In re Schaffer, Bankruptcy No. 93 B 51586.
| Decision Date | 13 October 1994 |
| Docket Number | Bankruptcy No. 93 B 51586. |
| Citation | 173 BR 393 |
| Parties | In re Bobby L. SCHAFFER and Wendy L. Schaffer, Debtors. |
| Court | U.S. Bankruptcy Court — Northern District of Illinois |
Gary C. Flanders, Rockford, IL, for debtors.
Darren L. Besic and Kevin M. Kelly, Lombard, IL, for Bank One.
Mary P. Gorman, Rockford, IL, has not participated in the submission of briefs, for trustee.
This matter comes before the Court on the Motion of Bank One — Milwaukee ("Bank One") to Allow a Late Filed Claim, Debtor's Memorandum, and Bank One's Reply to Debtor's Memorandum. The Debtor is represented by Attorney Gary C. Flanders. Bank One is represented by Attorneys Darren L. Besic and Kevin M. Kelly. The Trustee is represented by Attorney Mary P. Gorman, but she has not participated in the submission of briefs.
The pertinent facts are as follows. On August 30, 1993, the Debtors filed a voluntary petition for relief pursuant to Chapter 13 of the United States Bankruptcy Code, 11 U.S.C. §§ 101-1330. The Chapter 13 plan was confirmed on October 27, 1993. The last date to file a claim was January 11, 1994.
Bank One is a secured creditor of the Debtors. Bank One was granted a security interest in a 1993 Nissan Truck and properly perfected its interest by recording its lien on the title to the vehicle. However, Bank One filed its proof of claim one month and ten days past the bar date.
The Debtors' confirmed plan contemplates payment of Bank One's claim. However, to the extent the claim exceeds the value of the collateral, it is to be treated as unsecured and is to be paid at 50% along with the other unsecured claims. This much is certain, and must be kept in mind throughout this Opinion: To the extent Bank One has an unsecured claim, the late filing is fatal. On April 22, 1994, this Court entered an order disallowing Bank One's claim in its entirety due to the late filing.1
On July 8, 1994, Bank One filed its Motion to Allow a Late Filed Claim. The Court will treat the Motion as a Motion to Reconsider.
"Motions to Reconsider" are not formally designated by either the Federal Rules of Bankruptcy Procedure or Federal Rules of Civil Procedure, except as provided in 11 U.S.C. § 502(j) and Bankruptcy Rule 3008 which allow reconsideration of orders allowing or disallowing claims against the estate. Section 502(j) provides in relevant part that 11 U.S.C. § 502(j). Bankruptcy Rule 3008, in turn, provides that Fed. R.Bankr.P. 3008. Reconsideration of both allowed and disallowed claims may be made at any time before the case is closed. In re Resources Reclamation Corp., 34 B.R. 771, 773 (9th Cir. BAP 1983). The court should weigh the extent and reasonableness of any delay, prejudice to the debtor and other creditors, effect on efficient administration, and the moving creditor's good faith. Id. Rule 3008 has been held permissive and does not require that a party file a motion to reconsider before appealing. Walsh Trucking Co. v. Insurance Co. of North America, 838 F.2d 698 (3d Cir.1988).
The question is whether the admittedly late filed secured claim of Bank One should be allowed. The dilemma in which Bank One finds itself is this: If the admittedly late filed claim is disallowed, the Debtor may be able to retain the collateral, a 1993 Nissan Truck, throughout the administration of the case and Bank One will have to await the closing of the case before pursuing its remedies, (if at that time there are any meaningful remedies to pursue). Or, of course, Bank One could move to vacate the stay for cause. Cause would not likely flow from an omission (the late filing) by the party seeking relief from the stay.
The Court must address two fundamental issues: Is there an obligation by a secured creditor to file a claim? If so, what is the time frame for filing.
* * * * * *
Nothing in the Bankruptcy Code or Rules requires a secured creditor to file a claim. Section 501's use of the word "may" illustrates the provision's permissive nature. A reason for not requiring the filing of a claim by a secured creditor is that the creditor "may ignore the bankruptcy proceeding and look to the lien for the satisfaction of the debt." In re King, 165 B.R. 296, 299 (Bankr. M.D.Fla.1994). The Supreme Court in Dewsnup v. Timm, 502 U.S. 410, ___, 112 S.Ct. 773, 779, 116 L.Ed.2d 903 (1992) reemphasizes this reasoning by concluding that failure to file does not affect a lien's validity.
However, certain circumstances warrant the filing of a proof of claim by a secured creditor. The most obvious circumstance is when a secured creditor seeks distribution from the Chapter 13 plan. In re Alderman, 150 B.R. 246 (Bankr.D.Mont.1993) is illustrative. See also In re Wells, 125 B.R. 297, 300 (Bankr.D.Colo.1991); In re Thomas, 91 B.R. 117, 121 n. 9 (Bankr.N.D.Ala.1988) aff'd 883 F.2d 991 (11th Cir.1989); In re Van Hierden, 87 B.R. 563, 564 (Bankr.E.D.Wis.1988); In re Rogers, 57 B.R. 170, 172-73 (Bankr. E.D.Tenn.1986).
The court in Alderman agreed with both the trustee and the U.S. Trustee that "in order for a secured claim to receive a distribution under a Plan pursuant to F.R.B.P. 3021, it must first be allowed pursuant to 502(a)." Id. at 251.2 This requirement is based on the clear language of the Bankruptcy Code and Rules.
Bankruptcy Rule 3021 requires distributions to be made to those creditors whose claims are allowed after confirmation. The Alderman court then found it necessary to determine what is meant by the words "allowed" and "claim." An allowed claim is one that is filed pursuant to Section 501. 11 U.S.C. § 502(a). A claim as defined by Section 101(5)(A) includes both those that are secured and unsecured.3 Therefore, the only legitimate outcome is that for both secured and unsecured claims to be allowed, they must be filed under Section 501. To reach any other result would be absurd. In re Canganelli, 132 B.R. 369, 390 (Bankr. N.D.Ind.1991) ().
Therefore, this Court respectfully declines to follow In re Rome, 162 B.R. 872 (Bankr. D.Colo.1993)4 and other cases reaching similar outcomes.5
Other courts have found the filing of a secured claim necessary for purposes of valuation. One of the issues before the court in In re Linkous, 141 B.R. 890, 895 (Bankr. W.D.Va.1992) aff'd 990 F.2d 160 (4th Cir. 1993), was the procedure for a secured status determination in a Chapter 13 case. The court concluded that "a proof of claim must be filed under § 501 as a prerequisite to allowance under § 502, which itself is a prerequisite to invoke a hearing under § 506(a)." Therefore, claims have to be filed to be allowed. See also In re King, 165 B.R. 296 (Bankr.M.D.Fla.1994) ().
Since the secured creditor must file a claim to participate in the plan, the next question becomes what is the proper time frame to file the claim.
* * * * * *
Before addressing that question, one point that merits further discussion is Bank One's reference to Section 1111 to support its argument that a secured creditor is not required to file a proof of claim. Bank One's reliance on Section 1111 is misplaced. Section 1111(a) unambiguously permits creditors the freedom of not filing a proof of claim, yet allowing the claim and participation in the distribution. 11 U.S.C. § 1111(a). However, this section only applies in Chapter 11 cases. See In re Johnson, 95 B.R. 197, 201 (Bankr. D.Colo.1989). If Congress wanted to expressly permit creditors leeway in not filing claims, yet allowing those claims, it knew how to do so. Nothing in the Code or Rules provides that liberty in Chapter 13.
* * * * * *
Case law exists on the issue of late filed claims in the context of a Chapter 13 case. Bank One refers to the well known case, In re Hausladen, 146 B.R. 557 (Bankr.D.Minn. 1992), for the proposition that tardily filed claims are allowed and that it is the treatment of a claim that is effected by timeliness, not allowance. However, the Court in its reconsideration declines to follow Hausladen, and instead adopts the rationale and holding of In re Zimmerman, 156 B.R. 192 (Bankr. W.D.Mich.1993), which is set forth below.6
* * * * * *
In Zimmerman, the bankruptcy court decided en banc the issue of whether late claims must be allowed in Chapter 13 cases. The Zimmerman court examined this issue by analyzing the dichotomy between the applicable substantive and procedural law, specifically Sections 501 and 502, and Bankruptcy Rule 3002(c).
The court began its analysis at Sections 501 and 502 of the Bankruptcy Code. For a claim to be allowed under Section 502, it must first be filed in compliance with Section 501. Id. at 195. However, neither Section 501 nor 502 explicitly sets forth a time frame for filing a claim.7 The court correctly looked to Bankruptcy Rule 3002(c) for the proper timing requirement. See also In re Johnson, 156 B.R. 557 (Bankr.N.D.Ill.1993) ().
Bankruptcy Rule 3002(c) applies to Chapter 13 cases and states that:
A proof of claim shall be filed within 90 days after the first date set for the meeting of creditors...
To continue reading
Request your trial