In re Tesch
| Decision Date | 10 May 2021 |
| Docket Number | Case No. GK 19-05109-jtg |
| Citation | 628 B.R. 60 |
| Parties | IN RE: Melissa TESCH, Debtor. |
| Court | U.S. Bankruptcy Court — Western District of Michigan |
Elizabeth T. Clark, Esq. for Brett N. Rodgers, Chapter 13 Trustee;
Karen L. Rowse-Oberle, Esq., Butler Rowse-Oberle PLLC for Frankenmuth Credit Union.
Frankenmuth Credit Union ("FCU") filed an amended proof of claim asserting a deficiency balance after disposing of its collateral. Because FCU's amended proof of claim was not filed prior to the deadline established by the plan and confirmation order, Brett N. Rodgers, the chapter 13 trustee (the "Trustee"), requests that the court disallow the deficiency claim in its entirety.
FCU disagrees, arguing that although its amended proof of claim was not filed on or before the deadline in the confirmed plan, it relates back to FCU's original proof of claim, which was timely. Alternatively, FCU maintains that even if its amended proof of claim is tardy, its deficiency claim should nonetheless be allowed as a result of excusable neglect.
For the following reasons, the court shall sustain the Trustee's objection to FCU's amended claim.1
The court has jurisdiction pursuant to 28 U.S.C. §§ 1334(a) and 157. This is a core proceeding under 28 U.S.C. § 157(b)(2)(A), (B) and (L).
Approximately two years prior to the petition date, FCU loaned to Melissa Tesch, the debtor (the "Debtor"), funds for the purchase of a motor vehicle. As security for repayment of the debt, the Debtor granted FCU a purchase money security interest.
On December 10, 2019, the Debtor filed a petition for relief under chapter 13 of the Bankruptcy Code.2 That same day, the Debtor filed her proposed original chapter 13 plan [Dkt. No. 6], which states, in pertinent part, that the vehicle will be surrendered to FCU upon confirmation. (Plan at ¶ III.C.4.) The plan provides the following with respect to secured creditors like FCU whose collateral is surrendered:
With regard to secured claims filed by creditors holding liens in personal property surrendered pursuant to the Plan ..., each such secured creditor ... must file a claim asserting its unsecured deficiency ..., if any, by no later than 180 days after entry of the order confirming the Plan. The proof of claim for any deficiency [sic]. Attached to the proof of claim for the deficiency must be a detailed statement providing, if applicable, the property was disposed of, ... the amount of any sale proceeds [sic] a summary of costs incurred in connection therewith, and the unsecured deficiency balance remaining. This proof of claim must be filed even though a previous secured or unsecured claim was asserted prior to the surrender, ... or disposition of the property... The failure to timely file a deficiency ... claim means that such creditor shall be precluded from receiving further distributions under the Plan and such claim shall be subject to discharge.
(Plan at ¶ IV.G.2.)3 FCU was served with a copy of the Debtor's proposed plan [Dkt. No. 10] shortly after it was filed.
On January 17, 2020, FCU filed proof of claim no. 5, which asserts a claim secured by the Debtor's vehicle in the amount of $9,522.94. Less than one month later, FCU, the Debtor, and the Trustee stipulated to relief from the automatic stay with respect to the Debtor's vehicle [Dkt. No. 26]. The stipulation and proposed order, which was entered by the court on February 4, 2020 [Dkt. No. 27], further provided that FCU could file an unsecured proof of claim for any deficiency upon disposition of the vehicle. The stipulation and order were silent as to the deadline to assert any such deficiency claim.
With no objection from FCU or any other party, this court entered an order [Dkt. No. 29] confirming the Debtor's plan, as amended, on March 31, 2020.4 Under the confirmed plan, general unsecured creditors are to receive a pro rata share of the greater of "$2,000 or payment from all disposable income to be received by the Debtor(s) in the [applicable commitment period]." (Plan at ¶ III.F.) FCU was served with a copy of the text confirmation order via CM/ECF. See LBR 5005-4.
The docket reveals very little activity in the Debtor's case after confirmation. Behind the scenes, however, FCU alleges, and the Trustee does not dispute, that FCU and/or its repossession agent encountered difficulty recovering the vehicle due to the evasive actions of the Debtor and restrictions imposed as a result of the COVID-19 health pandemic. FCU and/or its agent eventually recovered the vehicle on June 17, 2020. According to FCU, the vehicle was sold on October 13, 2020.5
Around the time that the vehicle was sold, FCU sent the Debtor correspondence entitled "Notice of Surplus or Deficiency." The notice, which was not filed on the docket and does not appear to have been sent to the Trustee, informs the Debtor that FCU sold the vehicle for $4,180.00, leaving a deficiency of $6,607.69.6
On December 7, 2020, at least two months after the vehicle was sold, FCU filed its amended proof of claim. FCU's amended proof of claim, like the notice it sent to the Debtor, asserts an unsecured deficiency balance of $6,607.69.
Monitoring the claims register closely, the Trustee filed an objection to FCU's amended proof of claim on the same day it was filed. In his straightforward objection, the Trustee notes that paragraph IV.G of the confirmed plan required FCU to file any amended proof of claim for its deficiency within 180 days after confirmation (i.e ., no later than September 27, 2020). Because FCU's amended proof of claim was not filed until December 7, 2020, the Trustee requests that the claim be disallowed. FCU filed a short response in which it generically argues that it should be excused from complying with the deadline as a result of the Debtor's conduct and restrictions related to the COVID-19 pandemic.
After holding a preliminary hearing on the objection, the court entered an order [Dkt. No. 38] requiring supplemental briefs and scheduling an evidentiary hearing, among other things.7 In its brief, FCU argues that although it did not comply with the deadline in the confirmed plan, its amended proof of claim is nonetheless timely. Relying on Bankruptcy Rule 7015 and/or a similar test adopted by other courts, FCU reasons that its amended claim relates back to its initial claim. In addition, even if its amended proof of claim is somehow untimely, FCU contends that any failure on its part was the result of excusable neglect under Bankruptcy Rule 9006(b)(1).
The Trustee counters in his brief by arguing that because FCU was at all times aware of the deadline to file amended proofs of claim in the confirmed plan, it is bound by the confirmation order. Moreover, the Trustee emphasizes that the equities in this case, whether under the label of excusable neglect or otherwise, do not favor FCU.
The Bankruptcy Code and the Bankruptcy Rules establish the framework to determine whether a claim is timely asserted. Section 501 provides that a creditor may file a proof of claim in a bankruptcy case. 11 U.S.C. § 501 ; see 11 U.S.C. § 101(5). Section 502 governs the allowance of claims by stating that "[a] claim ..., proof of which is filed under section 501 ... is deemed allowed, unless a party in interest ... objects." 11 U.S.C. § 502(a). Upon the filing of an objection, a bankruptcy court is required to determine the amount of any claim and deem it allowed in such amount "except to the extent that ... [such] proof of such claim is not timely filed..." 11 U.S.C. § 502(b)(9). A claim, proof of which is "tardily filed," may be allowed so long as it is "permitted under paragraph (1), (2), or (3) of section 726(a) ... or under the Federal Rules of Bankruptcy Procedure..." Id .8
Bankruptcy Rule 3002 implements section 502 by establishing the deadline for filing proofs of claim in cases under chapters 7, 12 and 13. Fed. R. Bankr. P. 3002(c) ; see United States v. Chavis (In re Chavis) , 47 F.3d 818, 823 (6th Cir. 1995) (). In chapter 13 cases, "a proof of claim is timely filed if it is filed not later than 70 days" after the petition date. Fed. R. Bankr. P. 3002(c) ; see 11 U.S.C. § 301(b). The deadline in Bankruptcy Rule 3002(c) is fairly rigid, as it is subject to only seven enumerated exceptions, none of which are applicable in this matter. Fed. R. Bankr. P. 3002(c)(1) – (7) ; see Brenner's Restoration, Inc. v. Somerville (In re Somerville) , 605 B.R. 700, 705 (Bankr. D. Md. 2019) ().
In this case, FCU complied with Bankruptcy Rule 3002(c) by timely filing its initial proof of claim on January 17, 2020. Acknowledging that FCU's initial proof of claim was timely, the Trustee focuses on the deadline in the confirmed plan for filing amended proofs of claim, which is not directly addressed anywhere in the Bankruptcy Code or the Bankruptcy Rules.
FCU concedes that it did not technically comply with the deadline to file amended proofs of claim pursuant to the deadline in paragraph IV.G of the Debtor's confirmed plan.9 However, FCU argues that its amended claim relates back to its initial claim both in substance and in time notwithstanding the Debtor's confirmed plan.
FCU primarily relies on Bankruptcy Rule 7015, which incorporates Fed. R. Civ. P. 15. See In re Unroe , 937 F.2d 346, 349 (7th Cir. 1991) ; cf. In re Stavriotis , 977 F.2d 1202, 1204 (7th Cir. 1992) (). Subsection (c) to Fed. R. Civ. P. 15 is entitled "Relation Back of Amendments." It provides, in pertinent part, that "a[n] amendment to a pleading relates back to the date of the original pleading when ... the amendment asserts a claim or...
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