In re Kragness, Bankruptcy No. 683-08423.
| Decision Date | 08 February 1988 |
| Docket Number | Bankruptcy No. 683-08423. |
| Citation | 82 BR 553 |
| Parties | In re Rodney B. KRAGNESS and Aileen R. Kragness, Debtors. |
| Court | U.S. Bankruptcy Court — District of Oregon |
William M. McAllister, Portland, Or., for debtors.
Keith Y. Boyd, McGavic & Boyd, P.C., Eugene, Or., for trustee.
Randall Jordan, Dept. of Justice, Civil Enforcement Div., Salem, Or., Portland, Or., for Employment Division, State of Or.
ALBERT E. RADCLIFFE, Bankruptcy Consultant.
This matter comes before the court upon the amended proof of claim of the Employment Division of the Department of Human Resources of the State of Oregon (ED) and the trustee's objection thereto. The parties have consented to a determination of this matter by the bankruptcy consultant. Accordingly, this opinion is entered pursuant to Miscellaneous Order 87-21 of the United States District Court for the District of Oregon.
On April 6, 1987, the trustee, Gordon C. York, Inc., filed objections to numerous claims, including the claim of ED. In its objection, the trustee indicates that ED's claim is untimely and any payment thereon should be subordinated to timely filed claims.
ED requested a hearing on the trustee's objection. Accordingly, a hearing was held on September 8, 1987, at which the parties stipulated to the following facts.
Debtors filed their petition for relief under Chapter 7 of the Bankruptcy Code on December 7, 1983. The first date set for the § 341(a) meeting of creditors was January 10, 1984. The ninety (90) day period for the timely filing of proofs of claim prescribed by B.R. 3002(c) expired on April 10, 1984. On November 1, 1984, ED filed a priority tax claim for unpaid unemployment insurance taxes in the amount of $3,317.82. These taxes were for the period of time between January 1, 1982 and December 2, 1983.
Under Oregon law (O.R.S. Chapter 657), not all employers are subject to unemployment insurance taxes. Those that are, however, are required to register with the ED by submitting a combined employers' registration form and to file quarterly reports, (by which the taxes are calculated). Debtors did neither.
At the time the debtors filed their petition for relief herein, ED's policy was to request notices from this court of all bankruptcy petitions filed in the District of Oregon. In accordance with that policy, ED received notice of the debtors' bankruptcy in a timely manner.
Debtors, however, did not schedule ED as a creditor in their schedules. When ED received notice of debtors' bankruptcy it checked its records and found that debtors had not registered as a subject employer and that debtors had not submitted any quarterly reports. Accordingly, ED assumed that debtors were not subject to the unemployment insurance taxes and it discarded the bankruptcy notice.
In July, 1984, ED received a request from the Internal Revenue Service (IRS) seeking information on how much unemployment insurance taxes debtors had paid. On July 30, 1984, ED's Salem office requested that its Eugene office perform an audit of debtors to see if debtors were, in fact, subject employers subject to unemployment insurance taxes. The Eugene office conducted such an audit in August, 1984 and found that debtors were subject employers from January 1, 1982 to December 2, 1983. In the course of the audit, debtors advised the auditor about their pending Chapter 7 bankruptcy case.
The trustee contends that ED's claim was not timely filed. Accordingly, the trustee proposes to make no payment on ED's claim until all timely filed claims have been paid in full. The trustee argues that, upon receipt of the initial bankruptcy notice, ED could have filed a protective claim or a motion for an extension of time to file claims under B.R. 3002(c)(1). Since ED did neither, its claim must be subordinated as provided in 11 U.S.C. § 726(a)(3).
ED maintains that it did not receive effective notice of the bankruptcy in time to file a timely proof of claim, as such, its claim should not be subordinated.
In its claim, ED claims that its claim is entitled to priority as a tax claim pursuant to 11 U.S.C. § 507.
The validity and amount of ED's claim are not in dispute. The trustee has not contested the fact that ED would be entitled to priority distribution if its claim is treated as timely. This court must, therefore, decide what priority should be accorded to ED's claim in the distribution of the bankruptcy estate herein.
All statutory references are to the Bankruptcy Code, Title 11 U.S.C. unless otherwise indicated.
Did the ED have notice of the debtors' bankruptcy case in time to have filed a timely proof of claim? ED admits that it did receive a timely notice of this bankruptcy case pursuant to its policy requesting notice of all bankruptcies filed in this district. It argues, however, that since debtors had not registered with the ED and had not filed any quarterly reports, the ED had no reason to believe that it was a creditor in this case, hence, the effective notice of the bankruptcy came when the debtors informed ED's auditor about this case in August, 1984, long after the time specified in B.R. 3002(c) had passed.
A similar problem was before the court in Caffal Bros. Forest Products, Inc. v. Braun, (In re Braun), 84 B.R. 192 (Bankr. D.Or.1986) (Sullivan, J.). In that case, the plaintiff filed an untimely complaint to determine the dischargeability of a debt under § 523. The plaintiff conceded that it had received timely notice of the bankruptcy case, but argued that it did not learn of the grounds that gave rise to its complaint to determine dischargeability under § 523(a) (2), (4), or (6) until after the prescribed time for filing such complaints. The court dismissed the plaintiff's complaint stating that: "The problem with this argument is that regardless of the adequacy of the scheduling of the debt, Caffal Bros. did have notice of Braun's bankruptcy."
In short, the operative fact is whether or not the creditor has notice of the debtor's bankruptcy proceeding in time to file a timely proof of claim under § 726 or a complaint to determine dischargeability under § 523. The fact that the creditor may not be aware of the nature of its claim or the fact that it has a claim at all, is not determinative for the purposes of the timeliness requirement of § 726 and B.R. 3002(c).
Since the ED admits that it received a timely notice of this bankruptcy case, I conclude that it did have notice of the debtors' bankruptcy case in time to have filed a timely proof of claim herein.
Relying upon In re Sitzberger, 65 Bankr. 256 (Bankr.S.D.Cal.1986), however, the ED argues that this court may treat its claim as having been timely filed. In Sitzberger, the court on similar facts involving a Chapter 11 debtor, extended the IRS' time for filing under B.R. 3003(c)(3) and § 105, finding that IRS' neglect in not filing a timely claim was excusable under B.R. 9006(b).
The ED overlooks, however, the differences between a Chapter 11 reorganization case and a Chapter 7 liquidation case. In Chapter 11, the court fixes the time for the filing of proofs of claim and may extend the time for filing proofs of claim pursuant to B.R. 3003(c)(3). In Chapter 7, the time for filing proofs of claim is governed by B.R. 3002(c). This court may extend the time for filing a proof of claim under B.R. 3002(c) only to the extent allowed in that rule. B.R. 9006(b)(3). B.R. 3002(c) provides in pertinent part as follows:
The ED did not file its proof of claim within the 90 day period prescribed by B.R. 3002(c), nor did it move for an extension of time to so file within the time allowed by B.R....
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