In re Bargdill, Bankruptcy No. 98-31070.
| Decision Date | 15 April 1999 |
| Docket Number | Bankruptcy No. 98-31070. |
| Citation | 238 BR 711 |
| Parties | In re Stephen L. BARGDILL and Connie S. Bargdill, Debtors. |
| Court | U.S. Bankruptcy Court — Northern District of Ohio |
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Thomas Luth, Celina, OH, for debtors.
Bruce C. French, Lima, OH, Chapter 7 Trustee.
Randy L. Reeves, Lima, OH, for Wagner Farms & Sawmill.
Michael A. Staudt, Sidney, OH, for Minster State Bank.
This case comes before the Court upon two separate Motions which the Court, for purposes of resolving common issues, has consolidated. The first Motion is by Minster Bank, a creditor of the above captioned Debtors, to Allow an Amended Proof of Claim. The second Motion was filed by the Trustee in this case and seeks to assign to Minster State Bank the Trustee's Interest in (1) several potential preference actions, and (2) a mortgage due to the Debtors. Wagner Farms & Sawmill, a party in interest, filed objections to both of these Motions. A hearing was subsequently held on these matters at which time all the Parties agreed that the issues presented in the aforesaid mentioned Motions were primarily questions of law. Accordingly, the Parties submitted briefs in support of their respective positions and were given the opportunity to respond to the arguments made by the opposing counsel. The Court has now reviewed these briefs and the arguments and exhibits contained therein, as well as the entire record of the case. Based upon that review, and for the reasons set forth below, the Court DENIES Minster Bank's Motion to Allow an Amended Proof of Claim, but only to the extent of disallowing an amended proof of claim and not to the extent of disallowing Minster Bank a subordinated claim under 11 U.S.C. § 726(a)(3); and the Court DENIES the Trustee's Motion to allow an assignment of the Trustee's Interests, but only to the extent of disallowing the assignment of the Trustee's interest in several potential preference actions.
The facts of this case are straightforward. The Debtors, Stephen and Connie Bargdill (hereinafter Debtors), operated a lumber brokerage company, the business of which was in large part financed by Minster State Bank (hereinafter Bank). However, for reasons not relevant to this proceeding, the Debtors' business failed, and thus on March 17, 1998, the Debtors petitioned this Court for relief under Chapter 7 of the United States Bankruptcy Code. At the time of the Debtors' Bankruptcy Petition, the Bank was owed the approximate sum of One Hundred Eighty-five Thousand Eight Hundred Ninety-one and 95/100 Dollars ($185,891.95) on two promissory notes which were partially secured by certain real estate owned by the Debtors.
On May 11, 1998, the § 341 meeting of creditors was held at which time Bruce French, the duly appointed Trustee in this case (hereinafter Trustee), was formally notified of the Bank's interest in the secured real estate. Shortly thereafter, asserting a lack of equity in the property, the Bank began consultations with the Trustee and the Debtors' counsel to obtain relief from the automatic stay so as to enable the Bank to effectuate the sale of the secured property. The Bank's efforts eventually culminated in all the interested Parties Stipulating to Relief from the Automatic Stay which was then memorialized in an Order entered by this Court on May 18, 1998. In addition, the Bank, being undersecured on its loan with the Debtors, assisted the Trustee in identifying various business transactions of the Debtors which could potentially yield additional funds for the benefit of the Debtors' bankruptcy estate. Specifically, the Bank alerted the Trustee to several potential preference actions, totaling as much as Seventy Thousand Dollars ($70,000.00), that may have occurred as a result of various prepetition transfers made by the Debtors, including several prepetition transfers made to Wagner Farms and Sawmill (hereinafter Wagner Farms). In addition, the Bank notified the Trustee of a promissory note, secured by mortgage, executed in favor of the Debtors which had an approximate outstanding balance at the time of the Debtors' bankruptcy petition of Nine Thousand Dollars ($9,000.00).
The assistance provided by the Bank in locating potential funds for the Debtors' bankruptcy estate, at least in part, caused the Trustee to revise his early assessment that the Debtors' bankruptcy estate had no available assets for distribution. (Notice of a "no asset case" was sent to all creditors on March 29, 1998, pursuant to Bankruptcy Rule 2002(e)). Hence, on May 21, 1998, the creditors listed in the Debtors' bankruptcy schedules were formerly sent notice that if they wished to share in any potential distribution from the Debtors' bankruptcy estate that they must submit a formal proof of claim to the Court by August 19, 1998. The Bank, however, through an inadvertent clerical error, failed to submit a formal proof of claim within this deadline. In fact, the only unsecured creditor to file a formal proof of claim within the deadline was Fifth Third Bank, who filed a claim for Three Thousand Eight Hundred Ten and 02/100 Dollars ($3,810.02) on July 1, 1998.
The Bank became cognizant of its failure to file a proof of claim on October 1, 1998, after discovering that the Trustee was not pursuing any of the potential preference actions disclosed by the Bank because sufficient funds had been available in the Debtors' bankruptcy estate to satisfy the one claim submitted by Fifth Third Bank. However, immediately thereafter, the Bank took immediate steps to rectify its mistake. Specifically, on October 15, 1998, the Bank filed a formal proof of claim along with a Motion to Amend its proof of claim. In addition, the Trustee, having satisfied Fifth Third's claim against the Debtors' bankruptcy estate, agreed to file a Motion to assign to the Bank the Trustee's interests in the potential preference actions and the mortgage due to the Debtors. Wagner Farms then filed objections to both of these Motions.
The Bankruptcy Code provides in pertinent part:
The allowance or disallowance of claims against the estate are core proceedings pursuant to 28 U.S.C. § 157(b)(2)(B). Thus, this is a core proceeding.
One of the fundamental tenants of bankruptcy law is to provide an orderly and equitable distribution of a debtor's bankruptcy estate. See McCartney v. Integra Nat. Bank North, 106 F.3d 506 (3d Cir.1997); Cohen v. Kar Products, Inc. (In re Repair and Maintenance Parts Corp.), 19 B.R. 575, 576 (Bankr.N.D.Ill.1982). To achieve this end, the Bankruptcy Code requires that any unsecured creditor wishing to receive a distribution from a debtor's bankruptcy estate submit to the court, within a specified period of time, a proof of claim enumerating the amount the creditor is owed from the debtor. In order to further facilitate this process, all proofs of claim are deemed allowed unless an objection is made. 11 U.S.C. § 502(a). However, conversely, a harsh penalty is imposed upon any creditor who fails to submit his or her proof of claim within the time allocated by the Federal Rules of Bankruptcy Procedure. Specifically, the Bankruptcy Code mandates that any delinquently filed claim be either subordinated to a timely filed claim, or the delinquent claim be altogether disallowed. 11 U.S.C. § 726(a); FED.R.BANKR.P. 3002.
In the instant case, there is no dispute that the Bank filed their proof of claim outside the time frame allocated by the Federal Rules of Bankruptcy Procedure. The Bank, however, argues that the Parties' Stipulated Agreement for Relief from Stay, which was filed with the Court within the time initially allocated by the Court to file a proof of claim, constituted an informal proof of claim to which the Bank's formal amended proof of claim related back. In the alternative, the Bank asserts that its late filed proof of claim should not be...
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