The bankruptcy court (1) denied a mortgage lender’s request to file a late amendment to a proof of claim that had been filed on its behalf by the debtor and (2) confirmed the debtor’s proposed plan over the mortgagee’s objection that the plan payments were not sufficient to cure the actual arrearage. The lender appealed to the district court.
The debtor’s initial chapter 13 plan asserted that she was $35,000 in arrears on a mortgage loan. The mortgagee objected to the plan, contending that the debtor was actually ~$50,000 in arrears. The debtor then filed a proof of claim on the lender’s behalf, asserting that the total amount in arrears was $20,000. She also amended her plan several times, in each case providing for payment of $20,000 in arrears.
The mortgagee did not file its own proof of claim before the claims bar date. However, subsequent to the bar date it did file an objection to the amended plan on the basis that the arrearage was actually ~$50,600, and at the same time filed a motion for leave to file a late amended proof of claim. The bankruptcy court denied the motion to file an amended proof of claim and overruled the objections to the debtor’s plan.
On appeal, the district court considered whether the bankruptcy court’s findings of facts were clearly erroneous or the court was incorrect on matters of law.
On the issue of whether the mortgagee should have been permitted to amend the proof of claim filed by the debtor, the district court noted that courts often consider five factors, which it concluded boiled down to two questions: (1) whether the lender was “attempting to stray beyond the perimeters of the original proof of claim and effectively file a ‘new’ claim that could not have been foreseen from the earlier claim or events such as an ongoing or recently commenced audit,” and (2) the prejudice caused by the creditor’s delay.
The mortgagee made various arguments that the amendment was merely a correction, would not be unfair and would not cause any surprise. However, the court could not seem to get past the point that the lender offered no justification for its delay. The lender’s motion noted only that a proof of claim was required to go through an internal approval process to assure accuracy before it could be filed. The bankruptcy court did not find this to be a satisfactory explanation, commenting that it would not “let the internal procedures of [the lender] govern when proofs of claim are filed or when they are to be amended.”
The district court found that this was not an abuse of discretion. In response to the lender’s contention that this would limit the amount of a secured creditor’s claim “to whatever amount the Debtor alleged,” the court pointed out that this argument ignored that the lender had “ample opportunity to protect its rights.” It had more than four and one-half months to resolve the issue with debtor’s counsel or file its own proof of claim.
Status as a secured creditor “does not absolve it of its responsibility to diligently protect its claims and abide by the bankruptcy court’s deadlines. The Court does not interpret [case law] to permit a secured creditor to ignore deadlines at will and without justification.”
With respect to confirmation of the debtor’s plan, the lender argued that (1) plan payments did not fully cure the default since it was based on only $20,000 in arrears, (2) the plan effectively modified the first mortgage claim on the primary residence in violation of the Bankruptcy Code, and (3) in effect the plan would result in discharge of what would otherwise be a non-dischargeable debt. However, this turned on the proper amount of the arrearage. Although the lender filed the mortgage and note as supporting documentation, it did not include any documentation with respect to past due or missed payments. Since the lender did not produce any evidence, the court was left with the proof of claim executed by the debtor on the lender’s behalf, which constituted prima facie evidence of the validity amount of the claim under FRBP 3000(f).
The court emphasized that the failure to file a proof of claim was distinct from the failure to provide necessary documentation in support of its objection. If it had supported its objection, information would have been in the record notwithstanding the lack of a proof of claim. Consequently, the district court upheld the bankruptcy court and affirmed its denial of leave to amend the proof of claim and confirmation of the debtor’s plan over the lender’s objections.
This provides another example of why it is important for all parties to pay attention to what is going on in the bankruptcy case, since sooner or later they are going to be held accountable.