R. 247

(Bankr. D. Kan. 1983);In re Sullivan Ford Sales, Inc., 25 B.R. 400 (Bankr. D. Me. 1982).

Generally, if proper and adequate notice is not given to the creditor, courts have

traditionally either mooted or extended the bar date. See In re Dais, 936 F.2d 771 (4 Cir. 1991);th


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In re Coastal Alaska Airlines, Inc., 920 F.2d 1428 (9 Cir. 1990); United States v. Cardinal Mineth

Supply, Inc., 916 F.2d 1087 (6 Cir. 1990);In re Spring Valley Farms, 863 F.2d 832 (11 Cir.th th

1989).

III. I Filed a Claim That I Can Now Properly Amend to Add Additional Amounts Owed

If a creditor does in fact file an informal proof of claim, more than likely his next move

will be to amend the claim. Proofs of claim develop out of the need for as much certainty and

finality as possible in the bankruptcy process. The more realistic an idea the debtor has regarding

the quantity and amount of claims filed against the estate, the greater the chance a successful

discharge will result. In an attempt to alleviate uncertainty, 501(b) and (c) and Rules 3004 and

3005 allow either the debtor, the trustee, or another interested party to file a proof of claim on

behalf of a creditor.

To further enhance the degree of finality and likelihood of successful discharge, courts

have traditionally allowed informal proofs of claim to be amendable. See Rule 7015. Possibly

the most definitive case on this issue isIn re Franciscan Vineyards, Inc., 597 F.2d 181 (9 Cir.th

1979). If the three prong test that has developed is satisfied (a document which reveals the

existence, nature and extent of the claim), the critical question is whether the opposing party

would be unduly prejudiced by the amendment. In re Roberts Farms, Inc. 980 F.2d 1248 (9th

Cir. 1992) (citingIn re Wilson, 96 B.R. 257 (9 Cir. BAP 1988); U.S. v. Hougham, 364 U.S. 310,th

5 L.Ed. 2d 8, 81 S.Ct. 13 (1996). Although the opposing party will almost always suffer some

immediate harm if such an amendment is allowed, the balancing test weighs in great favor of

trying to facilitate a successful and completed bankruptcy.

Two leading cases in this area areIn re Sambos Restaurants, Inc., 754 F.2d 811 (9 Cir.th


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1985) andIn re South Atlantic, 767 F.2d 814 (11 Cir. 1985). In the Sambos case, a creditorth

filed a wrongful death action in an Alabama federal district court against the debtor who had

previously field a Chapter 11 petition in the Central District of California. Although this

wrongful death action was filed while the automatic stay was in effect, it was filed prior to the

expiration of the bar date for proofs of claim. After a procedural struggle, the wrongful death

action was dismissed without prejudice. Rather than refiling the wrongful death suit in another

court, the creditor sought to amend what they characterized as a timely filed informal proof of

claim. Sambos at 812. Consequently, the question before the Ninth Circuit was whether the

filing of the wrongful death action in Alabama satisfied the requisite steps to be considered an

amendable claim.

The Sambos court chose to apply the three partFranciscan Vineyards test which requires

that to be an informal claim, the documents must reveal the existence, nature and extent of the

claim. Sambos at 815. By applying this standard, the court concluded that the wrongful death

complaint clearly passed this test even though the civil complaint was not filed with the

bankruptcy court in California. Id. at 816.

Normally, actions taken in violation of the automatic stay are void. See Collier on

Bankruptcy, Section 362.11 (15 Ed. 1984). Nevertheless, the Sambos court was unable to findth

(nor have there been reported subsequently) any cases prohibiting such a complaint filed in

violation of the stay as serving an amendable claim. In fact, the court concluded that disallowing

the complaint was not logical and that such a rule would lead to absurd results. Id. at 815.

In summation, through the Sambos decision, the Ninth Circuit is favor of finality in the

bankruptcy process:


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considered filed when a creditor filed a complaint to begin an adversary proceeding arising

from a delinquent $20,000 loan made to the debtor. In re Sherret, 58 B.R. 750 (Bankr. N.D. La.

1986). In another instance, a court held that letters from a creditors attorney to the trustee prior

to the bar date gave notice to the court and the debtor of the creditors intentions so that the claim

was considered timely even though the claim was contingent. In re Oxridge Investment Group,

43 B.R. 418 (Bankr. D.N.H. 1984). Conversely, examples of the courts not allowing

amendments to be made include a case disallowing a landlords proof of claim relating to the

second of two leases because the amended claim did not involve the same cause of action set

forth in the first proof of claim,In re W.T. Grant Co., 53 B.R. 417 (Bankr. S.D.N.Y. 1985), and

the disallowance of an IRS tax claim filed some 20 months after the bar date which was unrelated

to a timely filed employment tax claim. In re Major Mud & Chemical Co., Inc., 81 B.R. 412

(Bankr. W.D. La. 1988).

IV. I Filed the Claim Late, But I Have an Excuse

Prior to the 5-4 United States Supreme Court decision inPioneer Investment Services Co.

v. Brunswick Associates Limited Partnership,507 U.S. 380, 113 S.Ct. 1489, 123 L.Ed. 2d 74

(1993), the circuit courts of appeal were split on the issue of what constituted excusable

neglect under Rule 9006(b). Rule 9006(b) allows a court to enlarge the time to file certain

pleadings such as Chapter 11 proofs of claim after the time to file has expired where the failure

to act was the result of excusable neglect. Pre-Pioneer, the Fourth, Seventh, Eighth, and

Eleventh Circuit Court of Appeals defined excusable neglect narrowly and required a showing

that the creditors delay in filing a proof of claim was caused by circumstances beyond the

creditors control. In re Davis, 936 F.2d 771 (4 Cir. 1991);In re Danielson, 981 F.2d 296 (7th th


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Cir. 1992);Hanson v. First Bank of South Dakota, N.A., 8328 F.2d 1310 (8 Cir. 1987);In reth

Analytical Systems, Inc., 933 F.2d 939 (11 Cir. 1991). The Sixth and Tenth Circuit used a moreth

flexible concept, weighing the creditors conduct against several factors: (1) whether granting

the delay would prejudice the debtor; (2) the length of the delay and its impact on efficient court

administration; (3) whether the delay was beyond the reasonable control of the person whose

duty it was to perform; (4) whether the creditor acted in good faith; and (5) whether clients

should be penalized for their counsels mistake or neglect. PioneerInvestments at 943 F.2d

673, 677 (6 Cir. 1991);In re Centric Corp., 901 F.2d 1514 (10 Cir. 1990).th th

In the 1993 Supreme Court opinion inPioneer, the Court found that courts should use the

flexible standard of the Sixth and Tenth Circuits in determining whether excusable neglect exists.

The Court held that the determination [of what constitutes excusable neglect] is at bottom an

equitable one, taking account of all relevant circumstances surrounding the partys omission.

Pioneerat 395. It listed four factors (eliminating the fifth factor in the lower courts list) to

consider: (1) the danger of prejudice to the debtor; (2) the length of the delay and its potential

impact on judicial proceedings; (3) the reason for the delay, including whether or not it was

within the reasonable control of the movant; and (4) whether the movant acted in good faith. Id.

The Supreme Court excluded the 5 factor used by the lower courts because it held the creditorth

accountable for its attorneys acts and omissions. Id. at 396. Counsel malpractice will not save a

creditor.

InPioneer, an attorney experiencing a major and significant disruption in his

professional life caused by withdrawal from his firm failed to file a timely claim on behalf of a

creditor. The creditor had turned the matter over to counsel and at that time specifically inquired


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of counsel whether a deadline for filing claims had been established. Counsel said no although a

deadline had in fact been set. The notice to creditors of the bar date was ambiguous. It stated:

You must file a proof of claim if your claim is scheduled as disputed, contingent

or unliquidated, is unlisted or you do not agree with the amount. See, 11 U.S.C.Sec. 1111 and Bankruptcy Rule 3003. Bar date is August 3, 1989.

The Supreme Court did not find counsels law firm breakup was excusable neglect for

the creditor but it did find that the notice of claims bar date was inadequate. Weighing the four

factors cited, the notice deficiency made the neglect excusable when coupled with lack of

prejudice to the debtor, estate and court and lack of bad faith on the creditors part.

The four justice dissent inPioneerstated that the majority incorrectly interpreted

excusable neglect in the context of Rule 9006(b). The dissent would look first at whether the

neglect was excusable in and of itself. It would then look to determine whether equity would

warrant relief based on other factors (i.e., prejudice, good faith, etc.) if excusable neglect had

been established.

Case Law Post Pioneer

Later court decisions have derived five factors fromPioneer. They are:

1. Adequacy of notice;

2. The danger of prejudice to the debtor;

3. The length of delay and the potential impact on judicial proceedings;

4. The reason for the delay, including whether it was within the reasonable control of

the movant; and

5. Whether the creditor acted in good faith.

Linder v. Trumps Castle Associates, 155 B.R. 102 (D.C.D. N.J. 1993) (factors 2, 3 and 4);In re

New York Trap Rock Corp., 153 B.R. 648 (Bankr. S.D.N.Y. 1993) (factors 2-5);In re R.H. Macy

& Co., 161 B.R. 355 (Bankr. S.D.N.Y. 1993) (factors 1-5);In re Byrne, 162 B.R. 816 (Bankr.


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W.D. Wis. 1993) (factors 2-5). However, as stated in theEagle-Picherdecision, these factors are

non-exclusive, non-formulaic guideposts given to us by the Supreme Court. In re Eagle-

PicherIndustries, Inc., 158 B.R. 713, 715 (Bankr. S.D. Ohio 1993).

Rule 9006(b) only applies to claims in Chapter 11 cases since Rule 9006(b) only allows

extension of the claims filing deadline after the expiration of it under Rule 3003 (applicable to

Chapter 11 claims) and not under Rule 3002. The ability to file late proofs of claim in Chapters

7, 12, and 13 cannot be premised on excusable neglect. In re Osman, 164 B.R. 709 (Bankr. S.D.

Ga. 1993). Late proofs of claim in all but Chapters 9 and 11 are always late except as permitted

under Rule 3002(c).

The following cases found excusable neglect existed:

1. Manousoff v. Macys Northeast (In re R.H. Macy & Co., Inc.), 166 B.R. 799

(S.D.N.Y. 1994). An elderly woman who spoke little English failed to timely file

a claim for slip and fall injuries. Her children periodically reviewed her mail and

upon finding claims bar date notice, they sent it to their mothers attorney who did

not review it. The attorney filed the claim 13 days late. The district court,

reversing the bankruptcy courts decision and remanding, found that the

bankruptcy judge erred in finding the late filing prejudiced Macys strictly

because fo the simple dollar-for-dollar depletion of assets otherwise available fortimely filed claims. Were it otherwise, virtually all late filings would be

condemned by this factor. R.H. Macy & Co. at 802.

2. In re Earth Rock, Inc., 153 B.R. 61 (Bankr. D. Idaho 1993). Creditor retained

counsel who did not file a claim because he felt creditor had an offset. In

weighing the factors, the court found (1) no prejudice in granting extension, (2)

adequate notice of bar date, (3) lack of filing beyond creditors [not counsels]

control, and (4) severe delay in bringing the motion (8 months), and still found

excusable neglect.

3. In re Arts Des Provinces de France, Inc., 153 B.R. 144 (Bankr. S.D.N.Y. 1993).

Service of notice of amended bar date on managing agent of landlord instead of

landlord is ground for late filing. The debtors may not assume the role of

righteous indignation when they contributed to the confusion. Arts at 147.


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4. In re Broadmoor Country Club & Apt., 158 B.R. 146 (Bankr. W.D. Mo. 1993).

Attorney miscopied own notes regarding the bar date to his calendar (5/3 to 5/13).

The claim was filed eight days late. The court reviewed four of thePioneer

factors and found that a time extension was justified.

5. In re Pettibone Corp., 162 B.R. 791 (Bankr. N.D. Ill. 1994). Cross complainantin prepetition personal injury action with filed but inactive state court suit at

bankruptcy filing filed late claim. Cross-claimant received no notices of

bankruptcy or of confirmed plan. In 1991, cross-claimant learned of Chapter 11

and also new third party claims were filed. The third party defendant was not

noticed of the bankruptcy bar dates. The court held that due to pooled plan

treatment of classes, very late claim filing (5 years) prejudiced no one. No

distributions had been made.

6. In re Forrest Marbury House Associates Limited Partnership, 163 B.R. 1 (Bankr.

D.C. 1993). A Chapter 11 administrative claim in a Chapter 7 case was filed 5

days late. The claim was allowed as timely due to inadequate notice. Theclaimant was not served with the notice of possible dividend and bar date after

receiving a notice of a no asset case earlier in the case.

Cases Finding No Excusable Neglect

1. In re McCrory Corp., 1994 WL 30470 (S.D.N.Y. 1994). Late filed insurance

claims were not allowed. A creditor filed a claim two months after the bar date.

The creditor had received only publication notice of the bankruptcy. The court

found publication notice was sufficient for tort claimants because they present a

special problem for the administration of a bankruptcy case.

2. In re Chateaugay Corp. et al., 1993 WL 127180 (S.D.N.Y. 1993). Reclamation

creditors claim was subject to a court ordered bar date. The creditor filed one day

late. Based upon thePioneerfactors, there was very adequate notice, a failure of

sophisticated creditors own internal procedures in claim filing process, and no

prejudice from one day delay, and the court found no excusable neglect weighing

these facts.

3. In re DAmico, 1993 WL 293293 (E.D. La. 1993). An attorney who failed to file

a claim for his own fees did not establish excusable neglect. The court found he

received adequate notice and filed 24 days late due to his own inadvertence.

4. In re Trump Taj Mahal Associates, et al., 1993 WL 534494 (D.N.J. 1993).

Personal injury claims were barred due to receipt of adequate publication notice.

Where tort claims are speculative and conjectural, no actual notice is necessary.

The court discussed whether excusable neglect can ever be a viable defense for


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claimants noticed by publication and this opinion contains a useful discussion of

the issue.

5. In re New York Trap Rock Corp., 153 B.R. 648 (Bankr. S.D.N.Y. 1993). County

CERCLA claim filed 15 months after claims bar date is not excusably late. The

County knew of claims 9 months before filing its motion. The debtor had alreadyfiled a plan which it had negotiated with creditors. The contingent CERCLA

claim would need to be liquidated which would delay confirmation. Weighing the

Pioneerfactors, the court found no excusable neglect.

6. Linder v. Trumps Castle Associates, 155 B.R. 102 (D.N.J. 1993). In reversing

and remanding the bankruptcy court decision on a tardy personal injury claim, the

court found that whether or not notice of a bar date was received was important to

an excusable neglect determination. The court analyzed what evidence is

sufficient to rebut a presumption of receipt of notice afterPioneer. The court held

that a creditors mere denial of receipt may be sufficient. The Court also found

that debtor noticed creditors litigation counsel of the bar date instead of creditorsbankruptcy counsel and this was significant to the determination.

7. In re McLaughlin, 157 B.R. 873 (Bankr. N.D. Iowa 1993). In their Chapter 7

case, debtors filed a motion to extend the time to file a proof of claim on behalf of

a state taxing authority. Per Rules 3004 and 9006(b), the excusable neglect

standard was the correct one for the court to consider for debtor filed claims in

Chapters 7, 12 and 13. Weighing thePioneerfactors, the court concluded that the

debtors would benefit by payment of the claim; but, allowance of the late claim as

timely would delay final distribution and closing; there was no evidence debtors

acted in bad faith. However, the reason for delay in filing was weak so no

excusable neglect was found.

8. In re Eagle-Picher Industries, Inc., 158 B.R. 713 (Bankr. S.D. Ohio 1993). The

asbestos related claim of a school district was filed two weeks late. The school

district stated its claim was tardy because the Districts overworked and

underfunded facilities staff filed it late due to other duties and priorities. Eagle-

Picherat 715. The court found the delay would not prejudice the debtor or

administration of the estate but the school district gave too little reason for its late

claim. Therefore, the court denied the extension of time to file.

9. In re Thomson McKinnon Securities, Inc., 159 B.R. 146 (Bankr. S.D.N.Y. 1993).

Where creditors counsel sent four letters to debtors counsel stating counsel had

several questions and concerns regarding [creditors] account when it was at

Thomson McKinnon and debtor did not list the creditor on its schedules, the

creditor had established excusable neglect.


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10. In re Specialty Equipment Companies, Inc., 159 B.R. 236 (Bankr. N.D. Ill. 1993).

The court found no excusable neglect because (1) allowing the claim potentially

invites the filing of hundreds of additional claims, (2) the plan was confirmed in

reliance on the bar date and claims known at confirmation, and (3) notice was

timely received by the creditor and its claim was still 6 months late.

11. In re R.H. Macy & Co., Inc., 161 B.R. 355 (Bankr. S.D.N.Y. 1993). The court

held that the presumption of receipt by creditors of properly mailed notices

resulted in a finding of adequate, unambiguous notice. The court also found that

there would be depletion of assets otherwise available to timely filers and

allowing such claims could start a deluge which would drain available judicial

resources. R.H. Macy at 361.

12. Roeder v. IRS (In re Bennys Leasing, Inc.), 166 B.R. 823 (Bankr. W.D. Pa.

1993). A late filed IRS was not allowed. The notice of the claims bar date was

served on the IRS regional service center and the IRS filed no claim until one year

after the bar date. The Court held that this did not constitute excusable neglect.

V. Even if its Late, It Should Be Allowed and Paid as a Tardily Filed Claim

If arguments 1 - 4 fail, there is one final line of defense to disallowance of a late filed

claim. However, it only applies in Chapter 7 cases. In Chapter 7 cases, an unsecured claim is

timely filed if filed within 90 days after the first date set for the 341 meeting. Rule 3002. A

timely filed unsecured claim, if allowed pursuant to 502, is paid according to the distribution

scheme established in 726(a) as a 726(a)(2) claim. A tardily filed unsecured claim, if allowed

pursuant to 502, is paid as a 726(a)(3) claim after timely filed claims. For a graphic display

of 726 priorities, see the chart below:


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This scheme relates only to unsecured creditors. In re Babbin, 156 B.R. 838 (Bankr. D.3

Colo. 1993). Fully secured creditors do not need to file claims. In re Judkins, 151 B.R. 553

(Bankr. D. Colo. 1993), holds that secured creditors do not need to file a timely proof of claim

(without reaching the issue of a tardy filing). Undersecured creditors do not need to file a claim

to protect any unsecured claim. See In re Harrison, 987 F.2d 677 (10 Cir. 1993);In re Padget,th

119 B.R. 793 (Bankr. D. Colo. 1990).

Priority claims, both timely and tardily filed, in many jurisdictions, are entitled to the4

726(a)(1) distribution priority. In re Vecchio, 20 F.3d 555 (2 Cir. 1994) (Chapter 7);In rend

Rago, 149 B.R. 882 (Bankr. N.D. Ill. 1992) (Chapter 7); See also U.S. v. Cardinal Mine Supply,

Inc., 916 F.2d 1087 (6 Cir. 1990);In re Forrest Marbury House Associates Limitedth

Partnership, 163 B.R. 1 (Bankr. D.C. 1993) (tardily filed administrative claims are entitled to

Section 726(a)(1) priority unless equitably subordinated). In other jurisdictions, tardily filed

priority claims are given Section 726(a)(3) status. IRS v. Ulrich (In re Mantz), 151 B.R. 928 (9th

Cir. BAP 1993);In re Tomlan, 907 F.2d 114 (9 Cir. 1990);In re Elec. Management, Inc., 133th

B.R. 90 (Bankr. N.D. Ohio 1991);In re Mayville Feed & Grain, Inc., 123 B.R. 245 (Bankr. E.D.

Mich. 1991).

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CHAPTER 7 DISTRIBUTION PRIORITIES3

Code Section Type of Claim Allowed Per

502

Timely Filed Tardily Filed

726(a)(1) priority claims (507) X X X4

726(a)(2) unsecured claims X X X(if no notice or

actual knowledge in

time for payment )

726(a)(3) unsecured claims X X

726(a)(4) fine, penalty,

forfeiture, punitive

damages

X Not clear

726(a)(5) legal interest onclaims (a)(1) - (a)(4)

X X Not clear

726(a)(6) debtor remainder


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CONCLUSION

As discussed, claims issues are rarely clear cut. Creditors counsel must be aware of the

possible opening given them by case law and the Bankruptcy Code. Debtors counsel must be

prepared for more frequent claims disputes and draft plans treating late claims to ensure

confirmability.

what to say for a late filed proof of claim for bankruptcy

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