Spokane Law Enforcement Fed. Credit Union v. Barker (In re Barker)

• Decision Date: 27 October 2016
• Docket Number: No. 14-60028,14-60028
• Citation: 839 F.3d 1189
• Parties: In re Marcella Lee Barker, aka Marci Barker, aka Marci Vanni Barker, Debtor, Spokane Law Enforcement Federal Credit Union, Appellant, v. Marcella Lee Barker; Robert Drummond, Chapter 13 Trustee; Ocwen Loan Servicing, LLC, Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

839 F.3d 1189

In re Marcella Lee Barker, aka Marci Barker, aka Marci Vanni Barker, Debtor,

Spokane Law Enforcement Federal Credit Union, Appellant,
v.
Marcella Lee Barker; Robert Drummond, Chapter 13 Trustee; Ocwen Loan Servicing, LLC, Appellees.

No. 14-60028

United States Court of Appeals, Ninth Circuit.

Argued and Submitted October 3, 2016, Seattle, Washington
Filed October 27, 2016

Quentin M. Rhoades (argued) and Francesca di Stefano, Sullivan Tabaracci & Rhoades P.C., Missoula, Montana, for Appellant.

Robert Drummond (argued), Great Falls, Montana; Kraig C. Kazda, Kazda Law Firm P.C., Great Falls, Montana; for Appellees.

Before: William A. Fletcher, Ronald M. Gould, and N. Randy Smith, Circuit Judges.

OPINION

N.R. SMITH, Circuit Judge:

If a creditor wishes to participate in the distribution of a debtor's assets under a Chapter 13 plan, it must file a timely proof of claim. The debtor's acknowledgment of debt owed to the creditor in a bankruptcy

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schedule does not relieve the creditor of this affirmative duty.

BACKGROUND FACTS

On September 6, 2012, debtor Marcella Lee Barker filed a Chapter 13 bankruptcy petition in the United States Bankruptcy Court for the District of Montana. Later that day, in response to the filed petition, the bankruptcy court issued an Official Form B9I, titled “Notice of Chapter 13 Bankruptcy Case, Meeting of Creditors, & Deadlines” (“Notice”). The Notice stated that the deadline for creditors¹ to file a proof of claim was January 8, 2013. On September 8, 2012, the Bankruptcy Noticing Center sent the Notice to the Appellee, Spokane Law Enforcement Federal Credit Union (“Credit Union”), by first class mail. On September 19, 2012, Barker timely filed her Chapter 13 plan with the bankruptcy court.² According to her attached certificate of mailing filed with the court, the plan was also sent to the Credit Union that day via first class mail.

On September 19, 2012, Barker also properly filed schedules of her assets and liabilities.³ In these schedules, Barker listed the Credit Union as a secured creditor holding a $6,646.00 purchase money security interest in a 2004 Ford F–150. Barker also listed the Credit Union as an unsecured creditor holding a $47,402.00 claim that had previously been secured by an unidentified automobile, which Barker's ex-husband had sold.

Barker moved to amend and modify the Chapter 13 plan several times over the next few months. Each time such a motion was filed, Barker sent a notice to the Credit Union. In addition, each time the bankruptcy court entered an order confirming the amended plan, the Bankruptcy Noticing Center notified the Credit Union.

On May 30, 2013, more than four months after the deadline to file a proof of claim expired, the Credit Union filed three claims with the bankruptcy court: a secured claim for $5,490.78 and unsecured claims for $28,293.94 and $24,587.47.⁴ In accordance with the Local Bankruptcy Rules for the United States Bankruptcy Court for the District of Montana, the Trustee sent a “Notice of Late Filed Claims” to the Credit Union on June 7, 2013.⁵ On June 10, 2013, the Credit Union

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requested a hearing “to contest the tardy response.” In this request, the Credit Union asserted that the claims were belated, because a “disgruntled employee” failed to timely file the claim. On July 31, 2013, the Credit Union filed a formal motion with the bankruptcy court requesting the court to allow the three claims. The court held a hearing on the matter on August 2, 2013. The court denied the Credit Union's motion and disallowed the claims because the proofs of claims were not timely filed.

On August 12, 2013, the Credit Union filed a notice of appeal with the bankruptcy court, and the appeal was taken to the Ninth Circuit Bankruptcy Appellate Panel (“BAP”). On March 28, 2014, the BAP affirmed the bankruptcy court's decision to disallow the late filed claims. On April 24, 2014, the Credit Union filed a timely notice of appeal to this court.

STANDARD OF REVIEW

“Whether a claim may be disallowed in a bankruptcy proceeding on the ground that the proof of claim was not timely filed pursuant to Rule 3002(c), Fed.R.Bankr.P., is a question of law subject to de novo review.” IRS v. Osborne (In re Osborne) , 76 F.3d 306, 307 (9th Cir. 1996) (italics omitted). Whether the Credit Union has asserted an informal proof of claim is also a question of law subject to de novo review. See Wright v. Holm (In re Holm) , 931 F.2d 620, 622 (9th Cir. 1991).

DISCUSSION

In order to fully understand the intricacies of the legal questions presented in this case, a short summary of Chapter 13 bankruptcy proceedings is helpful.

A petition filed under Chapter 13 helps overextended debtors reorganize their debt—while allowing them to keep their assets—by using “current and future income to repay creditors in part, or in whole, over the course of a three-to five-year period.” HSBC Bank USA, Nat'l Ass'n v. Blendheim (In re Blendheim) , 803 F.3d 477, 485 (9th Cir. 2015). A Chapter 13 case begins, like all other bankruptcy cases, “with the filing of a petition and the creation of an estate, which comprises the debtors' legal and equitable interests in property.” Id. at 484 (citing 11 U.S.C. § 541 ; Fed. R. Bankr. P. 1002(a) ). As soon as a debtor files a bankruptcy petition, all entities are immediately prohibited from further pursuing collection efforts against the debtor or the debtor's estate. Id. (citing 11 U.S.C. § 362 ). Along with the petition, a debtor must also file a schedule of assets and liabilities and a statement of financial affairs. Fed. R. Bankr. P. 1007(b)(1).

In order to collect a debt from a debtor filing a Chapter 13 bankruptcy petition, an unsecured creditor must file a valid “proof of claim,” which has gone through the “allowance process set forth in 11 U.S.C. § 502.” In re Blendheim , 803 F.3d at 484–85. A secured creditor, who wishes to receive distributions under a Chapter 13 plan, must also file a valid proof of claim. See id. at 485 ; see also Schlegel v. Billingslea (In re Schlegel) , 526 B.R. 333, 342–43 (9th Cir. BAP 2015). However, a secured creditor, who does not wish to participate in a Chapter 13 plan or who fails to file a timely proof of claim, does not forfeit its lien. In re Blendheim , 803 F.3d at 485 (“A creditor with a lien on a debtor's property may generally ignore the bankruptcy proceedings and decline to

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file a claim without imperiling his lien, secure in the in rem right that the lien guarantees him under non-bankruptcy law: the right of foreclosure.”).

A bankruptcy court may disallow a claim for many reasons, including if the proof of claim was untimely. 11 U.S.C. § 502(b)(9) ; In re Blendheim , 803 F.3d at 485. In order for a proof of claim to be timely, a creditor generally must file it within “90 days after the first date set for the meeting of creditors.”⁶ Fed. R. Bankr. P. 3002(c). If a creditor fails to file a timely proof of claim, a debtor or trustee may file a claim on the creditor's behalf within thirty days after the creditor's ninety-day clock has expired. Fed. R. Bankr. P. 3004.

The Credit Union admits that it filed its proofs of claims late. Thus, the bankruptcy court properly rejected the claims. However, it argues that the bankruptcy court still should have allowed it to participate in the Chapter 13 plan, because Barker listed the debt she owed the Credit Union in her bankruptcy schedules. We disagree.

The Federal Rules of Bankruptcy Procedure clearly provide that, in the Chapter 13 context, “[a]n unsecured creditor or an equity security holder must file a proof of claim or interest for the claim or interest to be allowed.” Fed. R. Bankr. P. 3002(a) (emphasis added). The Ninth Circuit has made it clear that this straightforward language should be given its “plain meaning” and enforced accordingly. Gardenhire v. IRS (In re Gardenhire) , 209 F.3d 1145, 1148 (9th Cir. 2000). In addition, “in a highly statutory area such as bankruptcy,” the Ninth Circuit prescribes “[c]lose adherence to the text of the relevant statutory provisions.” Id. (“[I]n a Chapter 13 proceeding: ‘Where the statutory language is clear, our “sole function ... is to enforce it according to its terms.” ’ ”) (quoting Rake v. Wade , 508 U.S. 464, 471, 113 S.Ct. 2187, 124 L.Ed.2d 424 (1993) ). A plain reading of the applicable statutes and rules places a burden on each Chapter 13 creditor to file a timely proof of claim. A claim will not be allowed if this burden is not satisfied.

There is other evidence, besides the plain language of the statute, that indicates Congress intended to place such a burden on the creditor. Specifically, a creditor in the Chapter 11 context is not always required to file a proof of claim. Varela v. Dynamic Brokers, Inc. (In re Dynamic Brokers, Inc.) , 293 B.R. 489, 495 (9th Cir. BAP 2003). Both the Federal Rules of Bankruptcy Procedure and the federal statutes governing Chapter 11 bankruptcy make clear that “in chapter 11 cases ‘it shall not be necessary for a creditor’ to file a proof of claim unless the claim is either not scheduled or is scheduled as disputed, contingent or unliquidated.” Id. ; Fed. R. Bankr. P....