In re Dennis, Bankruptcy No. 97-50924.
| Citation | 230 BR 244 |
| Decision Date | 23 February 1999 |
| Docket Number | Bankruptcy No. 97-50924. |
| Parties | In re Harry and Regina DENNIS, Debtors. |
| Court | U.S. Bankruptcy Court — District of New Jersey |
Eric Leinbach, Eric Leinbach Law Offices, Easton, PA, for debtors.
David R. Lyons, Lyons, Doughty & Veldhuis, P.C., Mount Laurel, NJ, for Chrysler Financial Corporation.
Mary A. Krieger, Manasquan, NJ, for Robert M. Wood, Trustee.
This matter is before the court on the debtors' objection to the tardy filing of a proof of claim and to a tardy objection to confirmation by Chrysler Financial Corporation ("Chrysler") and Chrysler's cross-motion to file its proof of claim and its objection to confirmation out of time. The issues are (1) whether a secured creditor who chooses to file a proof of claim is bound by the 90 day "bar date" under Federal Rule of Bankruptcy Procedure 3002(c) and (2) whether Chrysler has shown excusable neglect warranting extension of time to file an objection to confirmation under Fed.R.Bankr.P. 3015(f) and 9006(b)(1). The court reserved decision on these motions on October 7, 1998. The court has jurisdiction pursuant to 28 U.S.C. §§ 1334(b), 151 and 157(a). This is a core proceeding under 28 U.S.C. § 157(b)(2)(A), (B) and (L) and (O).
For the reasons which follow, the court holds that a secured creditor who objects to "cram down" of its claim must file a timely proof of claim and timely objection to confirmation. If a tardy proof of claim and tardy objection to confirmation are filed and the debtor objects on the grounds of tardiness, the proof of claim shall be disallowed, the objection to confirmation shall be overruled and the secured creditor shall receive the payment proposed by the confirmed plan.
The debtors filed a petition for relief under chapter 13 of title 11, United States Code ("Bankruptcy Code" or "Code") on September 26, 1997. Ten days thereafter the debtors filed their chapter 13 plan providing in part for 36 monthly payments to Chrysler of $222.22 for a total of $8,000. The plan proposes a "cram down" of Chrysler, i.e. a payment of the value of the automobile securing Chrysler's claim in complete satisfaction of the lien, and a discharge of the remaining amount due Chrysler as an unsecured deficiency claim. On October 10, 1997, the court sent notice to Chrysler and all other creditors of commencement of the case and the meeting of creditors. The notice fixed the deadlines for objecting to confirmation and for filing proofs of claims as January 30, 1998 and February 5, 1998 respectively. Chrysler, the holder of a perfected security interest in the debtors' automobile, filed its proof of claim and objection to confirmation with the court on February 9, 1998. Copies of those papers were sent to debtors' counsel via telecopier on February 5, 1998. The debtors filed a motion objecting to Chrysler's tardy filing of its proof of claim and its objection to confirmation. Chrysler opposed the debtors' motion and cross-moved for authorization to file its proof of claim and its objection to confirmation out of time.
The debtors acknowledge that a secured creditor is not required to file a proof of claim if it does not wish to obtain a distribution under the plan. However, the debtors contend that if a secured creditor wishes to obtain a distribution under the plan it must file a proof of claim and it is bound by the same time limit which binds unsecured creditors.
Chrysler argues that its claim should be recognized by the court because it is not disallowed under 502(b)(9). Chrysler supports its argument by noting that chapter 5 of the Bankruptcy Code is applicable to chapters 7 and 13 alike. Therefore, since 502(b)(9) excepts from disallowance claims identified in section 726(a), Chrysler reasons that the exception automatically extends to chapter 13 cases as well. Moreover, in support of its cross-motion, Chrysler asserts that its failure to timely file an objection to confirmation was the result of excusable neglect. Consequently, Chrysler argues that its untimely objection to confirmation should be recognized. Alternatively, Chrysler argues that the court may object sua sponte to the "cram down" of Chrysler's lien in the plan.
The trustee contends that if a secured creditor does not file a timely proof of claim, it will receive the treatment proposed by the plan. The trustee agrees with the case law which disallows secured claims which are tardily filed, noting that without a bar date for all claims to be filed reorganization plans would be fraught with havoc. The trustee argues, however, that a secured creditor who fails to file a proof of claim by the bar date for claims may nevertheless be able to achieve the same result as a timely claim by raising a timely objection to confirmation. The trustee takes no position on whether the court should consider untimely objections to confirmation.
Bankruptcy courts have wrestled in recent years with whether the deadline for filing proofs of claims is applicable to secured creditors due to an apparent conflict between the Bankruptcy Code and the Federal Rules of Bankruptcy Procedure ("Bankruptcy Rules" or "Rules"). Bankruptcy Code section 501, titled "Filing of proofs of claims or interests," states that a creditor may file a proof of claim. 11 U.S.C. § 501(a). The corresponding Bankruptcy Rule 3002, similarly titled "Filing proof of claim or interest," states in subsection (a) that "an unsecured creditor . . . must file a proof of claim . . . for the claim . . . to be allowed. . . ." Fed. R.Bankr.P. 3002. The language of the Code is permissive. The Rule, however, indicates that filing a proof of claim is mandatory for an unsecured creditor's claim to be allowed. By negative implication, Rule 3002(a) suggests that a secured creditor's claim may be allowed without filing a proof of claim. Section 502 of the Code contradicts such an implication, however, in stating that "a claim . . ., proof of which is filed under section 501 of this title, is deemed allowed, unless a party in interest, . . ., objects." 11 U.S.C. § 502(a). Rule 3003(c)(2) provides a limited exception in chapter 9 and chapter 11 cases to the requirement that a proof of claim must be filed by providing that all scheduled claims which are not designated as disputed, contingent or unliquidated are deemed allowed. With that exception, however, which is only applicable in chapter 9 and chapter 11 cases, the Code clearly requires a proof of claim to be filed for a claim to be allowed. No exception is made for secured creditors in section 502, thereby indicating that a secured creditor's failure to file in accordance with section 501 will prohibit allowance of its claim. The only reasonable conclusion, therefore, in reading the Code and the Rules together, is that, with a limited exception for certain claims in chapter 9 and chapter 11 cases, any creditor, secured or unsecured, must file a proof of claim for its claim to be allowed. Prior to the decision in In re Hausladen, 146 B.R. 557 (Bankr. D.Minn.1992), decisional law was well settled that untimely filed claims were barred under the former Bankruptcy Act and the Rules. The Hausladen case held, however, that untimely claims are not barred under the Bankruptcy Code. Hausladen generated a storm of controversy. See In re Friesenhahn, 169 B.R. 615, 626 n. 23 (Bankr.W.D.Tex.1994) ().
Noting that Code sections 501 and 502 failed to provide a filing deadline, unlike their predecessor section 57(n) of the Bankruptcy Act, the Hausladen court reasoned that Congress' omission marked an intentional departure from the pre-Code practice of disallowing untimely proofs of claim. 146 B.R. at 559. The court acknowledged that Rule 3002 suggests that allowance is predicated upon timely filing a proof of claim. Id. However, the court attributed that to hasty drafting by Congress to mirror former Rule 302, not to any disregard by Congress of its intent to abandon the filing deadline. The Hausladen court observed that the language of old Rule 302 implemented the bar date set forth in the statute itself — section 57 of the Bankruptcy Act. Id. The Bankruptcy Code, unlike the Bankruptcy Act, contains no bar date. Therefore, to give meaning to this statutory change, the Hausladen court reasoned that filing within the 90 day deadline in Rule 3002 cannot be treated as a prerequisite to allowance. Id. at 559-60. Regardless of the implicit deadline in Rule 3002, the court stressed that Code section 502 governs allowance and to the extent that any inconsistency exists between the Code and the Rules, the Code governs. Id. at 559. Section 502 provides that a claim for which proof is filed under section 501 is deemed allowed unless one of the eight enumerated exceptions applies. 11 U.S.C. § 502(b). Finding that lateness was not listed among the exceptions to allowance, the court held that tardily filed claims were allowed. Id. at 559.
In an effort to reconcile the apparent conflict between the Code and the Rules, the court opined that the 90 day deadline merely identified a claim's status as timely or tardy, which is relevant in determining a claim's priority under section 726. Id. at 560. The court cautioned, however, that the treatment of a claim must not be mistaken for the allowance of a claim. Id. at 560-61. Although the court acknowledged that section 726 has no application in chapter 13, it held nonetheless that the allowance of tardily filed claims in chapter 7 supported its conclusion that untimely claims are not strictly barred. Id. at 560.
Although the Hausladen case had some following, it was sharply criticized by a number of bankruptcy courts. In re Zimmerman, 156 B.R. 192 (Bankr.W.D....
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