We’ve previously commented on this blog on a number of decisions (see: (i) Too Little, Too Late: Ninth Circuit Holds Confirmation Objection Insufficient to Revive Untimely Complaint Objecting to Dischargeability of Debt, (ii) How Are Informal Proofs of Claim Like Informal Dress Codes? What You Can Get Away With May Depend on Whom You Ask; and (iii) No Proof of Claim, No Problem: Bankruptcy Court Finds Declaration to Be Effective as Informal Proof of Claim), regarding late filed proofs of claim (and the importance of avoiding them!) and the so called “informal proof of claim doctrine.” Under that doctrine, creditors rely on pleadings and other documents previously filed with a bankruptcy court prior to the passage of the claims bar date in an attempt to revive their late or otherwise untimely proofs of claim. And, putting aside the occasional exception to the rule, the overwhelming majority of cases that we have come across take a narrow reading of this doctrine and, generally, find that untimely proofs of claim should be revived only in very rare instances where there was an explicit written demand by the creditor for payment from the estate. A recent decision from the Bankruptcy Court for the Central District of Illinois is no different and re-affirms the importance for creditors to be mindful of bar dates and to timely file proofs of claim.

Background

In that case, the chapter 7 trustee for two debtors, a husband and wife, obtained a deadline for filing proofs of claim after determining that assets would be available for distribution to creditors. The order establishing the claims bar deadline was served on creditors and other parties in interest. Illini FS, an agri-finance company and secured creditor of the debtors as identified on the debtor’s schedules of assets and liabilities, received a copy of the bar date order but failed to file a proof of claim prior to the expiration of the deadline (they subsequently filed a proof of claim four months late).

About three months after the expiration of the bar date, Illini filed a motion for leave from the bankruptcy court to file a late proof of claim. In its motion, Illini asserted that it took multiple actions in the case that effectively put the chapter 7 trustee, the debtors and other creditors on notice of its claims. Specifically, Illini alleged that three separate motions for relief from the automatic stay that it had previously filed, collectively, constituted an informal proof of claim that could provide a basis for the allowance of a tardy formal proof of claim. The chapter 7 trustee filed an objection both to Illini’s motion as well as to the allowance and merits of the alleged claim.

Analysis

In general, section 502(b)(9) of the Bankruptcy Code provides that when a proof of claim is filed after the bar date, it should be disallowed. Furthermore, in a case filed under chapter 7, section 726(a)(3) provides that an untimely-filed claim is subordinated to timely-filed claims and may be paid only after all timely claims have been paid in full.

Although courts generally have discretion under Bankruptcy Rule 9006(b)(1) to extend deadlines set by the Bankruptcy Rules, no authority exists to extend the deadlines of Bankruptcy Rule 3002 except as expressly set forth in that Rule. The provisions of Rule 3002(c) that allow for the extension of deadlines set for the filing of proofs of claim are limited (i.e., claims of governmental units, claims of infants or incompetent people, unsecured judgment claims, rejection damage claims, claims filed after a notice of no dividend was previously given but a dividend later appears possible, and claims of foreign creditors where insufficient notice was given) and not applicable to the facts of the debtors’ case here. Illini, instead, relied on the “informal proof of claim” doctrine arguing that the three stay relief motions that it filed constituted a timely-filed informal proof of claim which could then be supplemented.

As other courts have previously stated, the bankruptcy court noted that in considering whether to allow an informal proof of claim, a court “must find that the informal proof of claim was in writing; the writing contained a demand by the creditor on the debtor’s estate; the writing expressed an intent to hold the estate liable; the writing was filed with the court; and it would be equitable to allow the claim.” The court further noted that the Seventh Circuit has generally taken a “strict approach” to the enforcement of claims bar dates and, although it had not expressly rejected the informal proof of claim doctrine, the Seventh Circuit “has not looked favorably on requests to approve such claims.”

After discussing the litany of Seventh Circuit cases demonstrating this very narrow and disfavored approach, the bankruptcy court, unsurprisingly, held that Illini’s three lift stay motions were insufficient to revive its late filed claim and, therefore, the claim itself would be denied. The bankruptcy court reviewed each of the lift stay motions (only two of which were filed before the expiration of the claims bar date) and found that, although certain of the motions provided details about the alleged debts, “none of the motions made a demand on the estate for the payment of Illini FS’s claim.” The bankruptcy court further held that there was “no fair reading of any of the stay relief motions that would support a finding that the motions were intended to be proofs of claim,”

Accordingly, the bankruptcy court denied Illini’s motion seeking leave to file a late proof of claim and sustained the trustee’s objection to the actual late-filed claim.

Conclusion

The Seventh Circuit’s decision in Noggle may not be groundbreaking but, as late filed claims appear to be an issue in every chapter 11 case, the lessons are worth repeating here. Creditors should be mindful of bar dates and vigilant to timely file proofs of claim. Anything less than that and creditors proceed at their own peril. Same as it ever was.