Practitioners generally identify “excusable neglect” as the standard that bankruptcy courts apply in determining whether to allow a creditor’s untimely proof of claim. A creditor who lets the bar date pass finds itself in the undesirable position of having to persuade the bankruptcy court that its neglect to file a timely proof of claim was excusable. A recent decision from the United States Bankruptcy Court for the District of Kansas features a bit of role reversal and serves as a friendly reminder that the bankruptcy court can apply the very same standard in deciding whether to entertain a debtor’s late-filed objection to a claim.
In In re Prucres, the debtor and creditor MP Property Partners-90 acres, L.L.C. (“MP”) entered into a prepetition agreement to acquire real estate in California. MP also made a loan to the debtor secured by a deed of trust on the debtor’s interest in the real estate. When the debtor’s and MP’s principals had a falling out, litigation ensued, which was ongoing at the time of the debtor’s bankruptcy filing. When the debtor filed its bankruptcy petition, it scheduled MP’s claim as unliquidated and disputed.
The debtor’s confirmed plan of reorganization provided that claim objections were to be filed within 60 days after entry of the confirmation order. The debtor failed to object to MP’s proof of claim until 65 days after that objection deadline had passed. The debtor offered two explanations for its failure to file a timely claim objection: (i) debtor’s counsel failed to calendar the claim objection deadline; and (ii) debtor’s counsel sustained a concussion in a car accident and was sidelined for several weeks, including at the time of the claim objection deadline.
Adopting the factors set forth in the Supreme Court’s decision in Pioneer to an untimely claim objection, the bankruptcy court considered: (i) the prejudice to the creditor of allowing an untimely objection; (ii) the length of delay; (iii) the debtor’s reason for the delay; and (iv) the debtor’s good faith in requesting additional time. The bankruptcy court found that MP would not be prejudiced or surprised by the court’s allowance of the late-filed claim objection because, among other things, the debtor had scheduled the MP’s claim as disputed and the debtor stated explicitly in its plan of reorganization that it intended to object to MP’s claim.
In considering the debtor’s reasons for the delay, the court held (unsurprisingly) that counsel’s failure to calendar the claim objection deadline was inexcusable. The court pointed out that if counsel had properly calendared the objection deadline, one of counsel’s colleagues at his firm could have filed an objection or sought an extension. Deeming it a “close call,” the court “reluctantly” held that the car accident and concussion were circumstances beyond counsel’s control and MP was not prejudiced by the delay. Finally, the court held that the debtor did not wait until the last moment to object to MP’s claims.
This case serves as a reminder to debtor’s counsel of the importance of properly tracking – and calendaring – deadlines in a case. Although the debtor here was excused for its failure to file a timely claim objection, the court found circumstances to allow the untimely objection. Such may not always be the case.