Kolstad, In re

Decision Date10 April 1991
Docket NumberNo. 90-2280,90-2280
Citation928 F.2d 171
Parties-829, 91-1 USTC P 50,190, 21 Bankr.Ct.Dec. 904, Bankr. L. Rep. P 73,929 In re John R. KOLSTAD, Debtor. UNITED STATES of America (INTERNAL REVENUE SERVICE), Plaintiff-Appellee, v. John R. KOLSTAD, Defendant-Appellant.
CourtU.S. Court of Appeals — Fifth Circuit

H. Gray Burks, IV, Houston, Tex., for defendant-appellant.

Christopher S. Cole, Dept. of Justice, Dallas, Tex., Janet K. Jones, Gary R. Allen, Gilbert S. Rothenberg, Atty. U.S. Dept. of Justice, Tax Div., Appellate Section, Washington, D.C., for plaintiff-appellee.

Appeal from the United States District Court for the Southern District of Texas.

Before REAVLEY, JONES, and SMITH, Circuit Judges.

EDITH H. JONES, Circuit Judge:

The issue in this case is whether the bankruptcy court properly permitted IRS to "amend" Kolstad's debtor-filed proof of claim, 11 U.S.C. Sec. 501(c) and Bankruptcy Rule 3004, some months after the bar date had passed for IRS to file its own proof of claim. Bankruptcy Rule 3003(c). We conclude that the bankruptcy court, 101 B.R. 492 (Bankr.S.D.Tex.1989), affirmed by the district court, did not abuse its discretion in permitting the amendment.

A. The Facts

The parties agree on virtually nothing except the pertinent facts. Kolstad sought Chapter 11 relief in March, 1987; his bankruptcy schedules identified IRS as a creditor for personal income tax and employee withholding taxes, in an amount labeled "disputed." IRS was aware of the bankruptcy case. The court's notice of the first meeting of creditors set August 17, 1987, as the bar date for filing proofs of claim. IRS failed to file a claim. Kolstad undertook to remedy this defect by filing, thirty days after the bar date, a $20,359.71 claim on behalf of IRS. 11 U.S.C. Sec. 501(c) and Bankruptcy Rule 3004. 1 About ten months later, within a short time before the hearing on debtor's proposed plan of reorganization, IRS filed an "amended" proof of claim to cover the same kind of taxes, company employment taxes for which Kolstad was personally liable, 2 but to assert that the correct amount owed is $85,882.67. The bankruptcy court permitted IRS to amend. Kolstad contests the amendment vigorously because he fears he will be unable to confirm a plan burdened by this large priority tax claim.

B. Standard of Review

Both the bankruptcy court and district court granted summary judgment for the IRS. The parties dispute the appellate principles of review, although they are reasonably clear-cut. The courts' reasoning on issues of law must be appraised de novo. Richmond Leasing Co. v. Capital Bank, N.A., 762 F.2d 1303, 1307 (5th Cir.1985). If we conclude that bankruptcy law permits equitable amendments to a debtor-filed proof of claim, the courts' decision to allow the amendment is reviewed for an abuse of discretion. In re International Horizons, Inc., 751 F.2d 1213, 1216 (11th Cir.1985).

C. Discussion

The debtor's argument is deceptively framed as resting solely on 11 U.S.C. Sec. 501 and Bankruptcy Rules 3003(c) and 3004. The Bankruptcy Code, 11 U.S.C. Secs. 101 et seq., permits a debtor or trustee to file a proof of claim for a creditor who does not timely file on its own behalf. 11 U.S.C. Sec. 501(c). Implementing this provision, Bankruptcy Rule 3004 authorizes the debtor or trustee to file a creditor's proof of claim within thirty days after the Chapter 11 bar date prescribed according to Bankruptcy Rule 3003(c), which in this case was August 17, 1987. 3 A creditor who fails to file its proof of claim before the bar date, and who fails timely to request an extension of time to file, see Bankruptcy Rule 9006(b), may not file a late claim and participate in the voting or distribution from the debtor's estate. Bankruptcy Rule 3003(c)(2); In re Vertientes, Ltd., 845 F.2d 57, 60 (3d Cir.1988); Maressa v. A.H. Robins Co., Inc., 839 F.2d 220, 221 (4th Cir.), cert. denied, 488 U.S. 826, 109 S.Ct. 76, 102 L.Ed.2d 53 (1988); In re South Atlantic Financial Corp., 767 F.2d 814, 817 (11th Cir.1985), cert. denied, 475 U.S. 1015, 106 S.Ct. 1197, 89 L.Ed.2d 311 (1986).

The debtor contends that IRS lost its right to file its own, higher proof of claim when the bar date passed and it neither filed nor requested an extension of time. Further, Kolstad contends, the IRS cannot avoid the bar date simply because the debtor elected to file a proof of claim and so bring IRS within the scope of his reorganization proceeding. The bankruptcy rules furnish the exclusive time periods in which a creditor may assert a claim; the debtor's assertion of the creditor's claim after the creditor's bar date has passed cannot reinstate the creditor's ability to protect itself.

This analysis is plausible only because it neglects to encompass all of the Code provisions and rules that bear upon the claims process in bankruptcy. To determine whether IRS was authorized to amend Kolstad's proof of claim for it, we must consider more broadly the role of bar dates and claims adjudication in bankruptcy cases. Although bankruptcy law has elements of gamesmanship and the consequences for missing various bankruptcy deadlines are severe 4, the bankruptcy law is not supposed to function merely as a procedural gauntlet that only the most adroit or best represented creditors can overcome. The deadlines have a purpose: they enable a debtor and his creditors to know, reasonably promptly, what parties are making claims against the estate and in what general amounts. 5 The claims filing deadlines, however, by no means fix in stone the final "allowed" amounts of claims. 6 The proof of claim is prima facie evidence of the amount and origin of the debt owed, Bankruptcy Rule 3001(f), but any party in interest may object to a proof of claim. 11 U.S.C. Sec. 502(a); Bankruptcy Rules 3007 (objections); 3008 (reconsideration of claims). There is no bar date or deadline for filing objections. Once an objection is filed, the final amount of the claim is determined by litigation in an adversary proceeding. See Bankruptcy Rules 7001 et seq. Such litigation may end in a settlement agreement providing for a compromise claim that, although it represents a bargained rather than actual amount of the debt owed, may pass muster with the creditors who have to approve it. Thus, while bar dates establish the universe of participants in the debtor's case, they have little correlation to the final relative amounts in which creditors will share any distribution. The goal of claims adjudication, on the other hand, is to assure that each creditor which is part of that universe ultimately participates in the voting and distribution from the estate in the proper amount determined by the priority and nature of its claim and bankruptcy's bargaining process.

Congress authorized a debtor or trustee to file a proof of claim for a creditor in order to broaden the scope of participation in the bankruptcy case and thus facilitate the debtor's march toward rehabilitation. 3 Collier on Bankruptcy p 501.03 (15th ed. 1988). Kolstad's brief acknowledges the problem that he confronted and its statutory solution. If IRS, as a creditor with a non-dischargeable claim, elected not to participate in the bankruptcy case and not to file a claim, the debtor would remain burdened by that debt following bankruptcy. See, e.g., 11 U.S.C. Sec. 523(a)(1) (declaring certain tax debts non-dischargeable); In re Kloeble, 112 B.R. 379, 381-82 (Bankr.S.D.Cal.1990). Not only would this fact threaten the debtor after bankruptcy, but it might also prevent him from confirming a plan of reorganization covering creditors who are before the court. On account of the non-discharged debt, the debtor might become unable to establish that the plan is "feasible." 11 U.S.C. Secs. 1129(a)(11) and (b). Section 501(c) empowered the debtor to force IRS to participate in the bankruptcy and subject its debt to dischargeability. 11 U.S.C. Sec. 1129(a)(9)(C) (tax debts covered by the plan are fully discharged). Kolstad took advantage of this provision.

Having so employed Sec. 501(c), Kolstad now seeks additionally to prevent the IRS from attempting to prove the correct amount of taxes he owed. Here we part company with Kolstad. The fact that Sec. 501(c) and Rule 3004 may be invoked to force IRS to participate in the reorganization process does not mean that Kolstad also gains unilateral control of the amount of IRS's claim. If a Rule 3004 proof of claim permitted a debtor to fix beyond challenge the amount of the involuntary participant's claim, the debtor would also control that creditor's share of the distribution from his estate. Such an interpretation of Rule 3004 carries a serious potential for abuse, because it would foster the deliberate filing of a very low claim on behalf of a creditor. This perverse incentive is, however, not inherent in Rule 3004.

The problem is that Kolstad's interweaving of the Rule 3003(c) and 3004 bar dates confuses their role with that of claims adjudication. As has been shown, the final determination of the allowed amount of a claim, and thus its relative share of distribution, is not the function of bar dates so much as of the claims adjudication process. Rule 3004 sets a time limit upon the debtor's decision to file a proof of claim for a creditor for the same reason that bar dates impose deadlines upon creditors' proofs of claim. See In re Kloeble, 112 B.R. at 381-82. Once a claim is timely filed under Rule 3004, however, the essential role of the bar date has been fulfilled. The process of claims adjudication may then adjust the rights of creditors among themselves.

Consistent with our view of the comparative roles of bar dates and claims adjudication is the allowance of amended proofs of claim. Amendments to timely creditor proofs of claim have been liberally permitted to "cure a defect in the claim as originally filed, to describe the claim with greater particularity or to plead a new theory of recovery...

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