Matter of Brown

• Decision Date: 01 April 1987
• Docket Number: Bankruptcy No. MM7-85-02581.
• Citation: 73 BR 740
• Parties: In the Matter of Michael D. BROWN and Kathleen Brown, Debtors.
• Court: U.S. Bankruptcy Court — Western District of Wisconsin

73 B.R. 740 (1987)

In the Matter of Michael D. BROWN and Kathleen Brown, Debtors.

Bankruptcy No. MM7-85-02581.

United States Bankruptcy Court, W.D. Wisconsin.

April 1, 1987.

James E. Quackenbush, Madison, for Blazer Financial.

Richard B. Jacobson, Borns, Macaulay & Jacobson, Madison, Wis., for debtors.

MEMORANDUM DECISION

ROBERT D. MARTIN, Chief Judge.

Michael and Kathleen Brown filed a joint petition for relief under chapter 7 of the Bankruptcy Code on December 26, 1985. At that time the Browns were indebted to Blazer Finance Company ("Blazer") in the amount of $397.60. Blazer had a purchase money security interest¹ in the Kirby vacuum cleaner the Browns purchased for more than $500.00 with the money borrowed from Blazer. Blazer has not filed a financing statement to perfect its security interest. In their schedule of debts, the Browns have listed Blazer's claim as unsecured.

The meeting of creditors was held on January 27, 1986, and the last date for filing proofs of claim was April 28, 1986.² Neither Blazer nor any other party in interest has filed a proof of claim on Blazer's behalf. After the creditor's meeting the trustee filed a report declaring this a no asset case. This court granted the Browns their discharges on May 16, 1986.

The Browns have claimed property worth $1,025.00 as exempt under § 522(d)(3), including the collateral under Blazer's security interest. They have not sought specifically to have Blazer's security interest avoided under section 522(f). On May 14, 1986, the Browns moved this court for determination of Blazer's secured status. Blazer contends its lien is unaffected by this bankruptcy and seeks to replevin its collateral. On July 1, 1986, at a hearing on the Browns' motion, the Browns appeared by their attorney Richard B. Jacobson and Blazer appeared by its attorney James E. Quackenbush.

By their motion the Browns seek to deny Blazer any allowed secured claim and to avoid Blazer's lien pursuant to 11 U.S.C. § 506(d). 11 U.S.C. § 506(d) provides:

(d) To the extent that a lien secures a claim against the debtor that is not an allowed secured claim, such lien is void unless —

(1) such claim was disallowed only under section 502(b)(5) or 502(e) of this title; or

(2) such claim is not an allowed secured claim due only to the failure of any entity to file a proof of such claim under section 501 of this title.

Under section 506(d), if a creditor has a claim against the bankruptcy estate which the court does not allow as a secured claim for grounds other than those stated in section 506(d)(1) or (d)(2), then the lien securing the claim will be void. However, if the disallowance of the claim as secured is based upon one of the grounds stated in section 506(d)(1) or (d)(2), the lien will not be void and will pass through bankruptcy unaffected.

For a secured claim to be "allowed" it must be filed pursuant to Bankruptcy Rules 3001-3006. In their letter brief the Browns request permission to file a proof of claim for Blazer. This request, if granted, may circumvent section 506(d)(2). It is necessary, therefore, to consider first whether and under what circumstances a debtor may file a proof of claim on a creditor's behalf.

A creditor may file a claim on its own behalf pursuant to 11 U.S.C. § 501(a). "This subsection is permissive only and does not require filing of a proof of claim by any creditor." H.R.Rep. No. 595, 95th Cong. 1st Sess. 351 (1977); S.Rep. No. 989, 95th Cong. 2d Sess. 61 (1978), reprinted in 1978 U.S.Code Cong. & Admin.News 5787, 5847, 6307. If a creditor fails to "timely" file a proof of such creditor's claim, the debtor or the trustee may file a proof of claim on the creditor's behalf. 11 U.S.C. § 501(c). According to the legislative history of section 501(c): "The Rules of Bankruptcy Procedure will set the time limits, the form, and the procedure for filing, which will determine whether claims are timely or tardily filed." 1978 U.S.Code Cong. & Admin.News 5787, supra, at 5847, 6307.

Bankruptcy Rule 3004 designates the first date on which a debtor or trustee may file a proof of claim on a creditor's behalf:

If a creditor fails to file a proof of claim on or before the first date set for the meeting of creditors called pursuant to § 341(a) of the Code, the debtor or trustee may do so in the name of the creditor. The clerk shall forthwith mail notice of the filing to the creditor, the debtor and the trustee. The creditor may thereafter file a proof of claim pursuant to Rule 3002 or Rule 3003, which proof when filed shall supersede the proof filed by the debtor or trustee.

Thus the Browns could have filed a proof of claim for Blazer anytime after the date of the first meeting of creditors, January 28, 1986.³

Whereas Bankruptcy Rule 3004 provides the first date on which the debtor or trustee may file a proof of claim on the creditor's behalf, Bankruptcy Rule 3002(c) provides the last date⁴ on which a proof of claim may be filed by any entity.

Bankruptcy Rule 3002(c) provides:

In a chapter 7 liquidation or chapter 13 individual\'s debt adjustment case, a proof of claim shall be filed within 90 days after the first date set for the meeting of creditors called pursuant to § 341(a) of the Code . . .

"The weight of authority treats this filing period as mandatory and immutable." Wilkens v. Simon Brothers, Inc., 731 F.2d 462, 464 (7th Cir.1984) (footnote omitted). Wilkens interpreted former Bankruptcy Rule 13-302(e)(2) rather than the current Bankruptcy Rule 3002(c), but it is still applicable because:

Subdivision (c) of Rule 3002 is adapted from former Bankruptcy Rule 302(e) but changes the time limits on the filing of claims in chapter 7 and 13 from six months to 90 days after the first date set for the meeting of creditors. Bankruptcy Rule 3002 advisory committee\'s notes.

Citing Wilkens the Bankruptcy Appellate Panel of the Ninth Circuit stated that "Rule 3002(c) is intended to provide an absolute bar to claims filed after 90 days after the § 341 meeting. Under prior law, `the weight of authority' treated the bar date as `mandatory and immutable' and as a `statute of limitations not subject to extension by the bankruptcy court'." In re Street, 55 B.R. 763, 766 (Bankr. 9th Cir. 1985).

Some courts have held that Rule 3002(c) applies only to a creditor's filing a proof of claim on its own behalf and does not apply to a debtor's filing a proof of claim on the creditor's behalf. See In re Solari, 62 B.R. 31, 32 (9th Cir. BAP 1986); In re Allen, 68 B.R. 523 (Bankr.D.N.M.1986); In re Demask, Inc., 62 B.R. 541, 541-42 (Bankr.S.D. Fla.1986); In re Gingery, 48 B.R. 1000, 1004-05 (D.Colo.1985); In re Starkey, 49 B.R. 984, 988-90 (D.Colo.1984); In re D.A. Behrens Enterprises, Inc., 33 B.R. 751, 752 (Bankr.N.D.Iowa 1983); In re Higgins, 29 B.R. 196, 200 (Bankr.N.D.Iowa 1983). But see In re Schneider, 51 B.R. 196, 197 (D.Colo.1984). These courts allow a debtor to file a proof of claim on the creditor's behalf even after the ninety-day period has passed as long as the debtor files the proof of claim within a reasonable period thereafter; the debtor has a reasonable explanation for the delay; the creditors will not be prejudiced; and there will be no reasonable delay in the administration of the case. Solari, 62 B.R. at 33; Demask, 62 B.R. at 542; 48 B.R. at 1005; 49 B.R. at 988-90; 33 B.R. at 752-53; 62 B.R. at 542; 29 B.R. at 199-200.

These cases are distinguishable on their facts. All involved a debtor petitioning the court to file a late proof of claim on behalf of the Internal Revenue Service for unsecured priority tax claims. If the debtor was not permitted to file a late proof of claim, the IRS's priority tax claims would be nondischargeable. The courts cited the legislative history of section 501(c) as their rationale for allowing the debtors to file proofs of claims after the ninety-day period. The legislative history of section 501(c) states:

The purpose of this subsection is mainly to protect the debtor if the creditor\'s claim is nondischargeable. If the creditor does not file, there would be no distribution on the claim, and the debtor would have a greater debt to repay after the case is closed than if the claim were paid in part or in full in the case or under the plan.

H.R.Rep. 595, 95th Cong., 1st Sess. 352 (1977); S.Rep. 989, 95th Cong., 2nd Sess. 61 (1978), reprinted in U.S.Code Cong. & Admin.News 1978, 5787, 5847, 6307-08.

Here the Browns are not requesting permission to file a late proof of claim on behalf of Blazer because they wish Blazer to share in the distribution of the estate, but rather because they wish to have this court disallow the claim on grounds which are convenient to their desired result. The Browns have had plenty of time to file a proof of claim on behalf of Blazer; no injustice would be worked if they are not allowed to do so now. Furthermore, the mandatory language of Rule 3002(c) does not lend itself to an interpretation that the rule applies to creditors but not to debtors or trustees. In the absence of clear statutory language or compelling equities indicating that the filing of proofs of claims by creditors, debtors, and trustees should be treated differently, this court will treat them the same. Because the Browns did not file a claim on behalf of Blazer within ninety days following the first meeting of creditors, there is no reason to grant them leave to do so now.

Although both Collier⁵ and a case relying on Collier⁶ declare a creditor's lien may not be avoided under section 506(d) if a proof of claim has never been filed for the claim which the lien secures, the better reading of section 506(d) seems to be that in In re Duncan. Judge Gordon in In re Duncan, 60 B.R. 345, 347 (Bankr.M.D.Ala. 1986) stated:

The disagreement with Henninger arises over the conclusion that the lien survives discharge of the claim in all cases if no proof of claim is filed. That conclusion seemingly fails to give proper meaning to the words

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